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Solar Winners & Losers: Italy Drops the Boom

Stocks in this article: FSLR SPWRA JKS TSL LDK SOL YGE

(Solar winners and losers, Italy story, updated for analysis of Italian environmental minister comments, analyst comment and trading action.)

NEW YORK ( TheStreet) -- Shares of most solar stocks were down broadly on Monday as fears of more sudden, and more severe, changes in the boom market of Italy overtook the stocks. A new draft being introduced this week in Italian parliament could cap solar installations at 8 gigawatts, and the cap would be implemented immediately and with no grandfathering clause.

Solar stocks were mixed in trading on Tuesday, as equities declined, and as a Reuters article included more positive commentary from the Italian environmental minister about support for solar. However, those comments from the environmental minister were, upon further reflection, factually accurate while not fully reflecting the nature of debate in Italy over the future of solar subsidy support.

It's worth going comment by comment through the environmental minister's comments to Reuters, which several analysts consulted by TheStreet said did not offer any incremental information about the ongoing debate in Italy over solar.

Italy's environmental minister Stefania Prestigiacomo told Reuters "8 GW is not a cap."

That's true. It's not a cap, and it never has been. It's been the goal for solar installations in Italy by 2020, but it may be reached nine years early. As a result, making the 8GW mark a "cap" is part of the debate, and stating that "it's a goal" and not a cap, reflects the origins of the program in Italy, not the debate ongoing this week on potential changes to Italian government support for solar.

The Reuters headline quoting the environment minister states that the renewable energy incentives are set to be renewed this week in Italy.

That's true also, but it's also why all the debate is going on. The renewable energy standards need to be renewed by March 5 for a European Union directive deadline, but it doesn't mean that the renewable energy incentive won't be renewed with significant changes. In fact, renewal of the solar support scheme could in fact be an overhaul of the policy, analysts told TheStreet on Tuesday.

Analysts also indicated that it is the economics minister, and not the environmental minister in Italy, who has the majority in parliament, and therefore, the upper hand in negotiations. This doesn't mean there will not be a compromise that avoids a cap -- several solar analysts continue to believe a cap will be avoided, even analysts who believe Italy is serious about limiting solar growth. However, it also means that the position introduced by the economics minister could trump that of the environmental minister.

For any solar investor, the most important caveat in digesting the latest from Italy is to remember that a draft is only a draft. It's far from the final package of solar subsidy changes to be approved in Italy, and more may be learned by tomorrow (Wednesday) morning. It's a fluid situation. However, the language in the draft seemed more extreme than the market expected -- and, in the least, it suggests that the Italian government is serious about slowing the growth of solar.

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