An aging utility infrastructure and high demand is leading to the Germany government pulling back support for the solar industry. In 2010 Germany had the largest solar installation market at 8 GWp of the total global market of 18 GWp.
Installations have risen so much that officials have been quoted as saying, "The Economy Ministry wants to have solar power production switched off when the grid is overloaded on sunny days." To go along with this they are looking to extend deeper cuts into the country's feed in tariffs (FIT). The Environment Ministry has already announced that it will implement cuts of up to 15%, six months earlier then originally stated. The new cuts will begin in July 2011 and the Ministry is pushing for additional cuts as high as 25%.
With the world's leading solar market pulling back support this could lead to a slowdown of the industry as a whole. With solar companies struggling to survive on their own, the continued drop in support will slowdown such a fledgling industry. Many countries are not able to handle solar power because of aging infrastructure and other competing forms of energy. Their response seems to be to slow solar energy growth rather than to adapt. At least in one major market we may begin to see growth declining in the new future.
Homes or businesses that generate solar electricity with roof-mounted panels may sell it back to the grid for a payment known as a feed-in tariff. Germany, a major market for solar power, is planning to reduce these feed-in tariffs, proposing cuts of up to 16%. This action will drive panel prices lower. 
The US is set to become the major source of natural gas prosuction in the world this year. Demand canot keep pace with excess of supply, driving down the cost ofr extraction, distribution, transportation and storage. Utilities are gearing to gas and away from coal and petroleum at an ever increasing pace. Tariffs on distribution and storage provide excellent income for the retiree from dividends. What chance doea a nascient industry like solar have against such strong market forces? Energy conversion cost differentials cannot be made up through tax subsidies alone - this rent seeking is the only pillar upon which the solar industry stands. Now the enviros are protesting the distribution powerlines in southern CA proposed to transport the 'new electricity' from the solar towers. What possible hope is there for solar without tax subsitarity?
A 6.4 kilowatt residential solar installation can cost approximately $66,000 - more than most families can afford to pay out of their savings. This is just an example at micro level. Imagine a 100MW project, which shall cost $500mm at $5/watt. A vast majority of people and businesses (which require more energy, and so pay more) can't afford this kind of an investment, less said about their ability to raise debt. With credit markets heavily constrained due to the credit crunch and Financial Crisis, securing financing for such projects will be much more difficult. Until credit markets loosen again, it's very likely that there will much far fewer solar installations than during the housing bubble of the last few years.
Last week, US lawmakers destroyed US chances for energy independence by renewing tax subsidies for oil companies at the expense of supporting a strong domestic industry for clean energy. As noted in Fridayâs Wall Street Journal, âOverall, the big winner in the endgame that produced final passage of the bill â¦ was major oil companies.â This haphazard move should have the Middle East and Venezuela cheering because it will drastically weaken US competitors who are seeking to become global super powers of solar, wind, biomass, and other forms of renewable energy.
At the moment, most clean energy technologies are in early adopter stages. As a result, products are relatively expensive when compared to mature energy inputs such as oil, coal, and natural gas. Although these fossil fuels have been heavily subsidized by tax payer dollars (i.e., receiving welfare) since WWII, the oil lobby has done an excellent job filling the mainstream media with barrels of spin to make the average citizen believe ethanol and solar are the big welfare enemies. The lobbying and PR worked because the oil industry has emerged with tax subsidies that common sense would have redirected toward the renewable energy credits. Apparently, the oil industry is more important than preventing terrorism and creating strong domestic industries.
Politics and safety aside, the new US Energy Bill leaves high-flying solar stocks in a very precarious position. Renewable energy credits are a critical component to the business models of solar companies. Without such credits, all of these companies will see margins shrink, and some of these companies will not be able to make their products cost competitive. Thus, I am placing the solar industry on the SGS watch list for opportunities to short stocks and play put options.
I was completely bewildered on Friday when solar stocks failed to react like Barry Cinnamon, president of Akeena Solar Inc. (AKNS), who said U.S. companies trying to compete internationally in solar âwonât continue to grow as quickly as they could have.â Cinnamon and other executives are announcing to the world that their growth will suffer, yet Piper Jaffrey suspiciously upgraded the sector on Friday and had ignorant speculators pushing solar stocks much higher. Given the industry is trading as irrationally as tech stocks during the dotcom bubble, I recommend waiting for reality to set in before attempting any bearish plays.
In recent years a ton of socially responsible investment (SRI) funds have burst on the scene to capitalize on the green movement. Thus a ton of hot money is chasing a relatively small universe of stocks. As these funds have put money to work to take advantage of the media frenzy surrounding climate change, sexy solar stocks have soared like Icarus (and we all know what happened to him). Moreover, newbie fund managers who are trying to capitalize like their predecessors during the tech bubble may continue to buy sell-side analyst calls because these inexperienced managers are not skilled enough to do otherwise. Consequently, we may see more irrational highs before these stocks revalue to account for the new US Energy Bill.
In addition to AKNS, JA Solar (JASO), Yingli Green Energy (YGE), Suntech Power (STP), Solarfun Power (SOLF), Sunpower Corp (SPWR), First Solar (FSLR), Evergreen Solar (ESLR), LDK Solar (LDK), Canadian Solar (CSIQ), MEMC (WFR), and Applied Materials (AMAT) will all feel the heat. Those with higher domestic exposure will get burned worst. On November 12, all of these stocks sold off on reports that the renewable energy credits would be left out of the bill, but for some reason people were less concerned now that this negative rumor has become harsh reality.
Skeptics will say we have another year to renew the renewable energy credits, but realists donât bet on Washington getting anything done in an election year. Further, the renewable energy credits were left to expire last time before being renewed retroactively. If we have a repeat performance in 2009 or 2010, as Cinnamon noted in the WSJ, this lack of visibility will still stall investment in solar.
The stage is now set for a possible bursting of the solar bubble â¦ but we need to wait until the bag holders realize they are fully exposed to the high noon sun.
Solarbuzz, a research group, estimated 2008 solar panel installations at 5.95 GW, with panel production at 6.85 GW. As the recession and credit crunch reduce global solar demand, this massive inventory will need to be sold off before additional production can occur, further slowing the industry's recovery in this economy.