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What's Your Solar Demand Outlook?

The most bullish outlook yet for solar sector demand in 2010 is issued by Credit Suisse -- but should demand forecasts be driving solar investors?

(Solar demand article updated for Wednesday news and solar stock movements)



) -- Solar electrons have become very excitable in the past few days.

Credit Suisse

forecast as much as 12.7 gigawatts of demand in 2010, and there was an indication from solar sector consultant


that second quarter demand pull-in ahead of Germany's feed-in tariff reduction would be 4GW.

Most solar sector forecast estimates have been in the range of 8 GW to 9 GW for 2010, with industry bellwether

First Solar

(FSLR) - Get First Solar, Inc. Report

forecasting total demand as low as 7.5 GW.

The numbers sent shares in the solar sector on a two-day rally that has eclipsed recent weeks of negative sentiment on solar stocks. Credit Suisse had previously been among the most bullish on the solar sector demand profile for 2010 with an existing forecast of more than 10 GW. Credit Suisse has not just upped the demand ante with its 12.7 GW forecast, but is calling for solar demand to double year-over-year. Estimates for 2009 year-end global solar installed capacity have come in between 6 GW and 6.5 GW.

What's in a (solar demand forecast) number? For an industry as young and volatile as solar, there's a more important way of phrasing this question: Should a number like a solar forecast be trusted in the first place?

The answer to this question, when you talk to enough people in solar, is most often, "it's more complicated than that." Maybe that's true, but not if you judge by the reaction of solar investors to the Credit Suisse demand forecast.

The leader board in solar on Monday was large and returns were lofty.

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Another answer to this question, no doubt, is that 12.7 GW is a number that has probably led to quite a bit of short covering in the past few days. Solar stocks like First Solar,




Evergreen Solar



JA Solar


, are among favorite short targets in the market.

In recent weeks,

JA Solar short interest increased significantly, among solar stocks that are favorite short targets on the Nasdaq Stock Market.

On Monday, JA Solar shares were up over 9% in the afternoon, on more than twice the average level of trading for the Chinese solar stock.

JA Solar may also have received a boost on Monday from news that


(BP) - Get BP Plc Report


shutting down its BP Solar U.S.-based solar manufacturing plant. BP noted in concession to the manufacturing realities of the solar sector -- with savings of up to 45% from moving plants to China and India -- that it would also focus on private label agreements with low-cost solar manufacturers. JA Solar is already a partner of BP in this regard.

By Monday afternoon, First Solar had added close to $8 to its share price since the close last Thursday.

Solarfun Power


-- basking in the general sector rally and also receiving an upgrade from

Barclays Capital

-- was up near 9%.

Barclays raised Solarfun from underweight to market weight and doubled its price target from $4 to $8.

Barclays was quite busy raising solar sector price targets on Monday, in fact. First Solar got a bump from Barclays to $125 from $100, while Canadian Solar received a hike from $21 to $25.

Trina Solar


, the Chinese solar leader that dropped as low as $20.25 to begin last week, was back above the $25 by Monday afternoon with a near 7% gain on the day.

Trina Solar shares ended last week one of the biggest winners when Credit Suisse included a bullish call on Trina and

GT Solar


linked to its solar demand outlook.

Canadian Solar

(CSIQ) - Get Canadian Solar Inc. Report

was up more than 8% on Monday.

Granted, many of these solar stocks pops still leave share prices in the sector lower than the shares prices had been in mid-February, and Canadian Solar is one example. It's an up-and-down sector and it's important to remember that, and the ability for a single, bullish data point to be a short-term tipping point. After all, there is something to the fact that there are 44 analysts providing coverage of First Solar and only 13 analysts providing coverage of

General Electric

(GE) - Get General Electric Company Report


On the one hand, the level of coverage of solar relative to some of the biggest names in corporate America shows the trading profile of these solar stocks, and it also shows how difficult it is for an analyst to stand out from the crowd without taking an extreme position on solar stocks. Without passing any judgment, Credit Suisse certainly decided to stand out from the crowd with its 2010 demand forecast.

The solar rally seemed to run out of steam by Wednesday. In fact, on Wednesday, the winners in the solar sector were actually the most embattled solar stocks among the U.S. and Chinese solar players.

Energy Conversion Devices


was up 2.5% on Wednesday, after announcing that its panels were being used on a 2 MW solar project in Italy. More than 4 million shares of Energy Conversion were traded on Wednesday, versus an average daily volume of 2 million shares.

Evergreen Solar was up 2.7% on Wednesday on twice its average daily volume of shares traded -- 6.5 million shares traded on Wednesday versus an average trading level of 3.6 million shares.

Both Energy Conversion Devices and Evergreen Solar are among the U.S. solar dogs whose viability has been put into questions recently.

Evergreen Solar, in particular, recently received two Street initiations at hold, from analysts who believe that the stock has been priced for bankruptcy.

JA Solar was down more than 6% on Wednesday, leading losses in the solar sector. The big three Chinese vertically integrated solar players were all down as well reflecting the general market pessimism on Wednesday. Trina Solar was down 3.7%;

Yingli Green Energy


was down 3.4%; and

Suntech Power


was down just under 2% on Wednesday.

LDK Solar


, which on Tuesday

watched its shares dropped by more than 6% on a weak earnings report, was among the few solar stocks with positive gains on Wednesday, up a little under 1%.

It's also wise to put solar in the proper perspective in terms of how young the industry is on a relative basis, and the link between the industry's early days and volatile trading. Entire global installations last year reach an estimated 6 GW, which is smaller than 2 full size coal or nuclear plants, according to Kaufman Brothers analyst Jeff Bencik.

The Kaufman Brothers' analyst believes that the proper solar stock analysis should begin with the most conservative estimate. If an investor can justify a bullish call on a solar stock with the most conservative demand estimate, anything above that in terms of demand is solar gravy.

Analysts also advise that with solar demand dependent on national support schemes for solar, and those incentives changing as often -- if not more often -- than the day-to-day sentiment in solar -- demand forecasts can be a fool's game as far as elevating them to the level of a priority reason to invest. Just look at

all the political maneuvers in the long road to the reduction in Germany's solar feed-in tariffs, as well as

continuing political pressure on the solar industry from the Czech Republic, one of solar's fastest-growing markets.

The Credit Suisse 12.7 GW forecast may turn out to be right in terms of predicting stronger demand than expected, even if it ends up being overly aggressive. In the least, in the past few days it has given solar investors a positive data indication that demand will be stronger than the most conservative scenarios.

Solar investors don't tend to be very shy either about calling their Babe Ruth-style solar stock performance shots. "Estimates for the solar market size are all over the board," Kaufman analyst Bencik said.

So where are you aiming your 2010 solar demand dart? Take the poll below to see what


has to say, and don't hesitate to leave a comment below -- as if solar investors would ever hesitate to leave a comment.

-- Reported by Eric Rosenbaum in New York.


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