Exponential growth We expect 2005-2010e CAGR in photovoltaic solar installed capacity of 35% following two years at over 50%. Growth in installed capacity is possible thanks to visibility from more widespread government subsidies. While Japan and Germany still represent over 50% of installed capacity, growth now derives mainly from the USA and Spain. Moreover, long-term growth should be underpinned by the prospects of lower production costs on the back of technological development. 􀁑
Focusing on upstream players The shortfall in silicon means that companies’ operating margins erode the further away they are from the raw material, for example, wafer producers have operating margins of 25-30% vs 10% for module manufacturers. Our core scenario assumes easier access to silicon by end-2008. By then, upstream producers, close to silicon, should be in a comfortable position with operating margins around 25-30% and average ROCE of 40%. The situation for downstream manufacturers varies based on their specialisation and size. It is expected to fluctuate based on the availability of silicon. Our scenario could be called into question if the silicon shortfall were to last any longer. 􀁑
Stock selection In this report, we are initiating three German companies specialised in PV solar: Q-Cells (Buy; TP: