Analyst Michael Molnar of Goldman Sachs took a harsh tone on the solar sector today, slashing his opinion to Sell on both First Solar, Inc. (NASDAQ: FSLR) and SunPower Corp. (NASDAQ: SPWRA). Specifically, First Solar was slashed to Conviction Sell from Buy, while SunPower was dropped from Buy to Sell. In a note to clients, Molnar explained, "We strongly believe that SunPower and First Solar are two of the best solar companies in the world and that both will be part of the growing solar industry for years to come. However, in our view, even these companies will face headwinds in a market that is oversupplied with modules."

Specifically, "the risk of oversupply in the solar market will soon become a reality as considerably less generous demand subsidies take hold just as a wave of supply and tight financing hit the market," said Molnar. He added, "We believe that liberal subsidies of the past in markets like Germany and Spain are unlikely to be replicated in the future, given fears of their ultimate cost in a bad world economy."

As a whole, Goldman maintains a "cautious" view of the solar sector -- and the brokerage firm isn't alone. Piper Jaffray also weighed in on solar firms today, with a warning that higher credit costs could reduce average selling prices by an additional 6%. "The renewables industry depends on access to credit, and for the moment, the credit market remains closed," Piper stated. "We believe the cost of capital on renewable projects will increase due to higher bank financed interest rates, larger spreads, and more upfront fees." For 2009, Piper Jaffray predicts that companies' average selling prices will fall by 15% to 21%.