(ReneSola story updated for closing stock prices.)

JIASHAN, China ( TheStreet) -- ReneSola ( SOL - Get Report) has been on a run, gaining more than $1 in its share price since the beginning of this week. Since the end of November, ReneSola shares have gained more than $2.

On Thursday morning, though, a potential hitch in ReneSola's plans to move downstream in the solar market -- and increase its earnings by way of the downstream growth -- surfaced. ReneSola said it was pulling out of a deal to acquire Dynamic Green Energy.

By the close of Thursday's regular session, ReneSola shares lost 3.75% on volume of 5.2 million shares, more than double the average volume.

The new year has started with investors placing bets that the Chinese solar players will continue to grow in 2010. Chinese solar players like JA Solar ( JASO), Solarfun Power Holdings ( SOLF) and China Sunergy ( CSUN) have also gotten off to a quick start in the new year.

The assumptions about ReneSola's growth are called into question by the failed acquisition bid, and the market seems split on the importance of the acquisition to ReneSola's fortunes.

The deal between ReneSola and Dynamic Green was first announced in September. ReneSola was expected to buy 100% of Dynamic Green's stock, but the Chinese solar player said today it was terminating the transaction as a result of the inability to receive the local government blessing for the transaction. Several local governmental agency approvals were required.

The acquisition of Dynamic Green Energy was expected to help ReneSola move downstream in the solar market and become a more fully integrated solar company, manufacturing solar wafers and modules.

What's more, ReneSola had raised money ahead of the acquisition to help fund it. ReneSola completed a secondary equity offering and issued a $10 million convertible note.

Two weeks ago, Piper Jaffray released a negative note on ReneSola, effectively scooping ReneSola on its own announcement, and predicting that the deal for Dynamic Green Energy would not happen. Piper Jaffray analyst Jesse Pichel had just returned from a trip in China where local sources told him the deal was at risk.

The Piper Jaffray analyst was irked by the failed deal, especially since ReneSola had raised money in the capital markets based on the planned transaction. Pichel had previously downgraded ReneSola to a sell, but released a reiteration of the underweight in mid-Decemeber, since ReneSola management had promised the Street better numbers as a result of the planned acquisition and was not going to deliver.

On Thursday morning, after ReneSola conceded that the deal for Dynamic Green Energy was off, the company's shares gained ground, rising close to 2%, but by the market close, the failed acquisition bid had possibly taken its toll. ReneSola shares lost 3.8%, or 22 cents, to close at $5.65.

Other Chinese solar stocks declined Thursday as well, including recent high flyers JA Solar ( JASO) and Solarfun Holdings ( SOLF), which fell 3.2% and 4.8%, respectively.

The Street seems split on the importance of the deal for ReneSola. While Piper Jaffray had already downgraded ReneSola to sell, London-based Libertas Capital analyst Titus Menzies thinks ReneSola will be able to continue its growth without the acquisition of Dynamic Green Energy.

"We were pleased when ReneSola originally announced the deal because Dynamic Green is a good downstream player," Menzies said. "This is a disappointment and it would have been a good strategic fit within the longer-term business plan of ReneSola. However, there are other module players out there, and while it's a disappointment, I don't think the deal was instrumental to the outlook for ReneSola."

ReneSola CEO Li Xianshou also tried to downplay the importance of the failed acquisition in the announcement:

"Despite the termination of the acquisition, ReneSola's downstream strategy remains intact and we continue to witness impressive organic growth in our JC Solar cell and module business," he said. "We expect to see significant top-line and bottom-line growth from our downstream business in 2010."

-- Reported by Eric Rosenbaum in New York.

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