Sunergy Scrambles to Lock In Polysilicon

Forget the sun. China Sunergy investors are hoping it rains polysilicon.
With demand for solar energy rising, solar companies are trying to increase production of the wafers that turn sunlight into power.
The problem for China Sunergy: Solar companies that went public early -- circa 2005 -- locked in longer-term supplies of polysilicon used to fashion wafers. Sunergy, which went public in mid-2007, only recently began locking up supply, and in some cases still buys it at spot prices of about $400 a kilogram -- double or more the contract prices.
Investors are hoping that when the Nasdaq-traded company posts results Friday, it says other contracts are forthcoming. Other solar companies, including Solarfun Power Holdings, report next week.
Sunergy, based in Nanjing, China, makes some of the most energy-efficient wafers in the business, meaning it produces more watts per wafer. That ultimately lowers costs and lets the company command premium prices. But Sunergy can't just ramp up production wildly. It needs that supply of contracted silicon because "buying poly at the spot price means messing up your margins," says Sanjay Shrestha, at Lazard Capital Markets.
If Sunergy can nail down supply, says Rob Stone at Cowen & Co., margins should increase markedly in 2009.
And that would have investors singing in the sun.