Business World

As dismal as 2008 has been for solar stocks, next year doesn’t look any brighter.

Funding for solar projects and factory expansions remains scarce, prices on panels are falling faster than expected as supplies jump, and a dramatic drop in oil prices has tempered investor appetite for renewable energy stocks.

There is palpable optimism, however, that the new U.S. presidential administration will move rapidly on legislation to boost demand for alternative energy sources. Still, it remains to be seen how quickly that would get done and what form it will take.

“It will be a tumultuous year for most solar companies,” said Karina Funk, an analyst with Winslow Green Funds in Boston.

The WilderHill Clean Energy index, whose components include SunPower Corp, First Solar Inc, Suntech Power Holdings Co Ltd and other solar companies, is down about 70 percent so far this year. That far surpasses the nearly 40 percent decline in the Standard & Poor’s 500 index in 2008.

The gloom over solar stocks followed a sharp run-up in 2007 as investors banked on increased concerns about climate change and rising oil prices to spur demand for clean energy sources.

Those trends still make solar a good long-term bet, say analysts, who also expect the weakened global economy to shake out an industry that has scrambled to ramp up new production lines and factories in recent years.

“We need to see some folks go bankrupt,” said Wedbush Morgan analyst Al Kaschalk. “There is too much in the marketplace, and too much noise. I wouldn’t be surprised to see folks as they come out of Q4 looking a little less stable cheap pay day loans.”

Large, well-funded U.S. players such as Energy Conversion Devices Inc, SunPower and First Solar will survive the turmoil, added Kaschalk.

Winslow’s Funk also said she favors Energy Conversion Devices, the maker of thin solar products that can be integrated into buildings, and First Solar, which does not use the high-priced polysilicon that dominates the industry in its panels, because their technologies set them apart from rivals.

WHAT HAPPENED TO DEMAND?

Even before the dramatic tightening of credit markets and broad market turmoil, investors had cooled to solar after a pullback in Spanish and German government subsidies that threatened to leave the fast-growing market awash in solar panels next year, driving down prices and profit margins despite overall global demand growth.

In recent weeks, the prospects have dimmed as tight access to credit clouds the demand picture.

Last week, the world’s largest solar cell maker, Q-Cells, cut its outlook and said the solar market would stay subdued well into 2009. That announcement has been followed by revenue warnings from companies all along the solar supply chain. Chinese solar cell maker JA Solar Holdings Co, U.S. solar installer Akeena Solar Inc, and MEMC Electronic Materials Inc, which makes the solar industry’s key raw material, polysilicon, have all revised their sales outlooks for the current quarter.

In its statement on Wednesday, MEMC said a lack of available credit had limited customers’ purchasing ability. 

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