Solar stocks have been on a roller-coaster ride again in 2012 with the excitement of early in the year being overtaken by the fear of weak demand in recent weeks. Part of the problem with predicting where solar companies are headed in the next year or two is that the global solar market is extremely uncertain. Germany and Italy are cutting feed-in tariffs after installations grew faster than they expected and new markets have yet to fully materialize.
But, as usual, the market is probably underestimating the solar market in 2012 and one of the better groups of analysts in the country is revealing why. GTM Research has unleashed its expectations for some of solar's major markets and they're better than I think most investors expect.
Investors have been in full freak-out mode over feed-in tariff cuts in Germany in 2012. But, cuts that were supposed to take place this month have been pushed back to April and May, giving the industry more time to adjust.
And the demise of the German solar market may have been greatly exaggerated. The DIHK, Germany's trade chamber, predicts 8 GW of solar power will be installed this year, up 500 MW from 2011. There's also the fact to consider that feed-in rates are lower than electricity rates, making the investment profitable even without a feed-in tariff.
The solar industry doesn't need Germany to provide much growth, it just needs to be sure demand doesn't fall off a cliff in solar's biggest market. Manufacturers like Canadian Solar, Trina Solar (NYSE: TSL ) , and Yingli Green Energy (NYSE: YGE ) rely heavily on Germany for demand; just maintaining existing demand would be a win in 2012.
The solar market in China will grow rapidly in 2012, partly because the country is energy hungry, but also because China needs to support its own manufacturers. The rapid expansion of capacity at Suntech Power (NYSE: STP ) , JA Solar (Nasdaq: JASO ) , and LDK Solar (NYSE: LDK ) , among many others, has been a major reason that prices have fallen as far as they have. Without China's support some of these manufacturers could go under.
In 2011, China installed about 2 GW of solar and analysts are predicting that number to grow to between 4 GW and 8 GW in 2012. That could make China the biggest solar market in the world in 2012.
The United States
It doesn't seem like the U.S. is really a solar hotspot, but we were the No. 4 installer of solar power in 2011, with 1.8 GW. GTM Research expects that number to climb to 3 GW in 2012 as utility scale projects are built and the residential and commercial installation infrastructure expands.
The good thing is that the U.S. solar industry has been growing on a more sustainable path than that of other markets. Even without a lot of government support, solar energy should see a strong year.
Japan, Italy, and India are among the other countries that will account for significant solar installations in 2012.
Foolish bottom line
Analysts are now predicting flat demand or maybe slight growth in solar demand in 2012 as the industry transitions to more sustainable, long-term demand. That likely means that the stronger players in the industry will be able to maintain production volumes and potentially steal market share this year. The U.S. and China will be particularly interesting to watch. SunPower has been growing market share in the U.S., which could be a strong sign, and China will have a slew of competitors fighting for its growing market.
It will be an interesting year in solar, but those expecting a demise of the industry could be in for a rude awakening.