The reason for the massive solar sell-off over the last few days is news that there could be an oversupply of panels in 2009, which would drive the price down, resulting in lower margins and revenues.

After an industry conference in Valencia, Spain last week, many solar manufacturers cited a 5-10% decline in prices over the next year. However, most of the companies said demand will remain healthy.

Yet there are still some unknowns.

It is unknown, for example, whether or not the U.S. solar energy investment tax credit will extended by the end of the year. The extension, which is still likely to happen, would ensure robust demand here in the U.S., and would also bolster the share prices of companies that operate here.

Also unknown is the feed-in tariff cap about to be announced by the Spanish government.

For those of you who don't know, a feed-in tariff is what Germany used to initiated its now world-leading solar program. A feed-in tariff forces a utility to buy excess electricity generated from solar systems at a higher rate than retail electricity. After the industry is established, the feed-in tariff is weaned.

This model worked beautifully in Germany, which is now the model solar market.

Spain has also had a successful feed-in tariff. So successful, in fact, that the government wants to cut the amount of eligible solar systems by more than 66%, from 1 GW per year to 300 MW per year.

But the Spanish PV and renewable energy associations have called for more modest cut to 600 MW, which would continue to facilitate high demand.

Germany for its part, resisted cutting its feed-in tariffs last December, delaying the decision until 2010.

In Spain, I'm guessing will see a compromise of somewhere between a 300 MW and 600 MW cap.

To conclude, what we've seen the past few days in the solar industry is worry about what could happen. Not what has happened or will happen.

Bargain Solar Stocks

What you should be doing is picking up some of these solar stocks on the cheap, especially the big boys.

SunPower (NASDAQ: SPWR) under $80 and Suntech (NYSE: STP) under $40 are incredible bargains.

And if there's a compromise on the Spanish feed-in tariff cap, I'd want to be in some of the Chinese producers that call Iberia one of their main markets. Expect Yingli Green Energy (NYSE: YGE) and JA Solar (NASDAQ: JASO).

To play a U.S. extension of the solar ITC, check out North American-based Evergreen Solar (NASDAQ: ESLR).

For a risky play on the same issue look at Clear Skies Solar (OTCBB: CSKH), a domestic installer.

Updated advice, guidance, and alternative energy sector analysis are available by joining the other savvy members of the Alternative Energy Speculator.

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Call it like you see it,

Nick