China Steps Up Efforts to Prop Up Its Solar Industry

The Chinese government is stepping up efforts to prop up struggling domestic solar companies by helping them expand locally – with loans, subsidies and policies that stimulate in-country generating capacity.

China’s $20 billion export-oriented solar industry is now looking internally for growth because of excess inventory from lower foreign demand (due to cuts in subsidies in Germany and elsewhere and anti-dumping tariffs in the US).

China’s solar industry is now bruised by its own cuthroat prices which crushed so many solar companies in the US and Europe. This year, Chinese solar companies further cut prices to the bone – by some 30% – and many of its biggest firms are struggling to stay afloat.

At the national level, State Grid Corp, China’s biggest state-owned utility, is likely to to waive charges to connect solar PV to the grid, considered one of the most expensive and biggest obstacles for the industry.

China’s National Energy Administration plans to subsidize solar production at about $0.06 for each kilowatt-hour produced.

Solar has expanded dramatically in China this year, with 2.71 gigawatts (GW) commissioned, a 415% increase from the first nine months of 2011. That puts it on track to be the world’s second largest PV market this year.

China also raised its solar target to prop up the industry. It’s new target, announced in July, is 21 GW of solar by 2015 (up from 15 GW).

Yingli Green Energy, China’s #2 solar maker, has boosted domestic sales 36% – amounting to a third of its revenue this year.

In June, LDK Solar signed agreements to build three, 200 MW solar PV plants in China.

Support From Local Governments

Chinese cities are also stepping up with loans to keep production lines running for solar firms.

In October, LDK sold a 19.9% stake to an investment group partially owned by its home city of Xinyu. In July, the city also helped with part of a $79.4 million loan payment.

Suntech got a $32 million loan in September organized by Wuxi, where it is based. (The money is actually coming from The Bank of China.)

So far, local financial pledges have had little impact on company stock prices – LDK and Suntech have lost 27% and 12%, respectively in the past three months compared with an average loss of 8.4% across the Bloomberg Global Large Solar Energy index.

Both companies carry enormous debt burdens. Suntech holds about $2.3 billion in debt, including $541 million in convertible notes due in five months.

LDK has about $3.6 billion in debt. In the past few weeks, it even agreed to sell off three solar plants – and lease them back – to improve its balance sheet.

Taken together, the two companies have losses of $987 million this year, reports Bloomberg. Their balance sheets are so poor that they’d be looking at bankruptcy if they American or European companies, Pavel Molchanov, a Raymond James & Associates analyst told Bloomberg.

Consolidation Encouraged?

Some of this assistance runs counter to moves by China’s federal government to strengthen the industry by encouraging mergers to create fewer, healthier companies.

China Development Bank wants certain panel makers to merge and has pledged to stand behind 12 companies. But it also wants the loans repaid that it’s extended to struggling companies.

All these loans and debt renegotiations may be delaying that inevitable consolidation.

"Every province, every city, every bank is going to try to protect their vested interest as best they can," Pavel Molchanov, an analyst at Raymond James & Associates Inc., told Bloomberg.

Provincial governments mostly want solar manufacturers "to keep the lights on and not lay people off," because unemployment is high in China, Jeremy Haft, founder of BChinaB Inc., told Bloomberg.

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