Morgan Stanley Says Regulatory Environment Will Make 2017 A Challenging Year For Solar Sector

The solar industry is facing a "challenging" time ahead, according to a team of experts and analysts at Morgan Stanley.

In an industry-wide, 91-page report, the team stated that while some solar companies will be able to navigate a difficult regulatory environment, others will be "exposed to heightened risks."

The analysts stated that key markets such as China, Japan and Europe are the largest solar markets in the world, but they also happen to the regions that face the prospects of a tightened regulatory environment.

For example, there have been significant delays in incentive payments to solar companies from the Chinese government, resulting in the government creating a new set of policies that will result in a "higher-risk, more cyclical business, with lower returns for solar projects."

Related Link: First Solar's 2017 Headwinds Leave Morgan Stanley Cautious

Historically, the solar industry has reacted strongly to changes in regulatory policy," the report explained. "Installations often rise dramatically before reductions in incentive levels, followed by subsequent troughs after new policies are implemented."

Meanwhile, the U.S. offers a mixed outlook for the solar sector. The government extended a 30 percent investment tax credit through 2019, and the incentives will likely remain in place given the fact it was originally passed by the Republican-controlled Congress. On the other hand, many developers rushed to complete projects on the belief the tax credit will begin to decline by 10 percent in 2017. As such, this creates an expected drop-off in installations but "robust growth" is expected to resume in 2018 and beyond.

Finally, the report included a growth outlook. The team expects total global solar installations to slow to 656GW in 2017 from 696GW in 2016. However, installations will resume growth in 2018, resulting in a stabilization of margins in 2018–19 as demand growth accelerates.

Relevant names include:

• JinkoSolar Holding Co., Ltd. JKS.
• Canadian Solar Inc. CSIQ.
• First Solar, Inc. FSLR.

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