DrKW Equity researchRenewable Energy
Initiation on sector
20 July 2005
A bright future
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2529162330613202741118APRMAYJUNJUL90100110120130140150160(SOLARWORLD vs. DJSTOXX)(CONERGY vs. DJSTOXX)
Source: Thomson Financial Datastream
The solar industry has grown at an average rate of over 30% p.a. over the pastdecade. While a reliance on political support increases industry risk, the longer-termdirection of such support is clear. When combined with solar technologycostimprovements, we expect the solar industry to grow at 25-30% p.a. until the end of the decade. We initiate on SolarWorld with a Buy and Conergy with a Hold.
Environmental initiatives coupled with a desire for energy security anddiversification are driving political support for renewables and hence solar power. Inconjunction with ongoing cost reductions in solar technology, the Photovoltaic (PV)industry looks set to grow at a rate of 25-30% p.a. out to the end of the decade.
Risks to our view:
Barring a notable shift in political support, short-term supplyconstraints, particularly with regards to the availability of silicon, are likely to be thelimiting factor for industry growth. A sharp interest rate rise could also impact forecasts.
Solar vs. Wind:
As balance sheet strength is unlikely to emerge as a notable competitiveadvantage in the PV sector, as it has in the wind industry, we see greater potential for listed PV firms to successfully compete long-term, relative to a wind industry counterpart.
We initiate on SolarWorld, a vertically integrated PV manufacturer, with aBuy recommendation and peer-group derived €90 target price. For Conergy, a solar-specific integrator and distributor, we initiate with a Hold recommendation and €80 pricetarget.