Thursday, March 21, 2013

Chinese Solar Bust

Solar is getting to be more affordable.  A lot more affordable really.

Unfortunately for the Chinese, it is because the government pushed the industry so hard with easy money that they have far more manufacturing capacity than can be kept productive in an anemic world economy.

This has already had its effect on suppliers outside of China.

From late last year:

Lights Out For China’s Solar Power Industry?
James Parker, The Diplomat, 8 December 2012
...the Chinese drive has been painful to say the least, with bankruptcies already hitting Q-cells and Solon in Germany and Solyndra and Evergreen Solar in the U.S. Trade tensions in the solar sector have inevitably increased, with both the EU and the U.S. bringing cases against China for dumping and unfair subsidies, which include underpriced financing, back home.
And this was already having extreme problems at home in China:
The other result is that LDK, Suntech, Yingli and other Chinese firms are all on the verge of bankruptcy. During the boom years, they borrowed heavily to fund their investments. Now that prices have collapsed in the face of over-supply, Chinese PV firms are effectively incapable of paying back funds.
Well the chickens have come home to roost.

The Chinese bond market has had a suspicious lack of defaults.  Nobody is ever allowed to go bankrupt.  But one gathers that  the numbers are starting to get to large.  And the following piece notes that the Chinese Government wants to consolidate the industry.

On the Brink? China’s Solar Industry Debt Drama
James Parker, The Diplomat, 19 March 2013 (hat tip: Big Picture)
China’s solar industry might soon provide our first modern case study of a company defaulting in China’s bond market, however. Three large solar companies in China—Suntech, Chaori and LDK Solar— are all struggling to meet their debt obligations.
One of the first signs of this was a press statement that Chaori Solar Energy Science & Technology Co. released last month, which warned that it might not be able to make a bond interest payment that was due on March 7th. The press statement further warned that its losses for 2012 may have topped RMB1 billion (U.S. $176 million), a predicament that evidently had caused enough liquidity problems to prompt the release of the statement in the first place. After failing to repay some of its bank loans and creditors, however, Chaori was miraculously bailed out on March 3rd by China Securities Depository & Clearing. Still, its RMB1 billion bond is due by 2017.
Suntech may not prove so lucky in covering the U.S. $541 million of debt repayment that was due on March 15th. The company announced last week that it has convinced 60 percent of the bondholders holding notes due on March 15th to give the company a two month reprieve on the payments. Still, this has resulted in a Partial default on March 16th, opening the way for the other 40 percent of bondholders to begin litigation against the company in U.S. courts.
 I know some people who were working on setting up some solar farms.  Last time I spoke with them Sun Tech was the equipment provider.  They sold slices of the solar farm with the idea that they would keep up the facility (taking a management fee of course) for something like 20 years.  I suspect that their job just got a lot more difficult.  A lot of consumer side electrical utility installation (generators for instance) can install equipment relatively easily: much of it is almost plug and play.  But the servicing side of the equation is very thin.  The pushed down front end prices mean that serious repair work can get to half of the cost of the new hardware pretty quickly.   But unlike a when your toaster oven fires, there is a significant labor cost involved to simply tossing the old, and replacing with new.  If you bought a nice size, in-place, for your home, do you really want to buy a new motor every time a gasket seal goes out?  Obviously, the large commercial/industrial facilities can find a way to make it work.  But the big advantage of solar, is that you can make it so small and decentralized.


Francis Lee said...

Bad news for them, the UK pushed heavily subsidised solar power, companies sprang up and then the UK withdrew the subsidies?

russell1200 said...

Francis: Cutting edge start ups are frequently money losers. But when there are issues of public interest involved a little more consistant approach is helpful.

My guess is that the best way out would be to tax the carbon fuels higher to pay for all the air craft carriers, troops, et cetera that go into subsidizing. It would hurt the economy in the short to mid-term, but it's way better than being decades behind the energy curve.