Conergy is exposed to risks arising from potential radical changes in the political, legal and social envi- ronment. Likewise, possible terror attacks or natural disasters theoretically pose a risk to the Company’s net assets, financial position and profit or loss.
Conergy is exposed to the risk of competitors or others engaging in industrial espionage given its highly visible activities in an attractive market with a promising future and its own high-tech production facility in Frankfurt (Oder). This concerns process and production know- how as well as any other proprietary know-how. The Conergy Group might become the target of a takeover by a competitor or vulture company and, as a result, be taken over and/or broken up.
Opportunities
Aside from resulting in the risks described above, the relevant scenarios can also give rise to opportunities. In the past, the Conergy Group positioned itself prima- rily as a downstream provider in the PV market while maintaining its access to upstream know-how through its Frankfurt (Oder) solar factory, voltwerk electronics GmbH in Hamburg, which manufactures electronic components such as tracking systems, intelligent connection boxes and string and central inverters, and Mounting Systems GmbH, which develops and manu- factures mounting systems and module frames. In future, Conergy will position itself as a fully-integrated systems manufacturer with a leading quality brand, superior system performance, top-notch services and a well-organised production and partner network. As a result, Conergy will occupy almost all stages of the solar value chain; further improve the positioning of its brand; enhance its customer relationships to in- stallers, wholesalers of electrical equipment and stra- tegic marketing partners; as well as further expand the development, financing and execution of major photo- voltaics projects.
This process could engender at least the following op- portunities that might have a positive effect on the Company’s sales, earnings or liquidity. Note that the opportunities described below may not bear fruit at all or in full and that the occurrence of one or more of the aforementioned risks might make it partly or wholly impossible to tap into the positive effects of these opportunities.
Management Board and Supervisory Board Conergy at a glance Group Management Report Consolidated Financial Statements
Further Information 83
Risks & Opportunities |
Increased profitability of PV units
Falling prices for solar modules and other system components can lead to a noticeable reduction in the cost of investments in PV units per kWp of installed output. If the reduction in systems prices were to no- ticeably outpace any renewed amendment of laws pro- moting renewables – existing promotions being the same – the profitability of PV units in certain markets might noticeably improve, provided current interest rates are cut and reasonable refinancing options are available. If this development were to occur simultane- ously with the availability of sufficient funds, PV units could be turned into attractive and secure investment options for end customers and investors alike.
Rising demand momentum
The demand for systems in the end customer market is also subject to the elasticity of demand, a factor that has not been adequately analysed to date in regards to PV systems. However, any decline in systems prices is ex- pected to have a substantial impact on the demand for photovoltaic units. High price elasticity could substan- tially stimulate demand, in turn tightening supplies. There is no doubt that lower investment costs per kWp and alternative investment options would attract many more customer groups and turn PV systems into a reality for everybody not just in the core photovoltaics markets but also in emerging markets such as China or India. Given this backdrop, there is the chance that yet another sharp drop in systems prices could cause demand to soar, provided price elasticity remains high. This also depends on customers’ confidence in the future, the stability of their own financial situation as well as their access to adequate own funds and/or funding options.
Renewables as an increasingly attractive sepa- rate asset class
The uncertainty in the capital markets has unsettled many investors. By definition, alternative energy projects offer considerable advantages in these times. In stable countries, photovoltaics projects for instance are largely embedded in a statutory framework and protected from external effects such as commodities prices, interest rate trends etc. Photovoltaics systems can offer a return on equity between 8 percent and 12 percent over a useful life of 20 years. As a result, investments in renewables projects and funds might become even more popular than has been the case to date, which would greatly stimulate demand among major investors for projects and installations. This could have a positive effect on the Company’s assets, liabilities, cash flows and profit or loss.
Early grid parity
Providing certain assumptions are true, various market studies forecast grid parity for different countries by the beginning or middle of the next decade. In fact, grid parity could occur earlier than anticipated if elec- tricity prices continue to rise in countries such as Italy or Spain or US states that boast high levels of solar radiation, such as California, or even in Germany. Early grid parity would have a positive effect on consumer demand for photovoltaic systems and installations, which could benefit Conergy. Consumers would be presented with a choice as to the provenance of their grid power. This would increase the number of projects and individual demand as well as boost demand for photovoltaic system components in general, which in turn would also have a positive effect on Conergy’s earnings as a supplier of photovoltaic systems.
Positive development in the US market
Conergy expects a noticeable change in energy policy in the US.
The US stimulus package (the so-called American Recovery and Reinvestment Act) that took effect in early 2009 contains several provisions that could spur growth in the solar industry yet again. According to one of the more notable provisions, up to 30 percent of the cost of solar projects will be directly reimbursed under the Renewable Energy Grant Program irrespec- tive of tax liabilities; this programme was put in place for two years. Moreover, loans for financing renewa- bles projects are guaranteed at the federal level. This provision could increase banks’ willingness to finance projects in the renewables industry. And the possibility of obtaining grants for solar energy at the level of indi- vidual states in addition to the federal programme will also help to foster growth.
Conergy will be able to benefit from the expected pos- itive development of the market, given both its pres- ence in the US market and its references. Plans in the USA are to boost installed output fourfold by 2012. This could have a positive effect on Conergy’s assets, liabilities, cash flows and profit or loss.
New markets
Conergy expects laws promoting renewables projects to be expanded to an ever-increasing number of regions and range of technologies. Moreover, market incentive programmes should create additional demand for regenerative energy systems. Conergy is essentially focusing on high-margin markets in growth regions
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with attractive subsidy programmes, given the Group’s realignment as a provider in the photovoltaics market. The development of new markets could stimulate demand for PV systems and thus have a positive effect on the assets, liabilities, cash flows and profit or loss of Conergy, on condition that mechanisms aimed at promoting renewables remain stable and clear proce- dural rules are in place.