MADRID ( TheStreet) -- The solar sector is taking the big feed-in tariff cut plans from Spain in stride. It's not a surprise that the Spanish feed-in tariff reductions are not leading to solar stocks trading away from the general upswing in the markets on Monday morning, even with retroactive solar feed-in tariff cuts in Spain still reportedly under discussion.

Spain, once the leading light of the solar growth story, became a minor focus for the solar sector once it decided to cap the total level of solar installations in 2008 after an unprecedented boom. Spain's global position as No. 1 in solar installations ended in 2009 following a reduction in feed-in tariffs in the fall of 2008 and a hard stop on solar for 9 months. Collins Stewart estimates for 2010 that Spain would take 100 megawatts of modules in CY10, less than 1% of the global market estimate for the high-demand year.

The Spanish government is now looking at cutting feed-in tariff rates by as much as 45% for ground-mounted solar projects, and 25% for large rooftop projects. The feed-in tariff cuts still need to receive final approval from the Spanish government. There will also be a 55 reduction in FITs for small rooftop projects.

Collins Stewart analyst Dan Ries put out a note on Monday morning saying that replacing the Spanish demand would not be a significant issue for the solar companies. "It has been known for months that Spain's economic problems ... would potentially lead to sharp FIT reductions, and that potentially retroactive reductions are possible."

The real fear in the solar industry has been that Spain will follow through on threats to make significant feed-in tariff cuts retroactive. Some in the solar industry have feared that the move would serve as a death knell for solar project finance, a Pandora's box for other European governments under water with debt.

Political interests in Spain are still arguing over the retroactive feed-in tariff reductions. A document leaked to Bloomberg last week indicated that operators of existing plants could opt to receive 85% of the existing FIT in 2011 and 2012, and 95% in 2013, in addition to a four-year extension of the 25-year contracts. Or the solar project owners could take a smaller FIT cut but not receive an extension on the project life. A cap on total hours a solar plant is producing electricity above market rates was also being offered as a way to avoid the retroactive cuts.

The focus on higher-feed in tariff cuts for the ground-mounted solar projects is similar to the FIT cuts made in Germany. First Solar ( FSLR), which has a focus on the ground-mounted solar market, is seen as particularly sensitive to the FIT reductions on the ground, but investors remain much more worried about the outlook for First Solar in Germany and other European countries, and not Spain.

The Spanish feed-in tariff reductions are a reminder, nonetheless, that the macroeconomic outlook in Europe remains uncertain, and the political nature of solar sector support will be an ongoing issue. Investor fears about oversupply in 2011 include the argument that European nations may make further budget cuts given debt burdens.

"Anything Spain does retroactively is interesting, and there's nothing good about retroactive cuts to 'guaranteed' payments.... But at the end of the day, the Spanish market is a footnote relative to future installations," said Paul Leming, analyst at Soleil Securities. "Retroactive cuts don't do anything to the earnings of Yingli Green Energy ( YGE), Trina Solar ( TSL) or SunPower ( SPWRA)," said the analyst.

The issue is whether solar investors become nervous about other indebted European nations -- in particular, Italy. Share prices in solar are about future expectations, and Spain could retroactively cut its feed-in tariffs to zero and it would matter unless investors took it as a read-through of what a growing market like Italy may do. As of Monday morning, it didn't seem that the solar sector was reacting on fear that a retroactive FIT cut contagion was likely.

"If we get into a world where a government has to choose between defaulting on government bonds or FIT commitments, the solar subsidies will get taken away first," Leming said, noting that German has the strongest national balance sheet in the EU and just completed the most significant FIT cuts in Europe.

-- Written by Eric Rosenbaum from New York.

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