The sell-off in the solar sector continues Wednesday, due largely to ongoing concerns about a proposal for a sharp reduction in solar subsidies in Spain.

As I noted yesterday, the Spanish government is considering a proposal which would put a 300 MW cap on subsidized solar installations, with a reduction in the subsidy to 33 Euro cents per kilowatt-hour for roof-top installations, and 29 cents for ground-based systems. That would be down from about 45 cents now.

Several analysts weighed in on the issue this morning.

Deutsche Bank’s Stephen O’Rourke notes that a 300 MW cap would be in sharp contrast to installations of more than 1GW in 2008. Were a cap of that size enacted, “it would be a clear negative for overall industry growth,” he writes. O’Rourke advises sticking to companies with lower exposure to Spain, including First Solar (FSLR) and MEMC Electronic Materials (WFR).

Likewise, John Hardy of American Technology Research writes that the reduced cap would be more worrisome than the lower subsidy. “Were this proposal to be put into place…we would view it as negative for poly-based solar module producers, particularly those without a solidified raw materials outlook, the reason being they would be squeezed between a tight poly environment and declining ASPs due to less favorable legislation.” He cites Yingli Green Energy (YGE), Solarfun (SOLF) and Suntech (STP) as companies that would be negatively affected. He likewise cites FSLR and WFR as companies that should not be as exposed; he also likes Sunpower (SPWR).

Citigroup’s Timothy Arcuri notes that the current proposal will face “big opposition” from Spain’s solar industry trade groups, but that the country nonetheless “appears to be succumbing to political pressure to curb subsidies.” Arcuri remains cautious on the solar sector overall, asserting that pricing will be worse than expected next year, “driving a consolidation of profits” to companies with cost or scale advantages, including First Solar. “Spain is the latest example of mounting political pressure on solar subsidies and thus could have broader implications as other countries evaluate their subsidy programs,” he writes. Arcuri contends that Sunpower is actually the most exposed to lower sales in Spain.

Among the solar stocks Wednesday:

  • Canadian Solar (CSIQ) is down $2.74, or 7.6%, to $33.62.
  • Suntech is down 69 cents, or 2%, to $33.72.
  • SunPower is down $3.19, or 4.8%, to $63.46.
  • Solarfun is down $1.03, or 6.4%, to $15.11.
  • Yingli is down 2 cents, or 0.1%, to $14.90.
  • First Solar is down $14.17, or 5.2%, to $256.51.
  • Evergreen Solar is down 38 cents, or 4%, to $9.09.
  • MEMC is down $1.88, or 3.2%, to $57.76.