JinkoSolar Gets $1 Billion Infusion from Chinese Development Bank

JinkoSolar (NYSE:JKS) is the latest company to benefit from the Chinese government’s efforts to prop up its domestic solar industry.

The company has entered into a strategic agreement for $1 billion in financing over the next five years from the Guangdong Branch of China Development Bank (CDB).

The financing is a boon to the company, but even more importantly, many observers see it as China’s first steps toward picking "winners and losers" in its domestic solar industry.

Jinko plans to use the funds to expand overseas operations, building solar farms particularly in Germany, Italy and Spain.

Xiande Li, chairman of JinkoSolar, has this to say about the agreement:

"The agreement with CDB will provide numerous advantages to us, including a long-term, stable source of capital and a complete set of financial services and it will have a far-reaching impact as it demonstrates the confidence with which a leading PV enterprise and strong and respectable financial institution set upon changing the global renewable energy market. We have the confidence to become a premium client of CDB and we will surely make good use of this platform to create a steady stream of high-quality PV projects and excellent return on investment not only in Europe, but in global markets."

JinkoSolar is the eighth-largest panel maker by volume, according to Bloomberg New Energy Finance. The company has manufacturing plants in Jiangxi and Zhejiang Provinces in China, and sales and marketing offices in China, Germany, Italy, France, Switzerland, Australia, Singapore, Canada and the US.

Its vertically integrated business model supports an annual production capacity of 1.2 gigawatts (GW) of polysilicon and wafers, solar cells and modules.

China Picking Winners/ Losers

Many Chinese solar makers are struggling in the cutthroat pricing environment – created by their own domestic industry – that has resulted in the demise of many solar companies from the US and Europe. Prices have fallen an estimated 19% this year, and some cuts have been as steep as 30%.

The Chinese government is selectively investing in some of its biggest players including LDK Solar and Suntech Power. Besides financing, it’s subsidizing solar production at about $0.06 for each kilowatt-hour and is making it cheaper for solar projects to connect to the domestic grid.

These actions are triggering a dramatic expansion of China’s solar capacity this year, with almost 2.71 GW commissioned – a 415% increase over the same period last year.

Even though JinkoSolar isn’t as big as other companies that have received financing, it apparently has a relatively strong long-term plan, reports Bloomberg.

"We believe they chose Jinko because we have a healthy balance sheet and strong business development management in the downstream sector," Li told Bloomberg. "The survivors will be the players who have the advantage in terms of technology, cost and branding. The biggest may not survive."

Ongoing troubles at LDK Solar lend truth to that statement. This once world’s biggest solar wafer maker entered polysilicon production, which squeezed cash from its main business. That business never gained traction and is shut down. LDK got $3 billion in loans from China’s banks and is effectively in bankruptcy.

The company kept plowing money into diversifying its business lines and into acquiring companies in Germany, which too have failed.

This quarter, LDK reported a huge loss of $136.9 million, but that was half the loss of the second quarter – and laid off another 2,500 employees. LDK has cut almost half its employees over the past year.

Will the government bail LDK out? With its huge debt burden, there’s no other way the company can survive. Many believe the situation will be settled early next year.

Suntech Power, the world’s largest panel manufacturer, got an emergency loan of almost $32 million in September as its situation continues to deteriorate (given its recent poor financial results; revenue down by half in Q3) and a bad bond investment.

Still, it was able to get an order for 100 megawatts of panels to supply two big projects under South Africa’s Renewable Energy Independent Power Producer Program. The initiative has a goal of installing 1.45 GW of solar PV in the country by the end of 2014, with 8.2 GW in capacity targeted by 2030.

Subsdizing Solar Projects

China’s government is also subsidizing the build-out of solar plants under its Golden Sun program.

Yingli Green Energy, Trina Solar and about 100 other developers will received about $2.5 billion in subsidies for 2.8 GW of new capacity if it’s completed by June 2013.  

There’s also talk that China may raise its national solar target once again, this time to an astounding 40 GW of solar by 2015. The current target is 21 GW, which was raised from 5 GW last March. 

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