Solar Sector Clobbered as German Cuts Seen as Worse than Anticipated (TAN)

Solar stocks are being covered by ominous cumulonimbus clouds Tuesday afternoon as traders are responding to rumors of a potential subsidy cut in Germany. The Solar ETF (NYSE: TAN) is down 6 percent at last check.

Several analysts commented on the implications of such an event this morning.

Deutsche Bank said upcoming German policy changes will be worse than expected. Industry checks point to a 15 percent April cut as well as a 2 percent monthly feed-in tariff thereafter. In addition, a 800 to 900 KWh/KWp subsidy cap is under discussion.

Though Deutsche has been pricing in the April and feed-in tariff cuts, the extra KWh/KWp cut results in additional 10 percent to 20 percent of additional subsidy cuts. The initial 15 percent was also originally slated for July voting, though opposition from some states could push the April vote back to the July time frame.

Deutsche's Vishal Shah commented, "We believe demand from other markets could remain strong in Q1, but considering the fact that German market could potentially slow down significantly from 1GW+ monthly run-rate currently to 200-300MW monthly run-rate from April/May and also considering the potential for other markets (UK, Italy, US) to be down sequentially in Q2, we see the current strength in fundamentals deteriorating from March timeframe."

Shah thinks First Solar (Nasdaq: FSLR) has the most near-term downside risk and the addition of the KWh/KWp could "significantly reduce" IRRs.

Axiom Capital also recommends shorting First Solar shares amid rumors the company is having difficulty securing financing in Germany due to production issues.

A Citi analyst is modeling for Germany to cut feed-in tariffs by 20 percent to 35 percent on April 1st, above Street estimates.

Earlier in the session, Auriga downgraded Yingli Green Energy (NYSE: YGE), Trina Solar (NYSE: TSL), and JinkoSolar (NYSE: JKS). For more color on the calls, click here.

Also earlier, Energy Conversion Devices (Nasdaq: ENER) filed for Chapter 11 bankruptcy protection.

Around the sector:

• JA Solar (Nasdaq: JASO) down 7.3 percent
  
• LDK Solar (NYSE: LDK) down 7.6 percent
  
• Renesola (NYSE: SOL) down 8.4 percent
  
• Hanwha (Nasdaq: HSOL) down 7.6 percent
  
• Yingli down 10.2 percent
  
• Trina down 9 percent
  
• Jinko down 9.8 percent

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