Solar-panel company stocks have plunged to multiyear lows as slowing demand and a glut of panels from Asia have squeezed margins, creating a cloud that could hang over the industry for some time.

Shares of U.S. solar-panel giant First Solar Inc. (FSLR) have been trading at four-year lows, while shares of Chinese rival Suntech Power Holdings Co. Ltd. (STP) have reached all-time lows since the company went public in 2005. The Standard & Poor's Global Clean Energy Index, which includes First Solar, Iberdrola S.A. (IBE.MC) and other renewable energy companies, was down 41% year-to-date as of Monday. That compares to the broader S&P 500 index, which was down 11.3% during the same period.

Demand for solar panels in Europe, which accounted for more than 80% of demand in 2010, has slowed as governments in Italy, Germany and other countries have cut solar-power incentives and as financial turmoil has prompted lenders to scale back financing for renewable energy projects, industry executives say. While solar-power demand in the U.S., China and other countries has been growing, those markets haven't grown fast enough to absorb a massive buildout of solar-panel manufacturing capacity in China and other Asian countries. The September bankruptcy of California solar-panel maker Solyndra Inc. hasn't helped the solar sector, even though that company was privately held and didn't have a significant position in the market.

"This is a real mess, I don't know how else to put it," said Jack Robinson, managing director at Winslow Management Co.'s Winslow Green Growth Fund (WGGFX). He cited the lack of a broad U.S. clean-energy policy, compared to billions of dollars in Chinese government support for Chinese solar companies, as having led to a sort of arrested development of the U.S. clean-energy sector, with no bottom to falling stocks in sight.

"There are too many companies, too many technologies and I can't believe there isn't going to be more consolidation," Robinson said.

Manufacturers are likely to ship at least 18 gigawatts of solar panels this year, up from 17.4 gigawatts in 2010, although 3 gigawatts of this year's panels are likely to remain in inventory, said Paula Mints, an analyst at Navigant Consulting.

"You'll see reselling of products at ridiculously low prices at the beginning of the year," Mints predicted. She added that while top-tier manufacturers are now selling their panels at between $1.20 and $1.50 a watt -- down from more than $2 last year -- the same product can be bought from a reseller on the "gray market" for as little as $1.10 a watt. Lower-tier solar-panel makers are now selling their wares for less than $1 a watt, Mints said.

Slumping prices have hit solar-companies and their share prices hard. SunPower Corp. (SPWRA, SPWRB) said Monday that "challenging market conditions" have prompted the company to revise its 2011 revenue and earnings forecast when it reports third-quarter results in November. SunPower's class A shares closed 12% lower Monday at $7.14, an all-time low since the company went public in 2005.

"The real problem with solar is a lack of demand due to the macroeconomic concerns, especially in Europe," said Jesse Pichel, an analyst at Jefferies Group Inc. (JEF). ""We think [solar] stocks are going lower."

To be sure, the lower stock prices of solar and other renewable energy companies provide buying opportunities for investors who previously stayed away from such names because they thought the prices were too high.

Robinson cited French oil major Total S.A.'s (TOT, FP.FR) recent acquisition of a controlling stake in SunPower, and Chevron Corp.'s (CVX) involvement in solar power as evidence that large energy companies are increasingly identifying solar power as a viable, long-term form of energy.

Even so, the turmoil in the global solar-power market is likely to continue testing companies to determine which ones are the strongest and which ones will follow Solyndra into bankruptcy.

-By Cassandra Sweet, Dow Jones Newswires; 415-439-6468; cassandra.sweet@dowjones.com

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