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Which German Solar Compromise is Best?

Germany has yet to announce the date of its solar feed-in tariff reduction and the extent of that reduction. In light of that, which compromise do you think would be best?

BERLIN, Germany (


) -- German D-Day arrived for the solar industry this week in the form of a


article indicating that not only would the reduction in Germany's feed-in tariff be in the range of 16%-17%, but it would happen quicker than previously expected, by April.

Solar stocks, particularly the Chinese solar stocks favored by investors over the past several months, have taken a two-day beating, with share price declines well into the double-digit percentage territory over the course of Thursday and Friday's trading sessions.

Share declines at

Trina Solar



Yingli Green Energy



Solarfun Power Holdings



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JA Solar



Canadian Solar

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led the bleeding in Chinese solar shares.

Trina Solar began Thursday trading at $62.15 and ended the week at $48, a loss equal to approximately 20% of its share value.

The losses at U.S. solar leaders

First Solar

(FSLR) - Get First Solar, Inc. Report




have been considerably less.

Though make no mistake: the losses have been less because these stocks have not experienced big run ups -- both First Solar and SunPower are much closer to 52-week lows than highs -- and every solar firm will be negatively impacted by an April solar tariff reduction in Germany.

The Economist

even had an ominous article last week describing the scene at First Solar factory in Germany, with solar glass chugging off the assembly line, barely able to keep up with demand based on the lucrative feed-in tariff incentives.

FBR Capital Markets analyst Mehdi Hosseini doesn't think the sell off will end until shares are down at least 25% to 30% on average. In the case of Trina, the FBR analyst has a $25 price target, citing concerns that Trina's earnings do not justify any higher level in his opinion.

Of course, the extent of the losses in solar shares, and for

how long the bleeding in share price may continue, will depend on official word from Germany's government.

If the April date for the feed-in tariff reduction proves right, that would be

the biggest negative imaginable for the solar industry, and the selloff might just be getting started.

If the German government sticks with a July date, or even later than July -- the solar industry was originally asking for a January 2011 deadline -- this week's selloff could again lead to a bullish outlook based on reduced valuations.

One thing seems clear: the date for the feed-in tariff reduction now looms larger than the actual percentage level of the cut.

What's more, reports this week indicate that the German government's tone has taken a harsher turn.

Collins Stewart analyst Dan Ries wrote on Friday in a note that, "Our contacts indicate that over the past week the tone of government officials has gotten harsher than what had been the case in December, with many now pointing to a one-time FIT cut of 15-17%. As for the April time frame, our contacts indicate that this is the time frame being discussed by government officials, though it will be difficult to achieve."

Maybe the government is just using the April time frame as a bargaining chip. Only two years ago, the Christian Democrats who now represent a majority in the German coalition government had wanted a cut in the solar tariffs as large as 30%. They were a minority then, and they didn't get what they wanted. Now they run the show in Germany, and even if the parliamentary process is slow, it's possible that the Christian Democrats are harping on the April date as leverage in negotiations.

FBR's Hosseini said he wouldn't be surprised if the Christian Democrats wanted to put the feed-in tariff reduction in place tomorrow.

Christine Hersey, an analyst at Wedbush Securities, noted that politicians haven't been opposed to using the press in the past as part of their negotiating tactics. Maybe the


report is as accurate as the government's staunchest foes of lucrative solar incentives want it to be, for the moment. It is possible that the Christian Democrats could relent on the date of the tariff reduction while upping the percentage level to their original target from two years ago, of 25% to 30%.

Germany does not want to kill the solar industry. After all,




are both German companies. Negotiations began with the solar industry pulling for a 5% to 10% reduction and a start date no earlier than July and preferably at the outset of 2011.

The German government was never going to agree to that, but in pushing for an April start -- which would cripple short-term earnings in solar and cause an overcapacity overhang into 2011 -- is there still room for the government to get what it wants, but without the April start date proving tantamount to success?

We ask readers and jittery solar investors: which compromise would be the best for the solar industry?

-- Reported by Eric Rosenbaum in New York.


>>For Solar, When Will the Bleeding End?

>>German D-Day Arrives, Solar Losses Mount

>>For Solar, April May be the Cruelest Month

>>France Cuts Solar Tariff Incentives by 24%

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