Slashes To Solar Subsidies Have UBS Turning Bearish - First Solar (NASDAQ:FSLR)

Amid regulatory risks to the demand side, UBS remains cautious on companies with module sales exposure, including

First Solar, Inc. FSLR

, as the market enters a challenging second half of the year.

However, UBS said there could be marginal upside on system costs for companies like SolarCity Corp SCTY. The bigger focus there remains sales and marketing costs.

"Recent news out of Spain denying subsidies to solar developers in an ongoing court case reminds us that the boom-bust cycle of solar is often predicated by a major shift in policy," analyst Julien Dumoulin-Smith wrote in a note.

"While the ITC extension may allow the US to reach double digit installs over the next several years (though 2017 depends on pushouts), recent shifts elsewhere suggest more modest growth for solar –particularly in light of uncertainty in China for 2H following the FiT cut on June 30th," Dumoulin-Smith noted.

In addition, the analyst highlighted that "the 18GW utility scale install cap in the country could mean substantial downturn potential in 2H," which he believes could drive module pricing well below 50 cents/watt worldwide.

Meanwhile, the analyst sees less clarity regarding TerraForm Power Inc TERP share liquidation potential "due to the latest success in Sunedison Inc SUNEQ raising about $300 million of DIP financing, which could otherwise enable it to be an independent entity from SUNE."

"[W]e think investor debate on TERP is unlikely to meaningfully return to shares until full financials are posted and a real liquidity update provided, enabling some view on FCF and potential div (debate remains what the new DPS will be)," Dumoulin-Smith highlighted.

As for Sunedison's remaining pipeline, the analyst still believes "much of the value is tied to early stage assets in order to have any real value for developers like FSLR and SunPower Corporation SPWR.

According to the analyst, the real question remains whether SUNE is successful through the bankruptcy in meeting PPA milestones and conditions, to which "we presently have limited visibility."

"Media reports from late May suggest Rothschild set a Monday, June 20 deadline for bidding on multiple SunEdison development projects. Separate bidding processes are in place for the resi, asset management, and equity interest in TERP and GLBL," the note concluded.

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