Solar shares rally on new Chinese subsidy

Chinese-based companies were the biggest gainers, with Trina Solar Ltd (TSL.N) up 40 percent at US$12.14 per share, Suntech Power Holdings (STP.N), up 40 percent at US$10.96, LDK Solar Co (LDK.N), up 36 percent at US$8.00, Yingli Green Energy (YGE.N) up 39 percent at US$5.75, Solarfun Power Holdings (SOLF.O) up 26 percent at US$4.48 and Canadian Solar (CSIQ.O), up 23 percent at US$5.95.

Those shares had been hard hit so far this year as financing for new solar projects dried up, but the news that China would move to support the industry spurred hopes that the government could open up a potentially huge market for the industry.

“This is a pleasant bit of news out in what has been a quite bleak time for the solar industry. The numbers are quite substantive,” said Edward Guinness, co-manager of the Guinness-Atkinson Alternative Energy Fund which owns shares in several solar companies.

According to a statement on a Chinese government website, solar projects larger than 50 kilowatts of output will be eligible for a subsidy of about US$2.90 per watt.

“We believe meaningful upside potential exists if government support for domestic solar sector continues,” a Barclays analyst wrote in a research note, adding the move could boost Chinese demand by about 200 megawatts starting in the second half of 2009, a nearly four-fold increase from Barclays' projection for this year.

China is home to several solar power companies, but most of the sales are to Germany and Spain, the two largest markets in the world. The United States is the third largest market.

The crisis in financial markets has shut off much of the funding for new projects since late last year, while weakness in the euro versus the dollar has eroded profit margins for companies that sell into the European market.

One analyst said while the news was clearly positive for the solar sector, many details had yet to emerge.

“Although the subsidy may cover about 60 percent-plus of the cost of installation, it is unclear how much the energy generated from the system will be valued,” Piper Jaffray analyst Jesse Pichel said in a note to investors.

The news also boosted shares of U.S. companies First Solar Inc (FSLR.O) by 14 percent to US$152.96 per share and SunPower Corp (SPWRA.O) by 15 percent to US$27.66, while Germany's Q-Cells (QCEG.DE) rose 21 percent to 18 euros and Norway's Renewable Energy Corp (REC) (REC.OL) gained 18 percent to 58.40 crowns. (Reporting by Matt Daily and Wanfeng Zhou in New York and Nichola Groom in Los Angeles, editing by Matthew Lewis)

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