Solar sector faces uncertain future in China
Uneven development fuels concerns that a repeat of the boom and bust of recent years lies ahead for the mainland
China's solar energy sector is a tale of two industries, in which ailing, overcapacity-plagued panel, parts and materials manufacturers are shunned by banks, while downstream solar farm developers boast mind-blowing expansion plans and credit lines.
But behind the multibillion-yuan construction plans and loan agreements with banks lie concerns that the solar farm building binge will see a repeat of the growing pains and low returns suffered by wind farm developers in 2011 and 2012 due to the inability of power grids to absorb much of their output.
"Risks abound, some of these developers have been telling investors that their projects have no problems connecting with the grids, but they have yet to give convincing evidence to support their assertion," said CIMB Securities utilities and renewable energy analyst Keith Li.
Shunfeng Photovoltaic International, a solar farm developer controlled by Cheng Kin-ming, an investor known for buying distressed assets, said last month it planned to spend eight billion (HK$10.2 billion) to nine billion yuan to install three gigawatts (GW) of solar farms a year in the next three years. The 3GW target equals 21.4 per cent of this year's national target of 14GW of additional solar power capacity.
It came shortly after Cheng funded the bulk of Shunfeng's three billion yuan takeover of bankrupt Wuxi Suntech, once the world's largest solar panel maker.
Shunfeng executives said financing the solar farms plan was feasible because Beijing supported clean energy development to contain air pollution, and it had secured more than 2.3 billion yuan in lines of credit from mainland and offshore banks, including 1.2 billion yuan from China Development Bank (CDB), a mainland policy bank.