Bad Moon Rising on Solar

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It was a sunny day for solar power when Congress decided to bail out Wall Street. Among the many ornaments hung on what became a Christmas-tree bill -- there were gifts for many industries beyond financial firms in the final bill that passed -- solar industry got its investment tax credit renewed for eight more years.

Let the sunshine in
It's an important piece of legislation for the industry. First, it provides a 30% tax credit for residential and commercial solar installations, and individuals who previously saw their credit capped at $2,000 saw that provision cancelled.

It also eliminated the ITC ban for taxpayers who are required to pay the hated alternative minimum tax, giving more people an opportunity to invest more in solar energy. And it did away with the restrictions on public utility being eligible for the energy credit.

Storm clouds rising
While it's easy to have a sunny disposition about the potential for the solar industry -- many solar stocks, like SunPower (Nasdaq: SPWRA  ) , LDK Solar (NYSE: LDK  ) , and Suntech Power (NYSE: STP  ) , got a nice bounce when the bill passed the Senate -- there are no assurances that the investment tax credit will provide much immediate relief.

Hapoalim Securities analyst Gordon Johnson points out that 50% to 70% of solar projects are financed by debt, and the credit situation in the country hasn't improved to any extent, even with the massive bailout and capital injections the government has made. Thus, there is expected to be little lending available to finance solar projects, at least over the short term.

The eight-year ITC extension is important for unlocking the value inherent in the solar industry, but investors would be wise to use caution when deciding if First Solar (Nasdaq: FSLR  ) or Evergreen Solar (Nasdaq: ESLR  ) , for example, is a worthwhile investment. There had been plenty of exuberant forecasts driving estimates, but recently Goldman Sachs (NYSE: GS  ) and Lazard reined in their excesses.

A Foolish umbrella
There's a developing consensus that the U.S. can become a storehouse of demand for solar power, and the ITC is just one component furthering it. Yet with the country's credit woes still uncertain, lending criteria tightening, and supply issues that need to be worked out, what appear to be cheap valuations today may seem dear by next year. And that's a cloud that shouldn't pass over your portfolio.

Suntech Power is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (4)

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  • Report this Comment On October 15, 2008, at 4:45 PM, Brettze wrote:

    Goldman and Lazard are just concerned with tax credits and forgetting all about the potential of alternate energy to ward off fossil fuel price rebounds in the future as a result of lack of alternate energy growth.. it is a zero sum game... It doesnt matter what you look out for... just get on the game and forget all about other stuff.. You will be surprised at how the game turns out... Capitalists are not always right or uncaring.

  • Report this Comment On October 15, 2008, at 4:46 PM, Brettze wrote:

    Our economy is running out of financial advantages, so it is time for real hard work and sweat... Get to work!! Stop worrying about advantages..

  • Report this Comment On October 15, 2008, at 4:50 PM, Brettze wrote:

    The last thing our economy needs is hestitation after antoher hestistaion... We are working too hard protecting fossil fuel industry at great expenses to our economy not to mention altenrate energy programs... If you believe in alternate energy, go jump in it and expect to lose money for years until it gets established and enjoy scale of economics and better competitive stance against fossil fuel industries... You cannot expect to look for government handouts every year.. Take them when and while you can , but thsi is not what the game is all about... Go in there and roll u p your sleeves.. We are too risk averse and it will not do much good for our economy.. the cowards will not go far anywya..

  • Report this Comment On November 04, 2008, at 12:58 AM, DBGMVETTE wrote:

    Your dog won't hunt. Solar has been beat up mainly because not to many people are willing to recognize it's potential and the associated costs. Costs are coming down. Earlier it was the cost of raw materials, now it's the credit crunch. The materials are coming down and therefore costs.

    You seem to print a picture of -0- sum energy projects for the near future for all fuels. Last time i checked it took financing for coal plants, nuclear, or whatever fuel you might be using. Does that mean we will not be able to meet our energy needs from whatever source due to financing. To me it means the money will go where it is best placed and the tax credits will help solar in that competition.

    Also, no one seems to be mentioning that once the solar grid is established in the right way you don't have to refuel it every second with and unknow cost of always more expensive fuel every minute it operates. Lets see someone build a clean coal plant or nuclear as fast as solar and without the necessary financing.

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