Still, the more than $17 billion in tax credits have yet to be extended and notably didn't pass the Senate as a part of a February energy bill that failed by one vote.
"The credits really needs to be extended this fall to keep momentum moving into 2009," said Tanous. Solar is still three or four years away from achieving "grid parity" - that is, being able to compete with traditional sources of electricity without subsidies, Tanous said.
That said, solar is in relatively better shape among fossil-fuel substitutes. For biofuels, especially ethanol, high input prices are going to continue to hurt profit margins at companies that were already lagging other alternative energy outfits.
A number of solar energy companies already have a strong position in China, like Asia-based companies Suntech Power Holdings Co. (NYSE:STP) (STP) and LDK Solar Co. (NYSE:LDK) ( LDK), which was up 3% on Monday after signing a five-year supply pact with German chip maker Qimonda.
Domestically, Tanous said, earnings growth in solar could potentially be driven by utilities, which are just beginning to build solar plants in places like Arizona, especially as environment regulations make coal-fired power plants more expensive to run.
Citigroup analysts initiated coverage of the solar sector Friday, saying there will be rapid price deterioration in the sector as excess cell supply starts to percolate in 2009 and 2010. Companies such as Evergreen Solar Inc. (NASDAQ-NMS:ESLR) (ESLR) could be hurt, Citi said, while "the rich get richer." Among the rich, Citi said industry giant First Solar Inc. (NASDAQ-NMS:FSLR) (FSLR) is the best positioned.
The note from Citi came on the heels of a huge stock price jump for Energy Conversion Devices Inc. (NASDAQ-NMS:ENER) (ENER), which climbed 43% Thursday after posting fiscal third-quarter results and pegging the high end of its fiscal fourth-quarter sales outlook ahead of Wall Street estimates, citing increased demand for its solar products.
The options market was equally bullish on Energy Conversion, which makes thin- film flexible solar laminate products for buildings and rooftops. Options to buy outnumbered options to sell by three to one over the past month, with most of the calls bought Thursday following the earnings release.
But in the same session, Real Goods Solar Inc. (NASDAQ-NMS:RSOL) (RSOL), which sells and installs solar energy systems for homes and small businesses, closed at $8.80 a share, down 12% in its first day of trading from its IPO price of $10.
The conflicting moves haven't been lost on traders, with many noting they aren't yet comfortable betting on the sector.
"It's very tough to blindly be long or short clean energy," said Ryan Detrick, senior equities analyst with Schaeffer's Investment Research.
-By Geoffrey Rogow, Dow Jones Newswires; 201-938-5360; geoffrey.rogow@ dowjones.com
(END) Dow Jones Newswires 05-12-08 1511 Copyright (c) 2008 Dow Jones & Company, Inc.
