For much of this year solar PV makers have been hammered for many reasons, most of which aren’t related. For example, the proposed subsidy cut in Germany expected to take effect on July 1st was supposed to stifle new orders for the second half of 2010. Thin-film solar makers are threatened by the falling cost of crystalline wafers. Of course, the overall weakness of the global economy will curtail new investment in solar projects.  The latest issue to hit the solar makers is ironic to say the least. An executive from the European division First Solar, Inc. (NASDAQ: FSLR) has said that the company “will not be able to produce enough modules to meet demand” in 2010. The same executive also noted that Suntech Power Holdings Co. Ltd. (NYSE: STP), Trina Solar Ltd. (NYSE: TSL), and Yingli Green Energy Holding Co. Ltd. (NYSE: YGE) are also sold out for the rest of this year.

Yet, a look into the Claymore/MAC Global Solar Energy (NYSE: TAN) yields little great performance and little great hope considering that these stocks mentioned here make up a considerable part of this ETF.  Last Friday, the upper house of the German parliament voted against the solar subsidy cut, but that should merely delay it. First Solar expects demand from the rest of Europe, particularly Italy, to pick up some of the slack, and demand from the US and China to pick up even more.

The conventional view is that the German subsidy cut has pulled demand for solar modules forward into the first half of 2010. Demand is expected to fall in the second half of the year and remain depressed until the second half of 2011.

That may not be the whole story, though. Wafer-maker Suntech has announced that it is adding 1,000 megawatts of new manufacturing capacity at its Shanghai plant over the next three years to keep up with increasing demand. The company’s chairman acknowledged that production is sold out for 2010 and that the company can’t meet demand due to manufacturing constraints. He also noted that Suntech hasn’t “seen any impact from the reduction in German subsidies.”

Suntech expects to build 180 megawatts by the end of this month, bringing the company’s total manufacturing capacity to 1,400 megawatts. The company is having some technical problems with its new higher-efficiency technology, and that could delay the building of proposed new capacity.

Crystalline silicon wafers are as much as twice as efficient as thin-film at converting sunlight to electricity. The declining differential between thin-film modules and crystalline wafer PV modules is threatening First Solar’s price advantage.

Brokerage firm Needham & Company this morning started coverage on First Solar with an ‘under perform’ rating, while giving Suntech a ‘hold’ rating and Solarfun Power Holdings Co. Ltd. (NASDAQ:SOLF) a ‘buy’ rating. Solarfun is low-cost wafer maker. Needham also cut the price target on SunPower Corp. (NASDAQ:SPWRA) from $20-$26 last month and has now downgraded the shares to ‘hold’.

Research firm Greentech Media Inc. recently released a market research report on the solar industry which notes that “no country has the necessary characteristics to replace Germany as the singular market of last resort.” The firm sees this as a good thing because it breaks the boom/bust cycle that has characterized the solar industry for years. The report also notes that “supporting steady but controlled growth in a larger number of markets provides a platform for global expansion and de-risks exposure to individual incentive programs.”

That seems about right, but it may take a while for the solar players to adapt. And that probably explains why share prices for the solar makers are so volatile.

SunPower shares are down about 7% today. First Solar and Trina shares are off about 3% so far and the others are following along, with Solarfun off the least.  To show just how battered this sector is, look no further than the Claymore/MAC Global Solar Energy (NYSE: TAN) ETF that tracks the solar sector.  At $6.28, this ETF has gone from hot to not…. The 52-week range is $6.11 to $11.67, and this hit $30.00 briefly in May 2008.

Paul Ausick

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