Solar Demand Rises, Yet Major Korean Firms Struggle

Despite expectations for increased demand in solar power generation, major domestic solar companies in South Korea are facing significant challenges. Concerns over rising interest rates and uncertainties in U.S. policy are impacting stock prices more than the anticipated benefits from increased electricity consumption. Even with growing demand for power generation, higher financing costs may delay actual investments and improvements in corporate performance.

According to the Korea Exchange, OCI Holdings' stock price has fallen by 28.97% over the past month. During the same period, Hanwha Solutions and SK Eteronics saw declines of 17.05% and 9.29%, respectively. HD Hyundai Energy Solutions also experienced a 13.6% drop. All of these companies are considered leaders in the domestic solar market.

While government support for the solar industry has raised growth expectations, it has not translated into rising stock prices. The administration of Lee Jae-myung has proposed initiatives such as the Sunshine Pension, Wind Pension, and RE100 solar industrial complexes as part of its national agenda for a "renewable energy-centered energy transition." Efforts are underway to diversify offshore wind and solar locations and adjust distance regulations, alongside various forms of support.

High interest rates are cited as a key factor behind the disconnect between growth expectations and stock performance in the solar industry. Solar power generation requires substantial upfront capital for land acquisition and equipment installation. The business model relies on long-term electricity sales to recoup investments, making it sensitive to changes in borrowing costs.

Recently, rising market interest rates, particularly in the U.S., have increased the interest burden on power producers, potentially lowering expected returns. Even with rising electricity demand, the financial pressure may lead operators to delay the construction of new power plants or reduce investment sizes. This could negatively impact orders and sales for companies supplying solar modules and materials.

Uncertainties surrounding U.S. energy and trade policies also complicate investment decisions. The solar business's production costs and profitability are influenced by tax incentives, tariffs, and import regulations. Changes in support requirements or trade barriers could create varying advantages and disadvantages for companies based on their production bases and raw material sourcing.

Brokerages suggest that the future stock performance will depend on whether companies can generate profits not just from solar panel production and sales, but also from constructing, operating power plants, and selling electricity. IBK Investment & Securities noted, "The criteria for selecting solar stocks will likely focus on who can generate profits outside of module sales."

Outlooks among related companies vary. KB Securities and Samsung Securities have downgraded their target prices for Hanwha Solutions, citing concerns over capital increase burdens and the profitability of asset sales. Conversely, Mirae Asset Securities has raised its target price for OCI Holdings, citing its attractive valuation.