Dark clouds loom over solar power outfits

Solar stocks are down as Germany ponders the size of cuts to state subsidies.

Just as World Future Energy Week was opening in Abu Dhabi on Saturday, a shadow fell over solar power companies, thanks to news that the German government plans to cut subsidies. The shock was not limited to German firms such as Q-Cells and SMA Solar, but has affected the sector worldwide. That is because the industry's biggest players, including China's Yingli and the US firm First Solar , have major sales exposure to Germany, the world's biggest solar power consumer.
"For the big players, there is no real way around Germany," said Karsten von Blumenthal, an analyst at SES Research. Analysts said sharply lower German feed-in tariffs - the prices utilities must pay for electricity produced from renewable energy - could trigger a shakeout in the solar industry. News agencies reported that Germany was considering cutting tariffs by as much as 18 per cent to reduce consumer costs and spur competition.
"This is negative for the whole sector as the mentioned cuts are not only higher than the 10 per cent expected but, in particular, would also be implemented one quarter earlier," said the UniCredit analyst Michael Tappeiner. The German government will decide next week on the size of the cuts. That leaves investors wondering whether to dump solar stocks or shift their holdings to the companies most likely to survive a shakeout. If the government limits the subsidy cut, the recent drop in share prices could be a buying opportunity.
The German Solar Industry Association claimed a "double digit" cut would jeopardise thousands of local jobs. On the other hand, France lowered tariffs for power from rooftop solar panels by 24 per cent last Wednesday, following a similar move by Spain in 2008. What is now clear is that the solar industry will be vulnerable to further subsidy changes. The German environment minister Norbert Roettgen said on Saturday that lower tariffs would be "convincing proof of the economic success of renewable energy".
"We will have growth in solar energy, and at the same time less compensation," he predicted. @Email:tcarlisle@thenational