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Why China’s State Grid attempt at Supporting Domestic Solar Industry will Fail

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China’s Solar Industry which accounts for more than 60% of the global solar shipments is in deep trouble. The industry expanded far more rapidly than demand could grow as local governments supported the companies with massive amounts of land and capital. This was done primarily as the solar industry had green credentials and was looked upon having a very bright future. Hundreds of companies in China mushroomed with most of them lacking scale or technology to become sustainable. With solar product prices far below cost, all Chinese solar panel manufacturers are running losses. The heavily indebted companies like LDK and Suntech are surviving due to grants from local governments who fear social trouble due to big job losses. Note solar companies have already fired thousands as revenues fall much faster than costs.

China’s Government has been trying to bring some order into the solar chaos, however it has been unsuccessful so far. Despite increasing the target for solar energy installations to 21 GW by 2015, the massive overhang of capacity means that it has had little effect on improving solar conditions. There have been various proposals such as giving loans to only big solar companies while bankrupting the small ones. However all these attempts have failed.

Aslo Read on GWI Chinese Solar Panel Review.

Now China’s monopoly owners of power transmission State Grid proposes to help the solar panel makers by improving the grid access for solar power plants upto 10 MW in size. Note getting grid access is tough for renewable energy industry as many green energy farms come up without getting connected. Some observers have highlighted that the power grid issue is the biggest problem for domestic solar growth. However with even better grid access, the solar industry in China cannot turnaround without massive capacity destruction. Almost 50% of China’s capacity will have to be destroyed before the global industry can return to breakeven.

China Daily

The Chinese government will support the connection of photovoltaic solar power producers to the national grid with favorable policies, in a bid to expand the domestic market and help the industry get through tough times, an official has said.

“A document on how State Grid will support China’s PV solar industry has been handed to the central government and is waiting approval,” said Meng Xiangan, deputy director of the China Renewable Energy Society.

State Grid Corp, China’s largest State-owned utility company, is expected to allow local grid companies at city level to approve solar power plants with installed capacities of less than 10,000 kilowatts each to be connected to the grid.

Chinese support for Solar Industry

Problems of Chinese Solar Industry

1) Massive global oversupply as large number of small and big players entered the industry with low entry barriers

2) Plummeting solar panel prices have driven prices below cost forcing huge losses for solar panel companies

3) US has imposed anti dumping duties on Chinese made solar cells

4) Europe which accounts for 70% of the solar panel market is investigating a similar duty. India might follow as well.

5) Huge debts racked up in exponential expansion have meant that loss making companies can’t service debts.

The big daddies of the Chinese solar industry are being forced to slash jobs and production as they run out of money after two years of losses. The biggest solar panel producer Suntech is now reducing solar cell capacity and cutting 1500 jobs. LDK has already cut 5-10,000 jobs and may cut more. Trina and GCL have also reduced utilization which mean job losses there as well. Many small and medium solar companies have downed shutters which means additional job firings.

How the Chinese Government intends to support the Solar Industry

a) Increase Domestic Demand – China has already rapidly increased domestic demand with the Chinese solar market expected to become one of the top 3 markets globally with around 5-6 GW of demand which would be around 20% of the global market demand in 2012. The country intends to bolster it further by instructing local governments to increase rooftop solar demand.

Reuters

The National Energy Administration has asked all provinces to report by October 15 their plans on implementing a pilot scheme to supply electricity via small solar panel power generators by 2015, the newspaper reported quoting sources.

Beijing, Shanghai, Tianjin, eastern and coastal regions will be the first few regions to implement the solar panel power generation pilot scheme, the paper said.

b) Consolidate Industry by Lending only to Large Companies – The Chinese Government is trying to consolidate the industry by supporting only the big companies in the solar industry while letting the smaller ones fail. This will be done through its state owned banks which will only give/ roll loans to the chosen solar companies.

Businessweek

China Development Bank Corp. plans to renew a pledge of support for 12 of solar companies, an indication the government is pressing for consolidation within the industry that’s suffering from excess capacity.

The state-owned lender is preparing to recommend stronger financial support for Suntech Power Holdings Co. (STP), Trina Solar Ltd. (TSL) and Yingli Solar Co., the official China Securities Journal reported, citing an unidentified person. It also named Hareon Solar Technology Co. (600401), Shanghai Chaori Solar Energy Science & Technology Co. (002506) and Sungrow Power Supply Co. (300274), without disclosing the other six companies in line for priority funding.

Diplomacy to prevent solar trade wars – The worst fears of the Chinese solar panel producers have come true with Europe starting the history’s biggest anti dumping case against their products. A trade group called ProSun led by German solar panel maker Solarworld, complained against super cheap imports of solar modules from China to the EU 45 days ago. China has reacted mildly by saying that it regretted the European action and it would hurt the global green industry.

Note China has no cards to play at least in the green trade as it has a massive trade surplus and has already faced anti dumping measures from the US in both wind and solar energy. Escalating this into a more general trade war would be a dangerous decision as China is already suffering from a global trade slump. Chinese diplomacy is going into overdrive to prevent Europe from imposing harsh duties on Chinese solar modules with German chancellor Merkel asking EU to moderate its stance. Now China is also imploring India to solve this trade row through dialogue as India is one of the fastest growing solar panel markets in the world. However India has little to gain from dialogue with China as its solar companies have either shut down or are running at 10-20% utilization as they are simply unable to compete at the 70c/watt solar panel prices.

PG

Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to greensneha@yahoo.in or call me on +913340606492.

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