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UBS believes solar power is one of the most compelling alternative energy sources over the long term
We are at the very beginning of evolutionary change towards environmental improvement issues in Asia. The need for renewable energy is increasing as economies are becoming ever more susceptible to supply shocks with diminishing oil reserves and constantly increasing oil prices, according to the latest Q-Series®: Asia Solar.
UBS believes solar power, because of its scalability and the ability to be installed about almost anywhere, is one of the most compelling alternative energy sources over the long term. Its feedstock of polysilicon is derived from silicon, which is the second most abundant element after oxygen. Despite this however, there is a shortage of polysilicon, which is likely to persist for sometime. This, says Kim-Chong TAN, UBS's Asia Oil & Petrochemical analyst in the latest Q-Series® research report, will mean strong opportunities for some players in this space.
"Today, solar module production is limited by the severe shortage of its feedstock but we believe that the supply of polysilicon will likely quadruple from 42kt in 2007 to 163kt in 2010. This means that solar systems and solar electricity costs will fall so making it competitive with electricity tariffs in the sunny regions of Europe and US at peak loads. We believe that solar companies that buy spot polysilicon today will benefit most, says Tan.
UBS now has six pure play solar stocks under its coverage in Asia-ex Japan and uses its proprietary assessment tool to identify the winners with the best positioning. "We believe the Asian solar sector is not covered well on the street and we are the only house to provide comprehensive views," says Tan. He believes the main themes that investors should focus on in this fledgling sector are: companies buying raw materials pegged to spot polysilicon prices are now likely to benefit most; non-silicon based thin-film technologies may be under threat; polysilicon and wafer producers may continue to enjoy strong cash flows; and wafer and module production may likely be dominated by Chinese producers.
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