Chinese Solar,Wind and Smart Grid companies face Fierce Price Wars in Domestic Market

Chinese Green Companies are being forced to look at overseas market for Profits as their Domestic Market is being ravaged by fierce price wars.Wind,Solar and even Smart Grid Companies in China compete mainly on price as technology is not the strong point for these companies.Lots of these small companies are promoted through provincial government bodies with massive capital and other subsidies.With excess capacity and little technology,there is little incentive for consolidation in the Green Industry with the attrition the only way out.Even the bigger players like Goldwind, Suntech and Jinpan are facing huge pressure from these low margin,low cost small companies in China.The fierce competition in the domestic market has forced these companies to look at foreign market to generate revenues and profits.While the solar companies have succeeded in this endeavor capturing a massive 50% global marketshare,Wind and Smart Grid companies are still struggling to expand outside their home market of China.

Chinese Solar Companies a Huge Success though not for Shareholders

China’s Solar Sector has been a stunning success managing to increase global marketshare from virtually 0% in 2006 to almost 50% in 2010.Leading companies like Suntech,Trina Solar,Solarfun,Canadian Solar and Yingli Solar have managed to dramatically improve their revenues and profits in the intervening period.Their low cost operations and rapid expansion have made them world beaters in solar manufacturing .They have managed to radically change the Solar Rankings to Top Producers unseating the Japanese and the Europeans.While these companies are still far behind in innovation and technology compared to their developed world counterparts,their operations are far more cost efficient.However the stock prices have not managed go up due to the fierce price competition amongst these players.Rapid module price declines has led to a big hit in profitability.Suntech the largest Chinese solar producer accepted that price cuts by its competitors had forced it to lower its ASPs as well.China has been slow to implement Feed in Tariffs (FIT) due to the still high cost for solar power.The limited number of project awards has seen huge competition leading to negative margins for companies bidding in these solar projects.

Wind Companies looking to Foreign Markets to Avoid Domestic Competition

Like Solar,China’s Wind Sector has seen a massive boom with China installing a huge 13 GW of Wind Capacity in 2009 which is 1/3rd of the global demand.The Wind Energy Market in China has witnessed the growth of almost 90 companies with little differentiation competing fiercely on prices.This has led to low to zero margins for most of these companies.Even bigger companies like Goldwind and Sinovel which rank amongst the top 10 global wind turbine suppliers are feeling the heat.The 2008 GFC only exacerbated this trend with even more price cuts.The wind farm operators in China like Longyuan,Huangeng have been the major beneficiaries of these price wars.Now both of these Chinese heavyweights are looking to raise money from capital markets through IPOs to expand into foreign markets.With Chinese wind turbine producers virtually dominating the local market,they are looking to growth markets in India,USA and Europe for further growth.However a lack of technology has been proving a hindrance to their growth.Most of the technology was sourced by these companies from foreign companies when the Chinese government made it mandatory for foreign wind energy producers to partner with local companies.Recently A-Power a Chinese Wind Power company faced stiff opposition from US lawmakers when it applied for US Stimulus funds for building a massive wind farm in Texas.

China’s Wind Industry Is About To Get Squeezed – Renewable Energy World

Statistics paint a stark picture: in 2004 China had only 6 wind turbine manufacturers; as of the end of 2009 that number had skyrocketed to nearly 90 companies.  Of those 90 companies, 57 already have produced at least one prototype and 30 Chinese wind turbine manufacturers now are producing at the rate of 100 units or more per annum.  In addition to the proliferation of wind turbine manufacturers in China, there are now upwards of 100 wind parts manufacturers operating in China.  China now is home to more than 50 wind turbine blade manufacturers.Almost surely many of these wind industry equipment manufacturers will be caught up in the major shakeout that is on the horizon — repeating a familiar plot line played out in countless other Chinese industries.  An official with Xiang Power Wind Power Co., Ltd. has observed that a large number of wind equipment manufacturers are now losing money and that in the next stage the industry will experience failures on a large scale.

Goldwind, one of the “big three” wind turbine manufacturers, also is feeling the pressure from steadily increasing competition. Mr. Wu Gang, the Chairman of the Board of Directors of Goldwind recently referred to the competition as “savage” and worried about what the effects of this “self-destructively pernicious” competition would be on the healthy development of the wind industry.  The competition is so fierce because the low-end segment of the market is over-saturated, which in turn has lead to price competition and falling profitability, which further squeezes companies’ ability to invest in the research and development necessary to move up the value-added chain.

Smart Grid Companies also facing stiff Price Competition

China is still far behind in the Green Sectors of Smart Grid and Energy Efficiency.However there are some companies which are trying to break into these nascent markets.Jinpan International which is a Chinese maker of cast resin Transformers saw its stock plummeting after it reported bad Q2 2010 results.It attributed a sharp fall in revenues in 2010 to price wars with local unorganized players.While its volumes rose,its price fell much more leading to a dramatic fall in margins.

Jinpan International cuts outlook for 2010 – Businessweek

Li also said prices are falling of silicon steel, used to make cast resin transformers, and that is allowing smaller manufacturers to compete on price.The company expects domestic sales volume to rise 10 percent this year but pricing will fall 20 percent from the prior year.