Chill settles on once-hot solar panel companies

ByABC News
September 7, 2009, 8:15 PM

— -- Summer may be winding down, but investors holding solar energy stocks are getting one nasty burn. Shares of companies that make solar panels have flamed out this year, missing out on what's been a significant recovery in the stock market.

Unlike the big drops in other once-hot stock groups, solar's troubles aren't just caused by speculators rushing out. There are some real problems in the industry behind the sell-off of the stocks:

A glut of solar panels. Makers of solar panels were so sure demand would surge this year, they went into overdrive producing them, says Christine Hersey, analyst at Wedbush Morgan.

But the flood of supply has swamped demand. Prices of solar modules are in free fall, down about 50% since last year, says Nathaniel Bullard of energy market research firm New Energy Finance. Solar panels now sell for about $2.50 per watt, he says.

Questions over government subsidies. Thanks to generous programs to encourage green power, European nations have been top buyers of solar modules. However, many are scaling back their subsidies, causing more softness in demand.

Last year, for instance, Spain put a cap on its solar incentive program, causing the demand from a country that accounted for a big piece of the market to shrink 80%, Bullard says. Of even more concern is Germany, the largest solar consumer in the world, which is mulling a cut to incentives to buyers of solar power, Hersey says. "Since Germany is the largest market, it sets the tone," she says, adding some solar companies get 60% of revenue from Germany. The subsidies have become unpopular because much of the money is going to Chinese, not German, solar companies, she says.