Merrill Lynch, the global financial service firm, recently released its regular quarterly analysis of the solar industry’s near-term prospects. It weighed the pros and cons and came out hedging its bets — hardly a surprise given the precarious global economic situation. A representative pair of sentences: “(W)ith this many headwinds, it’s easy to make a sell case on the sector. However, we believe there are also many positives for solar …”

Positives cited by the report include:

•    “The subsidy revision cycle is more or less over … In a major upside surprise that was largely ignored by the market, the U.S. extended the investment tax credits on solar by 8 years and also removed the $2,000 tax credit cap on solar residential installations (it’s now 30 percent of the system cost).”

•    “2009 price erosion appears benign for now.”

•    “New markets ramping … (O)fficial 2009 forecasts from the respective governments were for 1,500MW in Germany, 300MW in Spain, 300MW in Italy, 400MW in Japan, 300MW in South Korea and 100MW in Greece. That’s about 3GW in total to which we need to add some other markets such as the US, China, Australia, etc.”

•    “Utility interest in PV appears to be increasing … (W)e expect U.S. utility demand for solar to accelerate over the next few years as utilities try to meet state imposed renewable portfolio standards.”

Among the negatives: tightening credit and lower oil prices.

The Merrill Lynch report suggests that access to the capital markets may be closing for solar. However, it views this as a positive. “We believe that there are simply too many vendors targeting the solar market ... With capital barriers now increasing, a healthier industry structure could emerge.”

In assessing the report, it’s important to bear in mind that the analysis focuses on the wisdom of investing or divesting at this particular point in time. It does not look at the prospects of the solar industry writ large – and by any reasonable measure these continue to be excellent.

According to an attendee at the recent 23rd European Solar Energy Conference and Exhibition in Valencia, Spain, participants in a CEO panel there estimated that the European market alone for solar in 2020 would total 350-400GW. That’s a mighty impressive number, considering that the current total worldwide installed base is about 12GW. Merrill’s market-driven cautiousness notwithstanding, solar is a skyrocketing industry.