This Week in Solar

Well, the best thing we solar fans can say about this trading week is that it's ending early. Declines in the shares of companies like ReneSola (NYSE: SOL  ) have been downright Hobbesian in their brutality. Besides the obvious share-price pain, what else happened in this holiday-shortened period?

Things kicked off Monday with that mainstay of solar PR, the supply agreement. In one case, LDK Solar (NYSE: LDK  ) announced that it has signed a decade-long wafer supply contract with Canadian Solar (Nasdaq: CSIQ  ) . The contract begins in the middle of next year, with 40 megawatts' worth of material. That brings Canadian Solar up to 70% feedstock coverage in 2009, which isn't too tenuous, but the company still has a ways to go to sew up adequate silicon supply.

A more interesting announcement emerged the same day from Solarfun Power (Nasdaq: SOLF  ) . The company has entered an eight-year polysilicon supply deal with GCL Silicon subsidiary Jiangsu Zhongneng -- the supplier behind Trina Solar's (NYSE: TSL  ) treasure trove. I turned a skeptical eye toward that Trina deal, because Zhongneng has already failed to deliver contracted supply to none other than ... Solarfun Power.

In January, Solarfun's chairman said his company was "obviously disappointed in Zhongneng's lack of commitment." Now we see Solarfun further embracing its recently noncommittal partner. We can interpret this development in one of two ways. Either Zhongneng has gotten its act together, and is now a reliable partner, or Solarfun is finding polysilicon so tough to come by that it has little choice but to give the young gun another shot.

The latter interpretation isn't too much of a stretch, based on recent reports that Chinese polysilicon start-ups are having production problems. A Friedman, Billings, Ramsey (NYSE: FBR  ) analyst last week noted that these Chinese players are turning to MEMC Electronic Materials (NYSE: WFR  ) for silane gas. The Prometheus Institute, a solar energy research outfit, predicts that out of dozens of new entrants, "few of them will ultimately be successful, both technically and financially."

These clues to the current Chinese blues reinforce my conviction that it's a bit early to celebrate the end of the silicon squeeze.

Related Foolishness:

Fool contributor Toby Shute doesn't have a position in any company mentioned. The Motley Fool's disclosure policy thinks tigers are the best.


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  • Report this Comment On July 03, 2008, at 12:49 PM, 88778877 wrote:

    I'm looking for the bottom to BUY but not sure if I should jump in now or wait a short while. I hope I don't miss it by delaying - EVERY % COUNTS. I wish there was a better guidance for when to buy these solar stocks. They are so susceptable to speculators that their prices can go down 30% or up 50% IN A WEEK. That can be a tremendous return if you hit it right!

    I'm starting to look at the WIND stocks also because they behave similarly. Incidently, it doesn't make sense to me that people would sell SOLAR and WIND with their very good forward earnings projections -- especially when compared to OIL's continual high cost. SOLAR and WIND are one time investments that pay for themselves over time. OIL costs go on forever and can become less available. These stocks should be so much higher even if the economies tank since it can cut operating costs of companies. BUT WHO CARES ABOUT SENSE, I MAKE MY BEST MONEY FOLLOWING MOMENTUM CREATED BY SPECULATORS. But it is a matter of good timing.

  • Report this Comment On July 06, 2008, at 10:43 PM, ajoshi63 wrote:

    Fools' assessment of the solar industry and its growth prospects couldn't be farther from incorrect to put it mildly. Fools myopic view of the prospects of this sector puzzles me. Developing countries are investing in a big way in alternative energy with solar being one of the primary models. With infrastructure growth on tear (and will continue to be for the next 5-10 years), there is absolutely no question that India, African subcontinent, China and the rest of APAC (besides Europe) will continue to boost this industry. Contrarry to market beliefs, Chinese leaders (STP, LDK) will be major winners.

  • Report this Comment On July 07, 2008, at 4:02 PM, 88778877 wrote:

    ajoshi63, are you trying to make SENSE of the solar stock prices or ARTICLE WRITERS? You cannot !! Otherwise, YGE and SOLF would not have forward 12 mo. P/E estimates BELOW 2. Do you think you could also make sense that at the same time FSLR has been promoted with a forward 12 mo. P/E estimate of 78 and it went up 800% in a year?? It isn't fundamentals at this time for solar stocks plus I don't think you can even trust the analysts ratings and their agendas.

    As long as people are irrational about their solar holdings -- influenced by speculators and writers -- there is NO SENSE. If you are looking long term, BUY all solar stocks with a P/E under 10 (present price) and just tuck these solar stocks away in your portfolio and come back to them in a couple of years. You will be happily surprised. Meanwhile, others of us will be more risky with short term trades.

  • Report this Comment On July 07, 2008, at 4:06 PM, 88778877 wrote:

    On prior comment, I meant BUY all solar stocks with a forward 12 mos. P/E estimate under 10. They don't have much of a past history.

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