NEW YORK (
) -- The latest data from the German government on the level of solar installations shows a picture of solar demand that supports the current rosy scenario for 2010 solar earnings -- as well as arguments that the German rate of growth could lead to another round of political tussling in Germany over the future of feed-in tariffs.
It's a situation that allows a solar investor to pick the poison of too much growth in Germany -- if they tend to a negative 2011 outlook -- or trace a solar silver lining, if the bullish argument is preferred.
Germany had installations of 562 megawatts of solar in May -- a healthy rate of installations -- yet it's the June information from Germany's solar database that holds both the best and potentially worst case scenario for solar in Germany.
The German Federal Network Agency reported this week that a total of 3 gigawatts of solar installations are expected in the first half of 2010, ahead of the German feed-in tariff cuts that began this month.
Between January and May 2010, there were 1.7 GW of solar installed in Germany, based on 85,000 applications received by the German government during that period.
The big number is the June number alone, though, with 50,000 applications for solar projects in the month, and a rate of 1.3GW.
As has been the case in past solar feeding frenzies, applications poured into Germany ahead of the July effective date for the first round of FIT reductions. If May seemed a little light, albeit with a healthy install rate, and June seems like an overwhelming month in Germany, it's similar to what occurred at the end of 2009. Ahead of Germany's annual feed-in tariff cuts, December was a huge month for solar installations.
The high level of installations in Germany is no surprise to solar investors. Expectations for solar earnings in this quarter are roundly bullish, and the latest data supports the sold out conditions that the solar industry has been talking about, and which has led to a rally in solar shares.
Solar shares sold off on Tuesday, with
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
MEMC Electronic Materials
One investor booking some profits in First Solar in recent days was the estate of the Walton family, founders of
and early financial backers of First Solar.
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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