UK Becomes the Latest European Country to Cut Solar Subsidies

Solar stocks such as Suntech Power (NYSE:STP) suffered the latest blow in the ongoing industry-wide shakeout as the U.K government slashed its Feed in Tariff (FiT) subsidies by more than half. ^[1] The support mechanism will be cut from 43p/KWh to 21p/KWh on December 12th and panel installers are scrambling to finish projects before this date. The cut was announced in October, 6 months before the officially scheduled date in April. U.K. is following Germany, Italy and the Czech Republic in cutting down on solar FiT subsidies. Other stocks such as First Solar (NASDAQ:FSLR) are also going to be affected in the long term by the trend of falling subsidies.

We have a $4.50 price estimate for Suntech Power which is almost double its market price.

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Falling costs spur cuts

Installation costs for solar power have declined dramatically over the past couple of years, making the cost of producing solar electricity cheaper than previously imagined. Panels cost $4 per watt in 2008 and some Chinese manufacturers are now selling them for just under a dollar. ^[1] Governments have responded to this by cutting subsidies to make sure that the rate of return earned by investors in solar electricity generation are reasonable. The cuts coming into effect on Dec 12th have resulted in installers rushing to finish projects by the deadline to enjoy the higher tariff rates which may temporarily result in higher demand from U.K. However the one time nature of the demand will hurt the prospects of solar in the long run.

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1. Subsidy cut puts heat on solar panel installers, FT [↩] [↩]