Sunny Days: Trina Solar

10/18/2013 7:00 am EST


Paul Goodwin

Emerging Markets Specialist and Analyst, Cabot Wealth Network

Solar energy has been the energy source of tomorrow for decades now, but there always seems to be something standing in the way of large-scale adoption, reports Paul Goodwin, editor of Cabot China & Emerging Markets Report.

For many years, the biggest obstacle was simple economics; solar cost more per watt than coal. But rising oil prices, increasingly efficient solar cells, and environmental considerations began to narrow the gap, and solar installations began to get support from various sources.

Governments initiated feed-in tariffs—payments for energy delivered to the grid that are based on cost—to encourage wider adoption. Germany, which had set ambitious goals for renewable energy as a percentage of total power usage, was especially active in supporting solar.

The Great Recession put pressure on economies everywhere, and support for solar installations was reduced sharply. Solar stocks, which were superstars seven or eight years ago, fell prey to overcapacity and demand constraints.

It has taken a long period of retrenchment via both bankruptcies and M&A activity for solar companies to regain their vigor, and for demand to rebound, and that process is continuing.

And the Chinese government's program to encourage consolidation among producers (or the exit from the market of second- and third-tier producers) is improving supply/demand balances.

Trina Solar (TSL), a Chinese integrated solar manufacturer that's been around since 1997, is enjoying a confluence of several factors that are working in its favor.

First, the Chinese government has initiated a program of feed-in tariffs and low-cost loans for new solar projects.

This is only partly to support the solar industry; the government, under the direction of the new five-year plan, also sees increased solar production as a way to reduce air pollution.

Second, strengthening national economies are renewing incentives for new installations. Third, on September 30, Deutsche Bank upgraded two Chinese solars to a buy rating. Trina was one.

With a market cap of just over $1 billion, and annual sales of $1.3 billion, Trina Solar is a healthy business with excellent prospects for returning to profitability by the end of 2013.

The company expects to ship 2.4 gigawatts of solar cells this year, which is near the high-end of its total capacity. Capacity increases are likely next year.

While Trina Solar is a very sound company, it's the solar story that's creating headlines. We like Trina for its strong global sales force, including its record of success in Japan. We rate the stock a buy.

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