Where's the Solar Stock Rally?

Solarfun Power Holdings (SOLF) said Tuesday that it signed a long-term supply deal with Jiangsu Zhongneng Polysilicon. It also said it bought out Jiangsu Yangguang Solar.

So overall, two pretty positive business deals for Solarfun. And how did the stock react? It fell nearly 8 percent.

Wading into the solar sector is like dating a manic-depressive. Day-to-day events matter less than the prevailing, protean mood. And these days the mood among solar investors is dark, indeed.

Shares of all the major solar cell and panel makers closed lower Tuesday: Solarfun, Sunpower (SPWR), Suntech (STP), Yingli Green Energy (YGE), Trina (TSL) and JA Solar (JASO) saw declines of between 6 percent and 8 percent. And with the exception of First Solar, stocks are significantly down from their 200-day moving averages as well: Shares of Hoku (HOKU), for example, are down 45 percent from their trading average, Yingli is off 35 percent and Suntech is down 30 percent.

solar stocks, first half of 2008

What’s going on? For one, there are reports that Spain is considering cutting the subsidies for solar installations by 35 percent. Many of the companies whose stocks are tumbling today have a higher exposure to Spain than First Solar or Evergreen.

Many of them are also based in China, and there are concerns emerging about Chinese stocks in general, which have been tumbling of late, as well as cash flows and debt financing at many Chinese solar companies.

In a research note Tuesday, American Technology analyst John Hardy said he’s “concerned about SOLF’s reliance on high interest rate, short-term Chinese bank debt” needed to buy polysilicon. China’s heated economy is at risk of inflation, which could drive interest payments at Solarfun and other companies even higher.

It’s a little ironic that one of the few growing, investible alternatives to petroleum is in a stock slump just as oil prices continue to climb. Such are the interesting times — and, for now at least, times that are short on capital gains — that we live in.

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