Business

Editor: Sharon Li
6 Oct 2008 02:32:47 GMT

(This article was originally published Wednesday)

SAN FRANCISCO –Solar-power companies are shrugging off uncertainty over a U.S. tax credit and instead are setting their sights on brighter horizons.

Solar-power product makers and installers, whose share prices have been recovering from Monday’s broad stock market downturn, can count on government mandates in at least two countries and several U.S. states to keep orders flowing. But, as if most sectors, solar companies are keeping an eye on the credit crisis for signs of contagion in the broader economy.

“Globally, we’re looking for increased growth,” said Pavel Molchanov, an analyst at Raymond James Financial Inc. in Houston. He noted that “2008 is going to be much bigger than 2007, and 2009 will be higher than 2008.”

Companies such as China-based JA Solar Holdings Co. (JASO), which makes polysilicon solar cells for rooftop panels and which has already sold much of its inventory for 2009, are seen doing well in the next year, analysts said.

The solar-power industry faces challenges in the U.S., the world’s third-largest solar-power market, where an important tax credit is set to expire in December. Most solar contracts are dependent on the tax credit, which brings solar-power costs closer to the cost of generating power from fossil fuels. A measure to renew the tax credit, which has broad support, is part of a larger tax package that isn’t expected to move until after the November elections.

“There’s no real concern that the tax credit will simply disappear,” said Molchanov. “The only question is, when the vote will happen.”

The industry received good news Friday from Spain, the world’s second-largest solar-power market in terms of installed solar-power generation capacity. The Spanish government announced it would continue subsidies for solar-power development through 2009. The news followed a similar decision in June by Germany, the world’s largest solar-power market.

Even with the tax credit uncertainty in the U.S., solar-product makers have much to look forward to, as global demand outside the big-three markets continues to grow, and as U.S. demand growth is seen continuing, driven by laws in 26 states that require utilities to use renewable power.

Shares of San Jose, Calif.-based solar-panel manufacturer and installer Sunpower Corp. (SPWRA), were trading 10% higher at $78.08 Wednesday, retracing losses from Friday’s $83.17 close. Sunpower, JA Solar Holdings and other U.S. and Chinese solar-panel manufacturers stand to profit and grow, not just from the robust Spanish market, but other markets just starting out.

Italy is developing a growing solar market, while new solar markets are developing in Australia, South Korea, Portugal and even emerging markets such as China and South Africa.

“We’re seeing solar gain traction on the policy level,” Molchanov said. “Even though the market is focused on what the German government did and what the Spanish government did, there are more than three countries in the world, so investors should look at those.”

South Korea has established incentives and subsidies to create a domestic market for solar panels.

A proposal by the Japanese government earlier this month would boost incentives for solar and other renewable power as part of an effort to cut greenhouse-gas emissions.

While global solar markets are growing, solar companies are watching the credit crisis in hopes that governments stick to their plans to subsidize renewable energy. While the very near-term and long-term outlook for the solar market is strong, things could change in the event of a global economic downturn, said Jesse Pichel, an analyst with Piper Jaffray Cos. in New York.

“Will subsidized solar continue in other countries, or might global recessions ensue and force incentive programs to the back burner like they have in the U.S. in recent days?” said Pichel.

If a credit gridlock develops and interest rates soar, it could stall or slow down solar projects, many of which are financed with debt, Pichel said.

“If liquidity is impacted, it could get difficult to get debt,” Pichel said, although he added that solar-power generation would likely get premier treatment by banks over other types of commercial operations, because the technology is sound and nothing is more reliable than sunshine.

“The value of a solar project is energy, which is a lot more predictable than a condo in Nevada,” Pichel said.

Some solar companies have already felt the pinch from the financial crisis, particularly those that had pending transactions with Lehman Brothers Holdings Inc. (LEHMQ), the investment bank that filed for bankruptcy Sept. 15. Evergreen Solar Inc. (ESLR), for example, had lent Lehman 30.9 million of its shares as part of a convertible bond offering the company had issued with Lehman as the underwriter. Those shares will likely be sold as part of Lehman’s bankruptcy, presenting a risk of dilution, Molchanov said.

(Cassandra Sweet covers power, natural gas and carbon markets for Dow Jones Newswires. The writer can be reached at 415-439-6468 or by email: cassandra.sweet@dowjones.com.)

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