Solar Stocks: The Optimists Are Running the Asylum

Devilish was an apt word, as the devil is in the details when it comes to the latest shift to unbridled optimism about solar growth and solar companies. Yet the analyst shouldn't have been surprised by the growth.

Every time Germany has set out to reduce its feed-in tariffs to reach a more normalized and sustainable growth rate for solar, it hasn't worked. It's worked as far as setting off a short-term demand frenzy, but it hasn't answered the question as to whether reductions in feed-in tariffs alone will be enough to be the be all and end all of German efforts to limit solar's growth.

Solar may be doubling in Germany this year and energy prices down, but German consumer groups are again arguing that German rate payers may see the solar power portion of prices-per-kilowatt-hour come close to doubling next year. That doesn't make traditional manufacturers in Germany happy, and it hasn't made them happy for some time already.

None of the discussion takes into account the ongoing problems of solar being an intermittent energy source, and as it grows, stressing the grid. In the Czech Republic, where state-run monopolies launched a campaign against solar earlier this year due to concerns about the grid, the explosive solar growth has slowed.

In fact, relatively bullish solar analyst Satya Kumar of Credit Suisse -- one of the first analysts to issue a report this year predicting that solar installation levels would blow away earlier predictions (and he was right) -- reportedly issued a note this week saying that the Czech Republic -- expected to be one of the biggest growth markets for solar in coming years -- is going to zero next year based on the political situation. With Czech citizens involved in violent protests in the streets in the past few weeks over the government's austerity measures, this isn't surprising.

France, another market expected to be a huge new growth market for solar has now introduced an act to slash tax credits for solar installations by 50%, according to a report this week from Photon. JA Solar(JASO) announced 500 megawatts of orders already booked for 2010, but without any pricing information, the news of continued demand is hard for an analyst or investor to properly weigh.

In Germany, it's not European austerity that's the issue, but too much of a good thing. The more things stay the same in solar, with Germany being the demand sink, the higher the political risk becomes of Germany placing a hard cap on solar. Of course, solar bulls will say this is the same old argument, and it hasn't proven true yet, and so, why should anyone listen to the solar bear crying wolf again?