According to the Solar Energy Industries Association (SEIA), a national trade group for the solar industry, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid were moving forward with energy legislation without a tax title that extends the Solar Investment Tax Credits (who said that politicians are people who, when they see light at the end of the tunnel, go out and buy some more tunnel?) With mounting political pressure, the Democratic leadership has been considering ways to slim down the energy package to help assure passage in both houses. The bottom line: If the credits aren’t extended it could slow the adoption of solar generation by utilities.

A spokesman for Pelosi said that no decision has been made to drop any provision of the bill, but traders used the announcement as an excuse to dump solar stocks. On the day of the SEIA announcement, SunPower (SPWR) dropped 11%, First Solar (FSLR) fell 10% and MEMC Electronic Materials (WFR) traded lower by 4%.

The bulls are quick to point out that the U.S. accounts for less than 10% of the solar-products market, and they will most likely see the pullback in solar stocks as an attractive buying opportunity. But these bulls can't see the forest for the trees. There are bigger forces at work here; if an industry's growth depends on politicians instead of supply/demand fundamentals, we should regard its lofty valuations with the same distrust we reserve for politicians. To read my other articles on this topic click here, here and here.

There is no doubt in my mind that solar power will one day be a viable energy source. However, in the near term the industry still has to go through some growing pains. One stocks to highlight: JA Solar (JASO - Last trade $54.85) does not currently sell into the United States, and their recent guidance looks far too conservative.

Disclosure: I do not own any of the stocks mentioned above. I do not own a solar panel.

Eben Esterhuizen  FSLR  Politics  SPWR  Solar Energy  WFR 

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