Energy & Resources

Light diet required

China’s solar industry faces a crisis

Light diet required

Feeling the heat

Few now dispute that the clouds are darkening for China’s solar industry. But to hear Li Junfeng, deputy director of the energy research institute at the NDRC – the state planning agency – tell it, the industry is caught in a storm far worse than most people realise.

Li opted for a medical metaphor rather than a meteorological one, in describing China’s solar panel firms, collectively referring to them as “a patient on life support”.

And he also warned in the same interview with the Financial Times that at least half of the world’s solar panel manufacturing capacity will have to shut down as a result of “powerful market competition and cruel elimination”. That means China’s solar panel industry will undergo a major consolidation of its own in order to emerge from the “crisis” of overcapacity.

WiC has written before about some the challenges facing the Chinese panel makers.

In the US, anti-dumping measures have kept Chinese manufacturers at bay. The EU is also investigating allegations of dumping and European governments have cut down significantly on subsidies for solar projects. The downturn has seen panel prices plunge more than 70% over the last two years.

The impact has crushed Chinese solar stocks. Many of the former high-flying firms are trading in the single digits, like JA Solar (JASO), a panel maker based in Shanghai. Its share price is below $1, down 84% since it listed on Nasdaq in February 2007, and the company has been notified that it will be delisted once its shares have traded below the minimum $1 threshold for more than 30 consecutive trading days.

Suntech, the world’s largest solar panel maker by capacity, is also in danger of delisting for the same reason, says 21CN Business Herald. Equally worrying for Suntech, it is also heavily in debt and has to find the capital to pay off nearly $600 million in convertible bonds that come due in March next year. Suntech received an emergency $32 million loan from its home city of Wuxi a couple of weeks ago to stay in operation (see WiC161).

Just this week LDK, a large solar company, announced that it will sell a 19.9% stake to an entity called Heng Rui Xin Energy, a consortium that includes a state-owned firm as one of its major investors. Some analysts say the government may even nationalise some of the larger private solar companies.

So does another bailout beckon? The central government has already instructed the state-owned banks to extend credit to the larger solar panel makers to prevent bankruptcies, with the China Securities Journal reporting last month that China Development Bank plans to prioritise loans to the 12 top solar companies.

Another approach is to stimulate the domestic market to boost demand. China is the world’s largest producer of solar panels but less than 1% of the country’s energy mix is solar. The NDRC has already approved 60 new solar power projects so far this year with a total installed capacity of 1.17 gigawatts and Century Weekly was also reporting this week that the National Energy Administration (the body tasked with coordinating energy policy) has instructed every province to build at least 500 megawatts of solar generating power.

That would mean another 15 gigawatts of installed base, although concerns are already being expressed as to how this is going to be funded.

“Based on the current subsidy of Rmb0.4 per kilowatt hour, the project will cost the government Rmb6 billion a year in subsidies,” Wang Sicheng, another official from the NDRC’s energy research insitute, told Century Weekly. “But the investment to build these facilities will cost Rmb150 billion in total. Where does the money come from? There’s a big question mark.”

Government plans to build more solar power generation also appear to call on the State Grid, the operator of China’s power transmission grid, to assume most of the costs for connecting the new solar plants to the electricity network. Those costs are typically quite high, because many solar plants are located in more remote areas of the country, like Qinghai and Xinjiang.

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