By Jerilyn Klein Bier

Wall Street hates solar stocks. The equities of industry leaders such as First Solar, SunTech Power Holdings, Trina Solar Ltd. and Yingli Green Energy have plummeted roughly 55% to 70% this year. The Guggenheim Solar ETF, which uses the MAC Solar Index as its tracking index, is down nearly 50% year-to-date. In comparison, the roughly 20% decline this year at SunPower Corp. seems almost respectable.

And those numbers are tame compared to the industry's astounding descent into hell since they peaked in the late-2007/early-2008 period. SunTech, for example, went from $88 in December 2007 to a recent $2.75. SunPower went from a November 2007 high of $152 to a recent $10, while First Solar--cited by many analysts as the best solar company--crashed from $317 in May 2008 to a recent sub-$50 price. And so it goes throughout the industry.

Factors behind the plunge include overcapacity, strong pricing pressures, compressed margins, and subsidy cuts by many countries. And U.S. companies continue to face intense pressure from low-cost Chinese rivals. In addition, the recent failures of scandal-ridden solar-panel maker Solyndra LLC and two other U.S. companies, which cast a negative spotlight on solar woes, have added to investor skittishness toward the sector.

Still, the solar industry remains well-liked by some investors who see it as a key player in the global quest for renewable energy sources.

"Solar has had its hiccups but it's also poised for impressive growth," says Lily Donge, senior analyst for environment and climate change issues at Calvert Investments. "We're in it as a long-term investment." Solar investments comprised the largest sub-sector holding (22% of assets) of the Calvert Global Alternative Energy Fund (CGAEX) as of August 31.

"In the short term there may be volatility and some weakness in the U.S. market, although the regulatory easing out of subsidies in the U.S. should already be factored into the market and revenue outlooks for these companies," Donge says. "In the long term, solar is an incredibly viable technology and is already moving towards cost competitiveness."

She notes the general market price for solar photovoltaic (PV) power has fallen roughly 70% since 2008 because the Chinese have greatly boosted supply. Greater efficiencies and less volatility in the supply chain, which are signs of a maturing sector, are other reasons she expects solar to become more of a go-to energy source.

Looking For Catalysts
Donge believes catalysts for the sector will come from strong regulatory signals across different countries, continued demand for renewables, and increased liquidity and financing to make large projects viable. The industry in the U.S. could also get a boost from a national renewable or clean energy standard, or from stronger state standards requiring a certain percentage of renewables be produced. Half the states already have Renewable Portfolio Standards (RPS), says Donge, who is working through the Investor Network on Climate Risk to get policy makers to consider a national standard.

And the increasing adaptability of solar cell use bodes well going forward. "It's not just your rooftop anymore," says Donge, adding that the promise of flexibility and maneuverability could make it very accessible for emerging markets where demand for renewables is expected to grow fastest.

Calvert's largest solar holding is solar-power module maker First Solar (FLSR), which Donge says has the lowest production costs in the industry thanks to its proprietary thin-film semiconductor technology. But she cautions it may have to scale up or find new growth channels--such as emerging markets--if European demand shrinks further.

"First Solar is a rock star on environmental issues," adds Donge. More than 90% of its PV modules can be returned free of charge and recycled into new equipment. It also has a strong commitment to social, health and safety issues.