Struggling Chinese makers of solar panels turn themselves into customers by building solar farms
China’s loss-making makers of solar panels believe they may have found a way out of their nightmare – by becoming one-stop renewable energy shops with their own solar farms.
Manufacturers of solar panels, hit hard by the scaling back of solar-power subsidies in Europe, are taking advantage of a new package of government subsidies at home and diversifying into solar-power generation.
In an apparent bid to prop up its ailing solar panel sector, which has been hit by overcapacity and price and trade wars, Beijing unveiled a plan in July to quadruple solar generating capacity to 35 gigawatts (GW) by 2015. Construction costs are estimated at US$50 billion.
Spurred by a package of initiatives from tariffs to tax breaks, and continued low prices due to global oversupply, many of the country’s panel makers are now looking to invest in solar farms to help them return to profitability, industry officials say.
“Definitely the trend is Chinese manufacturers will make more downstream investment,” said a senior official at Chinese solar panel maker Canadian Solar. “Now the domestic market seems to be particularly exciting.”
For manufacturers, generating projects mean a predictable source of demand for their panels. Manufacturers are still mostly losing money, although panel shipment has improved this year on orders from China, Japan and the United States.
Development of solar plants is a more lucrative business. They offer an annual gross return of about 10 per cent, depending on the proportion of debt financing and project location.
As solar panel prices tumbled following the 2008 global financial crisis, many Chinese makers of solar wafers, cells or modules, like GCL Poly, Canadian Solar and Hareon, ventured into solar power generation projects at home or abroad to offset manufacturing losses.
Overseas rivals such as SunPower and First Solar have also diversified into the higher-margin business as solar panel prices remain weak.
The government’s industry-friendly policies have set off a scramble by the likes of state power producers China Huaneng and China Merchants New Energy as well as manufacturers like Shunfeng, Yingli Green and JA Solar.
JA Solar said in August it planned to develop 300 megawatts of generating projects in Hebei province, in what its chief executive, Jin Baofang, said was a major step “to increase the role project development plays in our overall revenue mix”.
Shunfeng Photovoltaic, a small Chinese solar cell maker listed in Hong Kong, has said it will enter agreements to develop 1,079MW of solar power projects and have 600MW in operation or under construction by the end of this year.
To ramp up its own manufacturing capacity to cater for the expansion of its solar generation business, Shunfeng announced a plan last week to purchase the main unit of Chinese solar maker Suntech Power.
Shunfeng has offered 3 billion yuan (HK$3.79 billion) to take over bigger rival Wuxi Suntech, the bankrupt unit of Suntech Power. Wuxi Suntech filed for bankruptcy protection in March after its parent defaulted on a US$541 million convertible bond – one of the biggest defaults by a Chinese company.
The deal could increase Shunfeng’s solar cell capacity by five times to more than 2,000MW.
Analysts warn of financial, regulatory and technical risks. Previous investments in Chinese projects have been hurt by issues like delays in subsidy payments and poor infrastructure.
Like their overseas peers, Chinese panel makers may eventually spin off their power plants by listing them or selling them to funds and insurers to take profit and alleviate potential funding strains, analysts say.
“What we may see is an increased level of listings and spin-offs into Hong Kong and elsewhere to try to build up some sort of vehicles to house these type of assets,” an energy banker at an international bank said.