The photovoltaic panel industry and solar sector exchange traded funds could turn around next year after falling into a slump in 2016 as solar panel prices are expected to rise.
Tom Werner, the chief executive of SunPower Corp. (NasdaqGS: SPWR), the number two U.S. solar panel maker, anticipates the plunge in solar panel prices could stop next year and the industry would likely improve in the later half of 2017, reports Arathy S Nair for Reuters.
Solar companies have lost their shine this year as increased competition pushed prices lower while customers pushed off on purchases in hopes of further cheaper prices, especially with Chinese companies raising production.
“We are planning for (price) stability, meaning they won’t materially decrease or impair,” SunPower CEO Tom Werner told Reuters. “They might be plus or minus a few percent, maybe 5 percent, on a high side 10 percent, so we expect stabilization, not necessarily price increase.”
The solar industry has been tightening its belt and improving business efficiency in light of the falling prices. For instance, SunPower said it would lay off an additional 25% of its workforce, or 2,500 employees, and close one plant to reduce costs.
SunPower expects to lower operating costs to $350 million in 2017, compared to $450.9 million in 2015, along with more than halving its 2017 capital budget to about $100 million.
The solar panel maker, though, anticipates positive cash flow from operations through the end of 2017 and exit the year with about $300 million in cash.
Solar ETF investors have been hit in 2016, with the Guggenheim Solar ETF (NYSEArca: TAN) down 41.7% and the VanEck Vectors Solar Energy ETF (NYSEArca: KWT) 41.9% lower year-to-date. Consequently, an improving outlook may suggest that the worst may be over and the market segment may have bottomed out.
KWT tracks a group of global companies involved in photovoltaic and solar power, or the provision of solar power equipment/technologies and material or services to solar power equipment/technologies producers. The VanEck ETF includes a large 31.7% tilt toward China, along with 20.0% U.S. and 19.1% Taiwan. SunPower also makes up 2.8% of TAN’s underlying portfolio.
TAN also follows global companies involved in the solar industry and the entire value chain. The Guggenheim offering focuses on U.S. companies with a 50.4% tilt, along with a large 19.2% position in Hong Kong companies and 18.6% China. SunPower is 4.2% of TAN’s underlying portfolio.
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