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Japan's Quake to Shake the Solar Market?

As Japan grapples with the likelihood of a nuclear power disaster as a result of the huge earthquake and tsunami, investors are betting on solar as a more benign form of alternative energy. While solar stocks are going up and up, the impact of Japan's crisis may not be so sunny for the solar market in the coming year.

Shares of American and Chinese solar companies, such as First Solar, SunPower, Suntech Power and JA Solar, rose around 7-11 percent Tuesday. The climb was a sharp contrast to many other stocks in the U.S. market that fell as worries deepened among investors that Japan may not be able to prevent a nuclear power reactor meltdown, which would release high levels of radiation into the atmosphere. A nuclear crisis will delay its recovery from the quake and tsunami, and Japan plays a key role in the global economy as a major supplier of consumer electronics and cars. 

Before the 9.0 earthquake hit Japan last Friday, nuclear power was gaining support in the United States as a good alternative to power from coal. President Obama mentioned nuclear power in his State of the Union address in January this year, and both Republican and Democratic lawmakers have shown their support in varying degrees. What’s happening in Japan will certainly intensify debates over the safety of nuclear power. And that makes solar seem a safer bet.

But how the quake and tsunami change the dynamics of the solar market in the next 12 months is difficult to gauge, particularly in the early days of the crisis. We are seeing different takes on the longer term impact from market analysts and companies. Market research firm, DisplaySearch, noted that most of the factories for silicon, wafers and solar cells are located around central and southern Japan, not in the northern region that was directly hit by the quake and tsunami.

Some equity analysts, such as Barclays Capital’s Vishal Shah, say lawmakers might pass policies more favorable for solar now that nuclear power seems a more risky bet. Others, including Axiom Capital’s Gordon Johnson, don’t see that direct impact. In a research note, Piper Jaffray’s Ahmar Zaman writes that demand for solar energy in Japan, among the top 5 markets in the world, will fall this year as the country focuses its resources on reconstruction and other recovery measures. As a result, Japanese solar companies will try to sell products it originally pegged for the domestic market in other parts of the world and push down the average selling prices of solar panels.

Solar companies with factories in Japan are mostly reporting minimal damage to their equipment and buildings, though some may have suspended their production because of a lack of water and electricity. Taiwan-based AUO Optronics did just that at M. Setek, which produces silicon and turn silicon into wafers in northern Japan.

Solar Frontier, which recently opened its 900-megawatt factory to produce copper-indium-gallium-selenide thin films, said its factories are located far enough that they weren’t affected by the quake and tsunami. Sharp said its factories didn’t sustain major damage, but the full impact on its operations remains to be seen.

While factory equipment is in good shape, the transportation system for shipping materials and products may not be. That is likely to cause a bigger headache for manufacturers, said HIS iSuppli. Solar Frontier certainly pointed to this potential problem in its announcement: “Our supply chain appears to be intact at this time, but we are but we are reviewing all incoming and outgoing logistics as ports around Japan are recovering from the events of Friday.”

SunPower, which buys silicon from Japanese companies, said it won’t change the anticipated production volumes for 2011. SunPower said Japanese suppliers provide less than 10 percent of what it needs for the second quarter, and it will be able to find alternative sources if its Japanese suppliers aren’t able to deliver.

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