Don Dion's Weekly ETF Blog Wrap

The low price isn't a policy misstep. According to NDRC's deputy director, "Market forces should determine the proper price and guide development of the industry." Alternative energy cannot be competitive unless it becomes profitable in a free market, and the Chinese regulators appear determined to force market pricing into this sector.

Solar producers may persuade NDRC to lift the benchmark price, but this is a sign that the Chinese government will not sacrifice its economy on the altar of green energy. Many governments are likely to find they wasted billions on inefficient technology, while the Chinese focus on efficient and profitable technology.

Overall, I view this as bullish for the solar industry. Solar will never become a truly profitable industry until it can become competitive without subsidies and tax breaks. Market Vectors Solar Energy(KWT) has considerable exposure to the Chinese solar sector, with holdings such as Suntech Power(STP), which makes up 8.5% of the fund's portfolio, Trina Solar(TSL), which makes up 5.3%, and Yingli(YGE), at 4.3%. The top holding is First Solar(FSLR), at 12.2% of KWT's portfolio. First Solar signed a 2 megawatt deal in China last month and says it will eventually have to build a manufacturing plant in China to meet expected demand.

-- Written by Don Dion in Williamstown, Mass.

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