Suntech Power Shares Got Burned: What You Need to Know
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: After not one, but two back-to-back rallies this week, it looks like Suntech Power (NYS: STP) flew too close to the sun and is now getting burned, with shares falling by as much as 12% on reports that Germany may cut solar subsidies.
So what: Hints were given yesterday, when German Environment Minister Norbert Roettgen suggested that solar installations have been expanding at an unsustainably rapid pace, and that the market needed to be "restricted." In a speech today, Roettgen followed up those remarks by saying that Germany is looking to accelerate cuts and phase them out for some facilities by 2017.
Now what: Roettgen said that the cuts would be implemented in the near future, but on a monthly basis instead of on a half-yearly basis. Discussions will be held within the industry on the issue of its rapid expansion, as installations hit a record 7.5 gigawatts last year. Today's move should serve as a reminder to solar investors of the inherent risk that the industry faces since it continues to rely on government subsidies to offset the price of solar installations.
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