This year should be a sunnier one than 2011 for share holders in publicly traded solar companies.

“In 2011, the whole solar index was down about 65 percent,” said Adam Krop, a vice president with Ardour Capital Investments. “For an industry, that’s a pretty significant fall.”

While 2011 was a terrible year for many solar companies and several even failed, 2012 looks like a year when some of the problems of 2011 will be ironed out, Krop said.

The decline was primarily driven by a weakness in demand. That weakness occurred because several major solar panel manufacturers added a lot of capacity at the end of 2010, which created an oversupply of solar panels and drove prices down, Krop said.

The average price of solar panels dropped almost 40 percent from the fourth quarter of 2010 to the fourth quarter of 2011, Krop said. That’s a huge bottoming out of prices that cut into the company’s profit margins.

“Theoretically, that should be good for demand,” Krop said.

But it has taken some time for that affordability-driven demand to pick up. Now that it has, analysts are predicting big surges in solar installation activity in Germany and China over the next several months to a year.

Germany always re-evaluates its subsidy structure at the beginning of the year and didn’t cut them as deeply as expected. But when there is a lot of installation activity, the country re-evaluates its subsidies July 1.

“You’ll typically see installers rushing to lock in sales at those subsidy levels before they’re re-evaluated,” Krop said.
That means solar companies will likely have a strong first quarter into the first half of the year. But they will still be recovering from those tough losses and lower panel prices, so they will not likely return to profitability until later in the year.

“We’ve also been hearing about some price stabilization in the industry,” Krop said. “That’s cause for some optimism.”