This week has been unusually volatile in the solar sector, even for experienced solar investors. Tuesday was brutal as LDK Solar
It's all about China
The underlying concern is a U.S. complaint that China is subsidizing solar too much, while China says the U.S. does the same, so boo-hoo. Then yesterday, out of nowhere, China raised interest rates 0.25%, spreading worries throughout the market that the Chinese currency could be on the rise and causing panic in the solar sector. Run for the hills!
But should this really be a concern for solar investors? I'm not buying it. If we know one thing about China, it's that it will protect its export business as long as possible. Sure, it's been likely that a rise in the Chinese currency would inevitably happen, but I wouldn't bet on a hard and fast appreciation. Something slow and methodical is more like it, softening the blow to the solar sector.
We also know that China has made a bigger commitment to renewable energy than the U.S. ever has. First Solar
Don't hit the panic button
The solar sector has been on a tear for nearly two months, so we were probably due for a short-term pullback. In the long term, the bottom line is that both China and the U.S. are subsidizing solar and that it's unlikely major sanctions will be put on an important economic and political product like solar panels. A higher Chinese currency isn't great news, as it could cut into margins for Chinese manufacturers, but costs have been falling fast enough to make this a marginal concern in my eyes. In my opinion, a pullback in this sector should be looked at as a buying opportunity for the long-term solar investor.
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