Solar Sector Responds to China Moves (LDK, TSL, YGE, JASO, STP, FSLR, SPWR)

Last week China’s State Council adopted a plan to further develop seven industries that the government has declared strategic, even as the country’s economy slows down. The plan includes the launch of 20 major projects related to the favored industries, which include energy-saving and environmental protection, information technology, biology, advanced equipment manufacturing, new energy, new materials, and new-energy vehicles. No details were given on the proposed projects.

Whether related to the new plans or not, LDK Solar Co. Ltd. (NYSE: LDK) announced this morning new engineering, procurement, and construction (EPC) contracts for 600 megawatts of new solar installations in China’s Gansu province. LDK’s shares are up on the news, while shares of Trina Solar Ltd. (NYSE: TSL) are down about -5%, shares of Yingli Green Energy Holding Co. Ltd. (NASDAQ: JASO) are down about -3.5%, and shares of Suntech Power Holdings Co. Ltd. (NYSE: STP) are down nearly -2%.

US solar makers First Solar Inc. (NASDAQ: FSLR) and SunPower Corp. (NASDAQ: SPWR) are also down about -0.7% and -1%, respectively.

China’s government has already poured billions of dollars in loans into the country’s solar makers to support capacity expansion. The result has been a global glut of solar panels and collapsing prices. As the new strategic projects are specified, those companies that win the contracts will get a boost and the others in the sector will get a beating.

Today’s announcement from LDK, while not necessarily related to the new strategic plan, raises that company’s prospects. Competitor Suntech announced a technology improvement at a world-wide solar conference today, but it had no positive impact on the stock.

China’s solar industry looks about to embark on a period when the government will help pick the winners by selectively awarding strategic projects. China’s publicly traded solar companies are likely to experience even more volatile share price movement than we’ve seen in the last year or so. Our recent review of value opportunities in the solar sector didn’t find any real prospects among panel makers, but we didn’t account for China’s government helping out by picking some winners.

Shares of LDK are up about 2.5% in the first hour of trading this morning, at $1.72 in a 52-week range of $1.54-$7.63.

Paul Ausick