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Even though Germany gets about as much sun as the average town in Alaska, it’s the world’s leader in the solar power industry. Why? Extensive and effective government subsidies. Today, it looks like subsidies will shrink 16 to 17 percent starting in April, with further cuts coming next year. Solar stocks all over the world have plunged in response to the news, providing a bittersweet opportunity for investors.
Subsidy cuts have been a long time coming in Germany, where the solar market is so saturated that equipment and component prices have dropped off a cliff. The same problem has been observed in Spain, where the government is also very supportive of the sector — it might very well follow Germany’s lead in scaling back. Now that the two countries have established dominance in solar, it seems like the time is ripe to ease off and let prices go back up. Sources say legislation is in the hopper but no official government announcements have been made by either to this effect.
France has actually beaten everyone to the punch, announcing a 24 percent reduction in solar subsidies. This won’t have much of an effect on its own, with the country cornering just 3 percent of the market. It will also be lowering its feed-in tariff to defuse a potential solar bubble.
Regardless of its long-term impact, the decision to cut subsidies for rooftop and open-field panels has darkened the day for public solar companies across the board. San Jose, Calif.-based SunPower‘s stock is down 4.4 percent and First Solar‘s is down 5.5 percent. China’s solar giants were also hard hit, with Trina Solar‘s share price falling 11.5 percent and Suntech Power Holdings seeing its drop 8.5 percent.
This seems gloomy, but there’s a silver lining for solar investors. Those that missed out on getting in on the ground level, especially when it comes to the Chinese companies, may get another shot at it before it inevitably heads back up. In fact, this could be really good news for solar companies in China and the U.S. where subsidies and renewable energy quotas are just starting to kick in.
First Solar’s performance today already foreshadows a rebound (although there’s no telling what will happen when the subsidy cuts actually happen). It acquired a number of solar projects being developed by Edison Mission Group, a subsidiary of Edison International, for an undisclosed amount. Even though the Tempe, Ariz.-based company made 60 to 70 percent of its revenue in Germany last year — and even has its own manufacturing site there — it so far seems unfazed by the impending changes.