China’s Solar Industry’s Back Against The Wall

on Aug 24, 2012
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China’s solar panel manufacturing industry has been going strong for more than a decade. Seen as a strategic sector that could position the country as a technology leader, solar panel manufacturing has been heavily supported by the Chinese government. Hundreds of large and small manufacturers have been encouraged to enter the market by the government, which has been providing subsidies and low cost loans to new businesses. The combination of measures saw China emerge as one of the market leaders in the industry, reaching its peak in 2007-09, when the United States, Germany and other markets stepped up installations. The intervening period however has been less bright.

Yesterday (23rd of August) The Associated press released a revealing analysis, written by the AP Business writer Joe McDonald, that sheds light on the current state of China’s solar industry and outlines a grim perspective for its future. Chinese solar panel manufacturing is struggling, the analysis says, and the situation isn’t likely to improve anytime soon.

The numbers are revealing. Five major Chinese manufacturers, including industry leaders Suntech Power Holdings Ltd. (STP) and Yingli Green Energy Ltd. (YGE), reported total losses of $250 million in the last quarter. And in the previous quarter LDK Solar Co. posted a staggering $588.7 million loss. According to Aaron Chew and Francesco Citro, analysts for Maxim Group, the major Chinese manufacturers have accumulated a total of $17.5 billion in debt. Adding more gloom to the picture, Frank Haugwitz, a renewable energy consultant in Beijing said that more than 300 smaller manufacturers have suspended production, with many others operating at 50 percent of their capacity. Mr. Haugwitz added that the next 18 months will be very challenging.

There are several factors that have contributed to the present malaise. Most obviously, global solar panel sales have dropped significantly, especially in debt-crisis engulfed Europe, the biggest solar market in the world.
China’s aggressive support of its solar industry created another problem. The country’s support, with accusations of illegal subsidisation of solar manufacture and subsequent ‘dumping’ of large quantities of artificially cheap panels on western markets, has lead to the oversaturation of the market. And with the rest of the world cutting the levels of financial support for solar installations as part of government belt-tightening, there simply hasn’t been enough demand to support the increased production of solar panels. So, Chinese manufacturers have been forced to sell at a loss.

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The expected anti-dumping measures on Chinese-made solar panels in the US and Europe will present yet another challenge to the industry, considering that most of the production goes to those markets.
The government will most probably save the country’s biggest solar companies, but the potential measures, including cash infusions, might be devastating to foreign investors who have put billions of dollars into the industry.

Beijing is also trying to stimulate domestic use of solar power. According to its latest 5-year plan, the country plans to install 21 gigawatts of solar power, which is a significant increase over the initial target of 5 GW.
All these measures might go some way to stabalising the industry but the situation looks pretty grim at the moment. And it’s about to get even grimmer, with new competition on the market; Korean companies lead by industrial giant Hyundai are now pressing forward with their own production. Having entered the market a little late they are now making a more concerted effort to take a significant share of the solar power market, backing the Chinese into a tight corner.

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