Shares of solar energy stocks climbed Monday as the U.S. Environmental Protection Agency declared greenhouse gases a danger to public health and as an analyst turned bullish on several solar names, saying he expects strong demand to continue into the first half of 2010.

The so-called "endangerment finding" announced by EPA Administrator Lisa Jackson is necessary for the administration to move ahead with new light-duty vehicle emission standards and is the precursor to wide-ranging regulations on greenhouse gas emissions. The EPA said Monday that large emitters of greenhouse gases would come under new regulations next spring to limit such emissions.

The new regulations will require firms that are building or modifying power plants, refineries and other industrial emitters to install the "best available" technology. The EPA will soon begin determining what technology will be required.

The Obama administration has said it will issue tens of billions of dollars in tax credits and stimulus funds for companies and homeowners who buy solar energy products as it pushes clean energy alternatives.

Meanwhile, Barclays Capital analyst Vishal Shah boosted his ratings on JA Solar Holdings Co. (JASO), SunPower Corp. (SPWRA) and Suntech Power Holdings (STP) to overweight from neutral and said he expects the companies to report improving demand trends in the near term.

"Although concerns about German subsidy cuts could remain a potential overhang on the sector, we believe performance of solar stocks has recently lagged the broader markets rally and as such expect continued positive sector momentum in the near term," Shah said in a note.

In recent trading, JA Solar jumped 11% to $4.87, with shares having gained 12% year to date. SunPower climbed 9% to $24.31, and Suntech increased 8.5% to $16.69. SunPower shares have dropped 34% since the beginning of the year, while Suntech has gained 43%.

Other solar stocks trading higher included ReneSola Ltd. (SOL), which is up 6.6% at $4.37, and Yingli Green Energy Holding Co. Ltd. (YGE), with a 3.9% gain to $15.91. First Solar Inc. (FSLR) rose 3.5% to $134.18, and Trina Solar Ltd. (TSL) advanced 2.7% to $48.74.

Shah said Germany, Italy, the U.S., China and Canada could drive positive sector fundamentals, leading to better-than-expected pricing and volumes. He projected demand of 9.3 gigawatts in 2010 versus prior expectations for 7.3 GW.

Gradual improvement in the financing environment, improvement in permitting constraints and the positive impact of stimulus on U.S. and China demand could provide additional upside to second-half 2010 fundamentals, driving 10.5 GW demand in a bull-case scenario, Shah added.

Still, Shah said near-term negative catalysts include the risk of aggressive pricing behavior and a delay in subsidies from China, which are expected in the first quarter of 2010.

Shah raised his rating on JA Solar shares based on the belief that the downside is limited and solar cell prices will stabilize. He also said there could be upside to Street estimates from better-than-expected shipments and cost reduction.

With Suntech, Shah said several catalysts could drive outperformance, including China and U.S. market-share gains.

As for SunPower, Shah believes shares don't fully reflect the near-term demand environment or the longer-term prospects of the company's business model. Also, potential resolution of an accounting overhang could boost shares.
 

Story by Shara Tibken