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Solar Stocks and the Tax Credit Extension

The US Congress voted on Monday December 11 to extend, by 1 year, a 30% tax credit for the solar industry. This federal incentive is essential in allowing solar to be competitive with conventional energy sources.

How have investors reacted to this announcement so far? Let’s have a quick look at 5 high-profile solar stocks to see whether this news has impacted the trading patterns of solar investors. The stocks are: Suntech Power [NYSE:STP], Energy Conversion Devices [NASDAQ:ENER], DayStar Tech [NASDAQ:DSTI], Evergreen

The results are not especially conclusive, to say the least. SunPower and Energy Conversion Devices both had nice pops on the news but, by the end of Thursday, both stocks had shed some of the gain. Evergreen has effectively gone nowhere since mid-August and this did nothing rectify the situation. SunTech actually began correcting half-way through Monday after enjoying a 23% run to the upside over the previous 30 days, probably on profit taking. By the end of Tuesday, Suntech was down 8% on its Friday closing price – its steepest 2-day slump in over a month. Finally, DayStar Tech, unhindered by the announcement, continued its long journey south from its 52-week high of $15.75 to close at $4.27 on Thursday, flirting with its 52-week low of $4.25.

The announcement likely had no lasting effect on solar stocks because the extension is for 1 year. The only 2 companies turning a profit so far are Suntech Power and SunPower, and this is the 1st year SunPower does so. Most investors and project financiers’ time horizons are longer than 1 year, especially for capital-intensive endeavors like solar farms, and it is thus far from clear whether this decision on its own will spur any significant investment in the solar space if there is a risk that the tax credit isn’t renewed in 2007.

To be sure, the prospects for solar being able to compete with other energy sources without government support are improving rapidly. Too many uncertainties, however, remain, and it is highly improbable that this industry will be able to thrive on its own in the next couple of years, thus calls by industry insiders for 5 or even 10-year tax credits.

(DISCLOSURE: The author owns Suntech Power)

was posted on AltEnergyStocks.com.

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It should be interesting to see how the federal incentives will boost the solar stocks sector, but it might take months to take any conclusion.

I believe that the best returns will come from the solar stocks that are already profiting, and the ones that promise better technology in the future.

CIGS technology that is being used in many of these companies should provide one of the edges for the future of solar energy.

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