Getting too close to the sun can singe your wings, investors in the solar-panel sector are sure to learn.
Beijing's pledge to subsidize up to half of the cost of installing solar panels raised euphoria in the sector to a new pitch this week. On Thursday, New York-listed shares of Chinese solar-cell companies surged. On Friday those gains continued in shares of solar-panel makers from Mumbai to Tokyo.
This short-term excitement belies some key long-term risks. Namely, the rush of companies entering panel production is reminiscent of the now oversupplied flat-panel and semiconductor markets. Companies in those sectors are losing money faster than they can raise it....
...News of China's subsidy trumped all this. Solarfun's shares rose nearly 42%, and Suntech's 43%. Elsewhere, Webel rose 11%, and Hong Kong's Solargiga Energy jumped 21%.
But this sensitivity to subsidies can also bite. In Japan, nearly 90% of demand is for residential use and extremely sensitive to installation costs. When photovoltaic subsidies ended there in 2006, sales nose-dived 27% the next year, Macquarie says.
This is one investment best made with a thick layer of protection.
HT to a third part of the imperium: Environmental Capital
Now if MarketWatch should weigh in; Oh wait, here's "Analysts are cautious on the solar stock rally"
I'll go check some of the other services offered by the behemoth. Back in a bit.