Political risk in Germany, a country vital to the solar industry, is hitting solar stocks hard today. The majority party in Germany, the Christian Democratic Party, is pushing to have solar subsidies cut by 30% in 2009. Amtech, however, believes today’s sell-off may have been an over-reaction and sees the issue as dynamic:
This [potential cut in the solar subsidy] is very important given Germany’s status as baseline demand for the industry given the uncapped nature of the EEG (Renewable Energy Legislation).
Clearly as with any other legislative decision, the situation remains fluid; however, it is our understanding that the agreement made among CDU members is for a 25% cut in feed-in-tariffs (FIT) through January 2010. This is comparable to the current draft which calls for a ~15% reduction over that same time period. We believe a portion of the sell-off today is that investors are comparing the 25% reduction to the 9% reduction expected in Q109 under the current EEG proposal instead of the cumulative reduction through January 2010. In reality, it is too early to tell at this point what the reduction for ’09 will be and what the cumulative reduction will look like.
While Amtech still sees the strength in all the front-runners such as First Solar (FSLR), Sun Power (SPWR), and JA Solar (JASO), Merrill Lynch is not so confident. Merrill made 3 calls in the solar industry today in response to the news out of Germany:
Evergreen Solar (ESLR) downgraded from Neutral to SELL.
SunPower (SPWR) downgraded from Neutral to SELL.
First Solar (FSLR) maintained as a BUY (target to $325 from $360).