Solaria: oversupply of solar power leaves the stock with no floor

Solaria: the floor is not where you think it is

On 23 February, a sunny morning with little wind, several solar plants had to disconnect from the grid at midday. The reason: too much renewable supply for a system that cannot absorb it. This episode, a preview of what is expected in the coming months, is the perfect illustration of the crossroads facing Solaria, the photovoltaic company that has been in the eye of the stock market storm for months.

While some see the glass half full and expect a floor around 7 euros, others argue the stock could fall to 5. Some even rule out visits to 6.25, as if it were a game of roulette. But behind this tug-of-war lies an uncomfortable question: does the stock really have a floor?

Solaria's business: subsidies, debt and the BOE

Solaria is a company that, for many, depends more on the BOE (Spain's official state gazette) than on engineering. The feeling that its model rests on subsidies rather than its own profitability keeps coming up. One analysis puts it bluntly: "These companies are sold as engineering firms, but in reality they are lawyers who spend their time litigating." With minimal barriers to entry and margins that keep shrinking, solar power has become a business that belongs to everyone and no one.

Debt is the other elephant in the room. The company is "hyper-indebted", which complicates any takeover attempt by major utilities such as Repsol or Total. Nobody wants to buy a castle with mortgages up to its neck.

Oversupply: a blackout by saturation

The sector's big problem is structural. With more than 30,000 MW of solar and another 30,000 MW of wind connected to the grid, Spain faces oversupply during peak production hours. The prediction that many plants will have to shut down between February and November has already come true: on the same day wind power was disconnected at 8 in the morning, solar trinc at midday. "Whoever dumps renewable energy into the system pays for it," one investor quips. The vertigo of the energy transition.

The growth bet and data centres

Some, however, see light at the end of the tunnel. The company plans to double its generation by 2026, and data centres are being touted as a source of demand. But does doubling generation miccionan doubling profits? Not if prices collapse and connection costs soar. One example doing the rounds in the debate: signing a PPA at 40 euros with a utility while the system charges 15 euros to connect to the grid. That differential is a warning for the optimists.

The figure that unsettles

Amid this chaos, the figure that unsettles is the comparison with First Solar. While Solaria oscillates between bankruptcy and miracle, First Solar is capitalising on the 45X subsidies in the US and trades close to its intrinsic value. One investor suggests First Solar has potential of up to 220 euros, well above the current 173. The qualitative gap between the two companies is abysmal: one is a business with fundamentals, the other a betting game.

In the end, Solaria's floor does not seem to lie in the price, but in the company's ability to adapt to a sector that is overwhelming it. If nobody buys the company and debt keeps growing, the fall may continue. The bears are still lurking, and the solar shutdown is not over yet.