Bad Moon Rising on Solar

It was a sunny day for solar power when Congress decided to bail out Wall Street. The final bill included gifts for many industries, including the renewal of investment tax credits (ITCs) for solar power for eight more years.

While the future for the solar industry seems bright, the tax credits may provide little immediate relief.

Hapoalim Securities analyst Gordon Johnson points out that 50 percent to 70 percent of solar projects are financed by debt, and the credit situation in the country hasn't improved to any extent, even with the massive bailout and capital injections the government has made. Thus, there is expected to be little lending available to finance solar projects, at least over the short term.

The eight-year ITC extension is important for unlocking the value inherent in the solar industry, but investors would be wise to use caution when deciding whether to invest in solar companies right now.

There's a developing consensus that the U.S. can become a storehouse of demand for solar power, and the ITC is just one component furthering it. Yet with the country's credit woes still uncertain, lending criteria tightening and supply issues that need to be worked out, what appear to be cheap valuations today may seem dear by next year. And that's a cloud that shouldn't pass over your portfolio.