German Solar Data: The Good, The Bad & The Fearful

Solar shares sold off on Tuesday, with JA Solar(JASO) leading the retreat -- but it could have been anomalous trading, or simply investors booking some profits ahead of any risks associated with the first solar earnings reports of the season, from First Solar(FSLR) and MEMC Electronic Materials(MEMC) on Thursday.

One investor booking some profits in First Solar in recent days was the estate of the Walton family, founders of Wal-Mart(WMT) and early financial backers of First Solar.

>>Waltons Sell First Solar Shares

The dangerous edge of the latest German data is the 3 GW in the first half of 2010.

The German plan for 2011 does not include the dreaded hard cap on solar installations, but does include a soft cap, or a target of 3.5 GW installed annually. So the latest data could add more to the speculative case that the German government could take a harder line against solar in 2011 if growth is not managed. It would also add to fears that the solar industry could find itself in an oversupply situation in 2001.

"The sentiment in solar is always shifting fear," said Wells Fargo analyst Sam Dubinsky. Dubinsky added that while the 3 GW figure supports the thesis that Germany is on track to lead healthy earnings reports from solar companies, the fear of the German government constantly cutting FITs to make the market more rational dictates good growth, not fantastic growth in solar installations. "The stronger the growth is, the more pressure on the government" the Wells Fargo analyst said.

Jesse Pichel, analyst at Jefferies, noted in his recent initiation of solar coverage that "a substantially stronger-than-expected German solar market in 2010 could trigger incremental FIT reductions in 2011 ... a similar FIT backlash may follow suit in other markets."

Yet with the feed-in tariff cuts taking effect in July, a blowout month in June for solar installations -- like the blowout month in December 2009 ahead of the annual cuts -- won't prove to be the deciding factor in any harder line taken by the German government.

Solar investors might be well-advised to consider the July and August solar install rates from Germany as a better gauge for formulating an answer to the never-ending solar political dilemma in Germany, and as the ever-present fears in solar keep on their shifting path.

-- Written by Eric Rosenbaum from New York.

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