NEW YORK (
) -- With Germany set to give the solar industry its biggest wake up call since Spain capped its solar tariffs, the solar players on the chess board are positioning themselves to gain market share from more favorable national tariff schemes.
Italy is being viewed by some as a likely solar feed-in tariff regime where solar players will increase business to make up for tariff reductions in Germany.
So is Italy's solar profile set to become much more important to the fortunes of solar companies -- or is Italy likely to follow in the footsteps of Spain, forcing solar companies into a short-term bubble and then pulling out the rug from underneath them?
Both answers to that question might be correct.
Germany's environment minister
announced proposed solar feed-in tariff cuts ranging from 15%-25% on Wednesday, and some German politicians are still hoping to make the cuts even bigger.
Solar companies that have been making aggressive predictions about sales demand and churning out the capacity ahead of 2010's first half suffered in a big solar market selloff last week. The selloff continued into this week and has hit the Chinese solar players especially hard, including
Yingli Green Energy
Solarfun Power was the biggest solar dog on Wednesday, but Trina and Yingli are down more on Thursday, by 4% and 3% respectively. The biggest solar dog on Thursday afternoon was
, down more than 5%. To be fair, it has been a merry-go-round of share price bleeding with the solar players from China, mirroring the extent to which the solar stocks ran up in the weeks ahead of Germany's move.
also has a huge business in Germany, but its stock has not run up like the Chinese stocks in recent weeks -- in fact, First Solar stock has been beaten down in direct relation to the rise of the Chinese solar players.
First Solar will be dealing with diminished prospects in Germany.
Just when we thought the solar industry might be learning its lesson about depending on solar welfare, and maturing beyond the feed-in tariffs, the scramble is on to find the sweetheart tariffs deals left on the global landscape.
Solar companies have needed to diversify their geographic mix of business regardless of Germany's big move to reduce solar feed-in tariffs. The rest of the world's solar capacity is growing, too, with some
estimates that solar capacity growth ex-Europe will be much higher than growth within Europe in years to come.
What's more, Italy was one of the top three solar markets in 2009, and may well be the second-largest market in 2010, second only to 800-pound gorilla Germany, according to Chicago-based
Italy's solar growth profile is reflected in the numbers. Industry sources estimate that approximately 500 megawatts(MW) were installed in 2009, and 800MW will be installed in 2010. What's more, the Italian government is predicting that by the end of 2010, 1.5 gigawatts (GW) will be installed, meaning another 600MW in 2010.
Sounds good, and we can see the solar companies in panic mode after Germany's planned tariff reduction booting themselves to Europe's boot country. The problem is, however, that this is exactly how things played out in Spain a few years back, and that was an unmitigated solar disaster.
For solar investors, it's a good time to be cautious, and skeptical, about other tariff regimes' ability to make up for Germany, solar's biggest market, at least in the near-term. And for everyone involved in solar, it's high time to worry about walking headlong into a repeat of Spain's solar bubble.
Many solar analysts are of the opinion that Italy will pay close attention to the moves made by other European countries, most closely to Germany, which has been the bellwether solar market, and that Italy is likely to follow suit with Germany's policy thinking on solar.
France announced last week a solar tariff cut of 24%, hoping to stave off what France already saw as increasingly speculative behavior.
That doesn't mean Italy's tariff scheme will not be a boon in 2010 for solar, but it does mean that boon may be a bust by 2011.
Currently, Italy has among the most attractive feed-in tariffs in the world. If Germany moves ahead with its proposed cut, Italy's tariffs will all of a sudden be way out of line with the situation in France and Germany.
"The disconnect in returns between Italy and the other countries could grow so wide that the Italians will have to ask themselves why they are providing solar with such high returns," cautions Navigant Consulting director Andrew Kinross.
Currently, Italy's tariffs are even more favorable to solar projects than tariffs in Germany.
Kinross said that in the immediate future, Italy will be one of the key solar growth drivers. "Three years ago, it wasn't even on the solar map, and now people are talking about passing the 1.5GW cumulative threshold this year," Kinross noted.
Something else that Italy itself has been talking about is capping solar tariffs, as Spain did. The Italian government has already said that it will not put a cap in place before the end of 2010. That seems like a good thing, since the Italian government had made previous comments that once solar capacity reached the 1200MW mark a cap would be implemented.
The critical issue is that beyond 2010, no one knows what Italy will do in terms of a cap. "This is basically the same mistake that Spain made," Navigant's Kinross said.
What's more, the risk that with Germany planning such a drastic move, Italy could surprise solar and do a political about-face on its promise to not cap solar in 2010 cannot be discounted either.
The bigger issue in Italy, however, is that solar projects will flood the market between now and the end of 2010. Even if Italy sticks to its plan to extend deliberations on the cap at least through the end of 2010 -- and regardless of the 1200MW threshold -- there could be plenty of solar projects that don't make the deadline to be included under the existing favorable tariffs before the cap is put in place in 2011.
"It was a huge bubble in Spain, and people are worried that it could happen again," the Navigant Consulting director said. "Italy has by far the most favorable tariffs, and there will be a feeding frenzy. But it could all come to a roaring halt at the end of 2010."
Banks make decisions to go forward with solar projects based on expectations of beating a deadline for tariff cuts, or a tariff cap being put in place. In Spain, while many projects met the deadline and started production in time, other solar projects were left out in the unfavorable-tariff cold.
One can hope that banks are shrewder this time around -- for example, by only funding solar projects that have a reasonable expectation of being completed a full three months ahead of the year-end 2010 deadline. Then again, this is solar, and aggressive projections founded on the desire to take advantage of favorable tariffs before the tariff party ends have tripped up the industry in the past.
Look at Spain. Look at what people expect to happen in Germany.
It's hard to tell at this point if Italy is going to give solar a needed kick in the butt, or give solar investors the boot after fomenting yet another short-term feed-in tariff bubble.
-- Reported by Eric Rosenbaum in New York.
>>France Cuts Solar Tariffs 24%
Follow TheStreet.com on
and become a fan on
Copyright 2009 TheStreet.com Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.