Solar power primed for heat stroke

Solar power primed for heat stroke

Analysts see rise in prices as overblown

Shares of solar farm companies have climbed as the junta prioritised increasing renewable energy consumption, but now the run-up is overblown, warn securities analysts.

An engineer for WHA-Gunkul Green Solar Roof Co inspects the installation of solar panels. Solar farm stocks are booming. PORNPROM SATRABHAYA   

The National Council for Peace and Order's policy to raise renewable usage to 25% of the country's energy consumption by 2021 has led some renewable energy companies to expect average growth in power-generating capacity of 13.4% a year for solar power plants and 32% for wind power plants over eight years, said Kriengkrai Tumnutud, head of strategies at AEC Securities.

However, renewable energy stocks have already risen so much they now represent poor value, he said. 

Year-to-date, share prices of Energy Absolute (EA), the solar and wind energy producer, have surged 225% to 24.90 baht, Superblock (SUPER) has jumped by 193% to 8.60 baht, and Demco Plc (DEMCO), a construction firm for renewable energy power plants, has gained 75% to 12.70 baht.

"Renewable energy is a sunrise business, but share prices have soared across the board. Their current market prices are too high, so investors must be cautious," Mr Kriengkrai said.

Renewable energy shares were on AEC Securities' top-picks list last year, but their current valuations have already priced in their fundamentals over the next three to four years.

"With the likely increase in permitted capacity, we expect to see plenty of newcomers to the sector, plus the cost to acquire licences will not be as low as before," Mr Kriengkrai said.

The adder, which is an amount added to the power tariff to encourage renewable energy firms to produce such energy, for solar power producers was 6.50 baht per kilowatt-hour for 10 years, and renewable energy companies took six to seven years to break even at this rate.

But new players in the solar farm business will receive a feed-in tariff for 25 years instead of the adder, and their break-even point could be longer while their internal rate of return could also be lower.

If the feed-in tariff is set at 5.70 baht per kWh, the break-even point will be nine or 10 years.

Ronnakrit Sarinwong, head of retail research at Country Group Securities, expects Demco, Solartron (SOLAR), Gunkul Engineering (GUNKUL), Eastern Printing (EPCO), Premier Products (PPP), Superblock, Inter Far East Engineering (IFEC) and Thai Film Industries (TFI) to apply for new licences to operate solar power plants and their revenue will jump significantly if the projects start feeding power to the grid.

Constructing some of these plants typically takes six to seven months to complete, so revenue from them will take a while to be realised.

"Share prices that go beyond fair value by five to six baht are overvalued," said Mr Ronnakrit.

He said investors should be careful in stockpiling these shares, as a sell-off is possible once the government starts licensing new renewable energy production.

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