North Coast Solar Stocks

September 24, 2008

Passage Of New Tax Incentives Brightens Outlook For U.S. Solar

Filed under: AKNS, ENER, FSLR, SPWR, TAN — Tags: , , , — Jason @ 7:55 pm

Wednesday September 24, 7:55 pm ET
Brian Womack

Solar stocks soared Wednesday after the U.S. Senate approved a more than $17 billion energy package that could spark the nation’s sun-powered industry.

“Christmas came early for the U.S. solar industry,” said Travis Bradford, an analyst at the Prometheus Institute for Sustainable Development.

The Senate, after failing several times in the past year, approved a better-than-expected legislative package late Tuesday that extends solar’s investment tax credit for eight years, boosts the amount of the credit for some — and even aids the utility industry. Current incentives expire at year’s end.

The House must now take up the legislation. Some say a vote is possible as early as Thursday. Passage of the bill in its current form is far from certain, though the White House has indicated its support.

Still, the Senate has been a key obstacle in the process, so investors applauded its vote.

The package would give the solar industry a big shot in the arm. The U.S. could emerge as another huge solar market besides Europe and Japan, analysts say. The U.S. market is ripe for growth, and the tax incentives help make solar competitive with traditional energy.

“This is a huge deal for the solar industry, but also for the economy,” said Monique Hanis, a spokeswoman for the Solar Energy Industries Association trade group. “This helps put solar within reach of all Americans.”

The solar-focused Claymore/MAC Global Solar Energy (TAN) exchange-traded fund climbed 4.2% Wednesday. Akeena Solar (AKNS), which designs panels and installs solar projects in the U.S., shot up as much as 25% before ending the day up 4.7%, at 4.47.

Solar panel makers also did well. First Solar (FSLR) — the largest U.S. solar stock by market value — gained 5.2%. SunPower (SPWR), which sells panels and does installations, rose 6.6%. And Energy Conversion Devices (ENER) rose 13% to 63.79.

“Certainly, the package is a big step in the right direction,” said Timothy Arcuri, an analyst with Citi Investment Research.

Yet, he cautioned that the incentives wouldn’t likely help solar companies in a big way until 2010 and beyond. “It’s going to take some time for the U.S. market to really scale,” he said.

The market today is dominated by Europe, especially Germany and Spain. The U.S. has a mere 5% or so of the solar market, but it could double its share in the next three or four years, Bradford says.

“What this basically means is that the U.S. is probably going to regain its position as one of the major markets of the world,” Bradford said.

After working for weeks on a compromise, the Senate passed the bill handily — 93-2. Some House members, though, could question how the government will pay for the bill, delaying the process, analysts say. Some observers had expected the House to act on the bill before a Congressional recess scheduled for the end of the week, but the financial crisis might keep Congress in session longer.

In any case, Congress reconvenes after the Nov. 4 elections. Arcuri says it might yet take some time to negotiate the bill, but compromise legislation could very well get Congressional and White House approval before year’s end, when current incentives expire, he says.

“The good thing is that if the bill goes through in any form close to what they’re talking about, it would be very, very positive for our business,” said Barry Cinnamon, chief executive of Akeena.

The Senate package is better than what some industry executives and analysts expected from Congress.

The tax credit today is 30% of the cost of a solar system, but with a $2,000 cap for residential projects, Hanis says. Many residential systems can cost $25,000 to $30,000, or more. The new Senate-approved incentives are uncapped.

The eight-year extension is another help. Some Wall Street analysts were looking for a one-year extension to be passed to cover 2009 — and then expected a longer-term bill to come up under the new presidential administration next year.

Bradford says the eight-year length should help enable many solar projects that can take a couple of years to plan and process.

The Senate-approved package also extends tax credits to utilities. The old plan had focused on commercial projects for businesses and residences, he says.

Bradford says the legislation gives the solar industry in the U.S. pretty much all it wanted.

“This was a best-case scenario,” Bradford said.

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