(Bloomberg) Solar's Prospects Are Looking Dim in the Trump Era: The Brink

Solar's Prospects Are Looking Dim in the Trump Era: The Brink

The renewable technology grew rapidly after energy costs surged in the wake of the war in Ukraine, but the industry is now struggling with high interest rates and regulatory uncertainty

By Libby Cherry and Edward Clark

(Bloomberg) -- Welcome to The Brink. We’re Libby Cherry and Ed Clark, reporters in London, where we’ve been following the travails of the solar industry. We also have the latest on China’s property crisis and Altice France. Follow this link to subscribe. Send us feedback and tips at debtnews@bloomberg.net.

Dark Outlook

Solar companies in the US and Europe boomed in the wake of the pandemic and the war in Ukraine as government incentives and record high gas prices drove installs. Now, they are reeling in the face of still-high interest rates and regulatory uncertainty, while Chinese manufacturers flood the European market with cheaper products.

“At the industry level, these solar companies face a big problem,” said Wolfgang Felix, founder of credit research firm Sarria. “The US has walked away from Paris Agreement and people are abandoning the goals. The drive to roll out new projects is waning. Meanwhile, European governments are trying to save money. All of this is having the effect of slowing demand for these products.”

Sunnova, a US installer which filed for bankruptcy this week, is the latest case in point. The company had bet on a steady stream of incentives and low interest rates to drive demand from homeowners. But its rapid growth was brought to a halt by rising financing costs and a shift in regulation under the Trump administration that has created uncertainty over the availability of tax credits related to renewable energy production. Solar Mosaic, a California-based provider of home solar loans that has private equity firm Warburg Pincus as a major backer, also filed for Chapter 11 on Friday.

Amara Bonds Tumble on Solar Panel Price Fears

Last Price

100 Jul2024OctJan2025AprJun2024

Source: Bloomberg

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S&P Global Ratings has also warned that solar companies could be impacted if some European governments prioritize funding areas such as defense and delay subsidies designed to improve energy efficiency. Enstall, a Dutch firm specializing in mounting systems, was downgraded by the rating agency which cited weaker demand for panels on both sides of the Atlantic.

Among European manufacturers, much of the focus has been on the impact of Chinese competition on panel components, which has driven down prices and pressured margins. The International Energy Agency calculates that it costs up to 40% more to produce clean energy technologies including solar modules in the US and up to 45% more in the European Union versus China.

There was a “continued expectation of a solar boom which would be even bigger than it was in the latest record years,” said Dries Acke, deputy chief executive officer at SolarPower Europe. “Several developers ordered a lot from China, so there was a real glut of imports that arrived in European warehouses — and then prices really dropped.” In some cases, European solar panel components can cost 100% to 150% more than Chinese equivalents, he added.

Meyer Burger, a 40-year veteran in the photovoltaic industry, filed for provisional insolvency for German units including a solar cell production site and shut down solar module production in the US in recent weeks. The manufacturer tried to shift more production to the US, among other measures, to revamp its revenue, but that wasn’t enough to keep it afloat. Administrators in Germany are now seeking new investors.

Amara, a Spanish firm which sells panels and other components as well as providing technical services, has seen its bonds fall to just over half of face value in part due to a fear over a drop in solar panel prices. The debt was piled on when private equity firm Cinven took over the firm in 2023, at a high valuation at the peak of the market.

Such a dramatic boom-to-bust cycle is not unfamiliar to those in the industry. SolarWorld, at one point Germany’s biggest solar-panel maker, and Q-Cells, the largest cell maker globally, both filed for insolvency in the 2010s on the back of price competition from Chinese firms.

High Alert

Bloomberg News is gathering some of the credit industry’s most influential voices, including DoubleLine’s Jeffrey Gundlach and Clearlake’s José E. Feliciano, at its Global Credit Forum on June 11 in Los Angeles. Follow the event on our blog and livestream, which will kick off at 9:15 a.m. LA time and 12:15 p.m. New York.

Thames Water’s senior creditors have submitted a rescue plan to the UK’s water industry regulator, envisaging £5 billion ($6.8 billion) of fresh funds and hefty losses for the struggling utility’s debt holders.

Eutelsat, Europe’s only Starlink alternative, needs cash fast to have any hope of challenging Elon Musk’s provider of satellite-based internet services.

China’s despondent solar manufacturers face a new threat — an imminent drop-off in demand for their products that’s likely to heap pressure on an already oversupplied market.

The surprise decision by a private equity-owned supermarket chain in South Korea to seek a court-led restructuring is reigniting jitters in the local credit market, creating an early test for the new administration of President Lee Jae-myung.

One Question

Randy Raisman, managing director at Marathon Asset Management

Jill Shah spoke to Randy Raisman, head of US opportunistic credit at Marathon Asset Management.

Q: What is the tenor of conversations with sponsors these days?

A: Given where rates are and a wall of looming maturities, it has changed dramatically. They are taking a more collaborative approach for the most part. There are talks of better economics for creditors and infusions of equity. That sets up a really good situation for opportunistic investors. We’re capitalizing on that by investing in a number of shorter-dated maturities. We’re hearing that advisers are being asked mainly to figure out what creditors need to extend the maturity.

That type of shift is massively positive. We can buy debt at attractive levels and get to good outcomes with sponsors.

By the Numbers

China is tapping into a massive but often overlooked pool of cash — its 10.9 trillion yuan ($1.5 trillion) housing provident fund — to help steady a troubled property market.

The fund, which collects monthly contributions from workers and employers, offers home loans at lower rates than banks and is becoming an increasingly popular channel as lenders tighten up.

Last year, the fund’s outstanding mortgages hit 8.1 trillion yuan, overtaking banks in growth. Many cities — including Shenzhen, China’s least affordable — have relaxed rules to make it easier to use the fund, including allowing withdrawals for down payments and increasing loan limits. In Beijing, the fund now covers a third of home mortgages.

With rates around 0.9 percentage points cheaper than bank loans, usage of the fund is growing. But analysts warn that cheaper financing alone won’t solve the deeper issue: weak demand. Residential sales are still falling, and big developers like Country Garden are struggling.

China provident fund loan rate cheaper than bank policy rate

Banks benchmark five-year loan prime rateProvident fund mortgage loan rate for first homes

2.5

3.0

3.5

4.0

4.5

5.0 %20222023202420252021

Source: Bloomberg, China central bank

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Still, for buyers like Eli Zhang, a 30-year-old researcher in Beijing, the fund makes homeownership more manageable. “With its help, my mortgage is quite affordable,” she said.

A Bloomberg gauge of Chinese developers shares rose as much as 3.2% on Tuesday, the most in more than a month, paring this year’s decline to 16%.

The Latest On...Altice

A panel overseeing the credit default swaps market has ruled that Altice France’s debt deal with its creditors constituted a so-called credit event, Giulia Morpurgo writes, paving the way for a payout of the insurance.

The French telecommunications business owned by Patrick Drahi reached an agreement in February with the holders of its debt to slash €8.6 billion of liabilities, in exchange for a 45% equity stake in the company.

Altice France is now moving ahead with the transaction and recently entered an accelerated safeguard proceeding — a type of court-supervised restructuring under French law — to facilitate it. That step prompted an unnamed market participant to ask the Credit Derivatives Determinations Committee (CDDC) whether it constituted a credit event that would trigger the swaps.

The CDDC announced its decision in a notice published on its website Monday, stating that it will discuss settlement of the swaps in the coming days.

As of May 30, there were $283 million in net notional outstanding credit default swap contracts tied to Altice France, according to the Depository Trust and Clearing Corporation.

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