Share prices for solar stocks have been on the rise all week. Shares of First Solar (FSLR), Solarfun (SOLF), SunPower (SPWRA), Yingli Green Energy (YGE) and LDK Solar (LDK) are all up more than 10% since Monday’s open. LDK leads the pack, up about 18%.
The big rise in LDK shares is the result of the end of a contract dispute between LDK and Germany’s Q-Cells that began in November. Q-Cells had said that it was terminating its 10-year supply contract with LDK and reclaiming an initial payment under the contract of $244.5 million.
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The stated reason for the dispute was Q-Cells allegation that LDK had not fulfilled unspecified contractual obligations. In reality, the dispute almost certainly revolved around pricing for LDK’s silicon wafers. Q-Cells probably wanted to renegotiate long-term pricing and LDK did not.
Today’s agreement leaves the contract between Q-Cells and LDK intact and the $244.5 million in LDK’s pocket, but the companies did agree to make some changes in the delivery schedule. LDK has reportedly agreed to reductions in volume through 2011 and to more flexible pricing for the life of the contract.
What the agreement also signals is an acknowledgement of the volatility in the market for solar components and the corresponding volatility in solar share prices. LDK shares are down nearly 45% for the year, while Yingli shares are up nearly 300% for the year.
It seems that any news at all from a solar maker causes investors to pile in. Two weeks ago, Yingli announced third-quarter results and noted that the fourth quarter would be essentially flat. However, the company also said that it expected prices to stabilize in the first quarter of 2010. Since then, the shares have risen 7%.
Note that Yingli did not say prices would rise, just that they would not fall. Today’s agreement between LDK and Q-Cells is, at best, essentially the same thing, yet LDK shares are up nearly 8% from yesterday’s close.
The volatility in solar shares probably reflects investors’ hopes of catching a wave and then getting out before the wave turns into an undertow. Buy-and-hold strategies haven’t widely taken hold in the solar sector yet. And that day could still be a ways off.
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