markets-hub.com

The massive earthquake in China, which has killed almost 12,000 people so far, is unlikely to have any major impact on U.S. businesses. But for solar investors, perhaps a word of caution is necessary.

The epicenter of the 7.9 magnitude earthquake is near one of the main polysilicon production areas in the country, particularly Emei and Sichuan Xinguang, and Yongxiang, according to George Kotzias, an analyst at Calyon Securities. Emei and Xinguang are two major producers of the solar raw material, while Yongxiang is a major supplier of trichlorosilane (TCS) gas to both of these companies.

Kotzias said solar cell makers that may be impacted by a slowdown of polysilicon from these suppliers include Yingli Green Energy Holding (YGE), Solarfun Power Holdings (SOLF) and to a much lesser extent Suntech Power Holdings (STP).

While no reports of serious structural damage have been reported by Chinese poly producers to date, power disruption has been a major problem, as damage to the power grid as well as government imposed shut-downs of generating plants is choking off power to poly producers.

“Poly plants need steady and reliable power to operate. 1,000 tons of polysilicon capacity requires about 50MW of installed coal capacity and back-up power is not an acceptable alternative. If poly plants experience power outages … production will shutter,” he said.

Kotzias recommended that solar investors seek safety in U.S. names until the picture in China becomes clearer. U.S. silicon based cell makers like Evergreen Solar (ESLR) and SunPower Corp. (SPWR) have 100% of their poly contracted with non-Chinese companies and therefore are immune from the impact of the earthquake. Thin-film players First Solar (FSLR) and Energy Conversion (ENER-BUY-$63), have no exposure to poly prices. In addition, Kotzias said as power disruption would reduce the already tight poly supply and push up spot prices, U.S. suppliers like MEMC Electronic Materials (WFR) could benefit in the short-term given their exposure to the spot market.