March 27, 2009 / 9:02 PM / 10 years ago

Solar stocks fall, China subsidy enthusiasm wanes

LOS ANGELES, March 27 (Reuters) - Solar stocks fell on Friday, paring sharp gains made a day earlier as enthusiasm over new solar subsidies in China gave way to doubts about the program’s near-term impact on demand.

Chinese solar stocks LDK Solar Co Ltd LDK.N, Canadian Solar (CSIQ.O), and Solarfun Power Holdings Co Ltd SOLF.O, all of which posted gains of more than 25 percent on Thursday, all ended down more than 6 percent on Friday.

Shares of U.S. manufacturers SunPower Corp SPWRA.O and First Solar Inc (FSLR.O) also fell prey to the selloff, ending down 5 percent and 2 percent, respectively.

JA Solar Holdings Co Ltd JASO.O, Trina Solar Ltd TSL.N and Suntech Power Holdings STP.N, three other major Chinese solar manufacturers, bucked the downward trend and finished the trading day in positive territory.

In a press release on Thursday, the Chinese government said solar projects larger than 50 kilowatts of output would be eligible for a subsidy of about $2.90 per watt. Investors cheered the move, as solar shares have been hit hard this year as financing for solar projects has dried up due to the global credit crisis.

On Friday, however, several analysts said Thursday’s rally was overdone given the lack of detail in the government’s plan.

“At this point there is no visibility to the exact dollar and (megawatt) amount of this particular subsidy,” Piper Jaffray analyst Jesse Pichel said in a client note on Friday.

Friedman Billings Ramsey analyst Mehdi Hosseini estimated that the program would be capped at about 180 MW, 1 percent more than his 100 MW 2009 demand estimate in China before the subsidy was announced.

“Does this 1 percent potential upside to our best-case industry estimate... warrant the near 20 percent upside to solar stocks? We say ‘NO WAY!’” Hosseini wrote to clients.

Analysts also said it would take time before the subsidy translates into profits for solar panel makers.

“It will almost certainly take a long time (6-9 months if not longer) before Beijing starts sending out solar rebate checks on a large scale,” Raymond James analyst Pavel Molchanov wrote. “Call us cynical, but government bureaucracies are not known for their efficiency, and China is no exception.”

(Reporting by Nichola Groom; editing by Gunna Dickson)

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