Solar ETF And Stocks Getting Hammered: Here's Why

Individual solar stocks also recorded notable declines on Monday. Gordon Johnson of Axiom Capital pointed out the Japanese government may restrict access to FIT program.

Shares of the Guggenheim Solar ETF fell more than 5 percent on Monday, while several solar stocks like First Solar, Inc. (NASDAQ:FSLR), SunPower Corporation (NASDAQ:SPWR) and Canadian Solar Inc. (NASDAQ:CSIQ) also recorded significant losses.

In an email to clients on Monday, Axiom Capital's solar analyst Gordon Johnson explained why solar stocks were getting "smoked."

Johnson cited a report by Japan Times in which a panel commissioned by Japan's Ministry of Economy, Trade and Industry (METI) has decided to restrict the access to the country's FIT program for PV installations to "stable solar power supplies."

The FIT Program Situation

Johnson continued that there are currently more than 700,000 PV projects that were previously granted a FIT contract and that are currently not connected to the grid yet. The government panel is now suggesting that PV projects should only be granted a FIT contract after their completion.

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The analyst further noted that the METI had cancelled approvals for a total of 647 previously approved PV projects back in September 2014, after the project owners failed to begin construction on the PV plants.

Commenting on the news report, Johnson argued that a move by Japan to restrict access to the FIT program represents a "big risk," as Japan accounts for an estimated 16 percent of the total aggregated global solar installs in 2015.

Not An Isolated Selloff

Johnson further highlighted four other key periods in the solar market in which the Guggenheim ETF noticeably sold off.

  • The index corrected from $261 per share (8/28/08) to $46.80 per share (3/9/09).
  • The index corrected from $91.60 (10/14/10) to $68.50 per share (11/30/10).
  • The index corrected from $50.24 per share (3/6/14) to $36.93 per share (5/20/14).
  • The index corrected from $45.16 per share (9/10/14) to $33.37 per share (10/13/14).

The analyst pointed out that all of the corrections in the index were "foreshadowed" by FIT and incentive cuts by various countries worldwide. Accordingly, margins turned negative for "the lion's share" of solar companies across the value chain.

Bottom line, Johnson argued that the news coming out of Japan is "meaningful" and may represent "good shorting opportunities."

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