No end in sight to solar industry's woes

PUBLISHED : Thursday, 17 May, 2012, 12:00am
UPDATED : Thursday, 17 May, 2012, 12:00am


Solar power equipment and parts will remain in major global oversupply and product prices will continue to be under downward pressure for at least another year, according to the chief of the world's largest maker of solar panels.

Shi Zhengrong, chairman of Suntech Power Holdings, said the Chinese government should consider asking banks to relax lending to companies in the solar industry, many of whom are reporting widespread losses, tight cash-flows and rising interest expenses.

'It is difficult to say when oversupply will be corrected. I'd say it will take at least 12 months,' Shi said on Tuesday on the sidelines of the SNEC International Solar Industry and Photovoltaic Exhibition & Conference. 'I don't see any sign of a product price rebound.'

New York-listed Suntech, which is based in Wuxi, Jiangsu province, reported a net loss of US$1 billion for last year in March, compared to US$237.9 million profit in 2010, as product prices fell faster than costs were reduced.

Declining sales due to lower subsidies in the main market for solar - Western Europe - were more than offset by growth in other markets, led by the United States and China. But sharply lower panel prices due to intense competition cut profitability markedly.

The global solar power panel manufacturing capacity is around 70 gigawatts a year, of which 50 GW comes from China, according to Li Junfeng, deputy secretary-general of the Chinese Renewable Energy Industries Association. Last year global panel installations amounted to only 27 GW.

But Li does not have much sympathy for solar panel manufacturers.

'The difficulties the industry players find themselves in was not caused by poor industry policies or weak demand. The overcapacity was created by the manufacturers and their financiers,' he told a panel discussion. 'It's a danger we warned the industry about years ago, yet it still could not be prevented. If we give them more financing, wouldn't capacity grow even faster? The industry must discipline itself; it can't expect a government rescue.'

Analysts at US brokerage Sanford Bernstein warned in a research report that the industry was evolving in a similar fashion to the dynamic random-access memory (DRAM) industry, which supplies the main memory in personal computers.

The DRAM industry went through sustained periods of low profitability or losses as producers either competed by cutting prices severely, or out-invested rivals on technology to gain a lead. The result is that only a very few companies make most of the industry's profit.

Analysts warned that the solar power sector may see a new phase of intense rivalry induced by new investment from conglomerates searching for growth, and cash-rich energy firms seeking to diversify into the renewable energy segment.

They cited South Korea's Samsung Electronics, which has announced a plan to plough US$5.5 billion into the solar sector by 2020, and General Electric, which is aiming to beat the current industry technology leader First Solar in a few years, as formidable future competitors.

Shi played down the threat, saying that while some firms were entering the industry, others were leaving.

At least seven US solar companies have filed for bankruptcy since early last year.

Despite industry expectations that China's solar panel market would grow at least 60 per cent this year to 5 GW, Shi said Suntech would be 'very selective' in pursuing domestic business, since some orders had long terms and low prices.

'In this 'cash-is-king' environment, if you cannot get the money back in time, you had better not do the business,' he said.