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The French just announced they were slashing their solar subsidies by 24%, from 55 to 42 (Euro) cents. France is viewed as an important growth market for solar, but it still only represents a tiny fraction (less than 3%) of the world market. It also appears that the French feed-in tariff, claiming to be the highest in the world, was overly generous and caused applications to snowball from an average of about 150 per day to over 3,000, creating an artificial solar bubble. The French subsidy cut relates strictly to rooftop photovoltaic (PV) applications, and companies like First Solar (NASDAQ:FSLR) are expected to be mostly unaffected as they have been focusing on ground-based, utility-scale deployments.

What solar companies and solar company investors are really worried about is what Germany will do. After Spain cut their solar incentives drastically, Germany became the largest solar world market.

News from Germany, where PV companies and consumer lobby groups are meeting with government representatives, indicates that the negotiations are converging on moderate cuts which would largely be offset by manufacturing cost reductions. It is important to remember how important the solar photovoltaics industry is in Germany: they are not only the world’s largest market but they produce more than half the world’s solar panels, with local employment approaching 100,000. Politicians will be leery to kill this economically growing segment, even if the popular support is waning for expensive government subsidies.

In all likelihood, the German and European solar markets will continue to grow but at slower rates, due to reduced incentives, while China and the U.S. are the emerging solar markets with rising subsidies and mandated Renewable Portfolio Standards (which dictate how much of a utility’s power mix must come from renewables).

As we outlined in our earlier article “Picking Solar Energy Winners”, we are still very bullish for solar in general, with sector index investments like the Claymore/MAC Global Solar Energy ETF (NYSEARCA:TAN), but in particular for the few companies leading the cost/watt reductions, such as First Solar and Trina Solar (NYSE:TSL), which will continue to thrive and profit in this environment, unlike many marginal manufacturers.

Disclosure: No positions

Source: European Solar Subsidy Slashing: Bad News for Investors?