Less than a week after France cut their solar subsidies by 24% (see European Solar Subsidy Slashing: Bad News for Investors?), the largest solar market in the world, Germany, announced their own version of the cuts which had been anticipated anxiously by the solar industry.
For most projects, the 15% feed-in tariff cut is somewhat less than feared by some (Germany’s leading party, the Christian Democrats, had been pushing for cuts of 25% to 30%). There is also a provision for adjusting the cuts annually, depending on capacity installed. For example, additional 2.5% cuts would be triggered if annual installations increase to the 3,500 and 4,500 megawatts levels. Also, somewhat better than feared, implementation of the cuts will be staggered, with the 15% cut for rooftop installations taking effect in April 2010 instead of immediately as in France. Tariff cuts for ground installation go into effect in July 2010, but there now is a distinction made between “open field” (15% cut) and farmland (25% cut).
Some level of cuts had been widely anticipated and has been worked into the stock prices of the solar stock segment which has been correcting from its uninterrupted rise last year. As the details are digested by analysts we can expect some continued softness in solar stocks, especially as it dawns on many that the inevitable shakeup of this immature industry will get accelerated by these news. The consolidation is likely to be brutal for some companies but extremely rewarding for the winners.
In our analysis, we anticipate slower growth rates for the solar industry in Europe to be mostly compensated by higher demand from the U.S. and China, but a cooling off period for this overheated sector can only be healthy at this stage. We continue to believe that the low-cost/watt leaders will be the winners, provided they have very solid financials and the ability to scale globally in other growing markets.
One of the companies we believe will gain in such an environment is American thin-film leader First Solar (FSLR). They have all the attributes we are looking for and the majority of their projects have been ground-based installations, although it is unclear as yet what percentage of these would now be classified as farmland in Germany.
Disclosure: No positions