China Increases Support For Chinese Solar Panel Makers

China’s solar industry has been making huge losses for the past 2 years and despite improvement in fundamentals this year, most companies are still in the red. The Chinese solar industry has been successful in terms of marketshare, where it has captured almost 60-70% of the global solar market decimating foregoing competition through sheer cost advantage. One of the main reasons behind the success has been the unstinted support given by provincial and central governments. However, the support was not focused but diffused with hundreds of small solar panel companies being started with capital and funding from banks. This led to a huge glut in the industry, leading to losses for everyone. The large debt undertaken by the solar companies have also come to bite back, with 2 companies Suntech and LDK Solar defaulting on their loans. Hundreds of other smaller companies are also shut down. The travails increased with trade wars between major partners.

A reprieve has come in the form of a massive boom in demand from China and Japan which has led to stabilization in the constantly falling solar panel prices. The Chinese government also seems to be realizing that it needs to change the nature of the support given to the companies. The Chinese government has put in restrictions on solar capacity expansion and also mandated a minimum level of R&D expenditure. This will probably push out the smaller non-competitive companies out of the business.

The government is also planning to help the loss making industry by refunding 50% of the VAT taxes. This should further boost the bottomline of the companies ravaged by the relentless fall in solar panel ASPs. Note most of the solar stocks have seen their prices increase manifold over the last year and the good news is that the momentum has continued. I think it might be time to take profit on some of the solar stocks.

Global Times

China’s Ministry of Finance announced on Sunday that it will offer tax breaks to manufacturers of solar power products, in the country’s latest effort to encourage the use of the green energy. From Oct. 1, 2013 to Dec. 31, 2015, vendors of self-produced power products using solar energy will receive immediate refunds of 50 percent of the value-added taxes, the ministry said in a brief statement. China’s top economic planner, the National Development and Reform Commission, on Aug. 30 decided to provide a subsidy of 0.42 yuan (7 US cents) per kilowatt-hour (KWH) to distributed solar power stations.