Shares in First Solar plunged more than six percent this morning, after Germany's environment minister Norbert Roettgen said the country would cut subsidies supporting the solar industry by as much as 30 percent.
The cuts, which had been expected, were far larger than the 15 percent decrease analysts were anticipating.
Roettgen, in a joint announcement with Economic Minister Philipp Rösler, called for an acceleration of the contraction in state-mandated photovoltaic incentives to April 1, three months earlier than planned.
"With the new proposal, the royalty rates are halved compared to 2009. In view of the past two years of greatly increased volume, is the re-adjustment of funding," Roettgen said. "The goal is that in a few years, the photovoltaic market will be ready and make do without subsidies."
At its peak, Germany accounted for 46.8 percent of First Solar's core market installation capacity.
First Solar has been rapidly trying to execute on plans to transition from these subsidized markets to a manufacturer for electric utilities. The company set a goal to derive nearly all of its new orders from this more sustainable market by 2014, along with new regions like the Middle East.
However the decision today cuts First Solar's ability to generate the steady, albeit declining, returns it was seeing in Germany, and could make it difficult for the company to reach its earnings guidance for fiscal 2012, which it said would be in the range of $3.75 to $4.25
Without strong barriers to enter the solar market, competitors, particularly those in China, have rapidly built up capacity, pressuring profit margins at companies like First Solar.
"The solar industry is structurally imbalanced," First Solar CEO Mike Ahearn said on an investor conference call at the end of last year. "The easy re-entry of competitors will keep downward pressure on margins indefinitely."
First Solar declined to comment this morning.
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