Don't Miss the Comeback in Solar Stocks

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"2010 will likely turn out to be a banner year for the industry."

During the course of 2010, investors have continually fretted that the solar power industry was headed for severe slump. They worried that too many new factories were set to produce far more solar panels than the industry could absorb, and that supply increase was coming right at a time when demand was set to fall. European governments had been the key behind robust global demand in previous years, but massive budget pressures would likely force them to throttle back incentives.

Despite those dire concerns, 2010 will likely turn out to be a banner year for the industry, with global solar spending set to more than double, according to UBS. Firm demand means that suppliers did not need to embark on profit-sapping price wars, as many had feared.

Lower costs and firm prices translates into stable or rising profit margins, which is just what we are seeing in recent industry quarterly reports. Sector share prices have rebounded from their spring lows, but they still have more room to run.

To be sure, the industry is in flux. Germany, which had been the biggest buyer of solar equipment, is likely to start spending less in coming years. And don't be surprised if a few new growth markets such as the Czech Republic start to disappoint on the heels of budget pressures. But elsewhere, especially in the United States, demand is really kicking into gear. As this table shows, the U.S. should emerge as the second-leading buyer of solar equipment by 2012 in terms of GigaWatts (GW) of power.

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