China’s Green Energy Zombies Emerging After Years Of Solar Subsidies
Only five solar-power vendors remain in a space built for 170 at a sprawling complex of offices stacked three stories high outside Xinyu city in China’s southeast.
Locked doors and empty offices are what’s left of the government’s audacious plan to dominate the global solar industry. What happened in Xinyu is being replicated across China, which used subsidies and $47.5 billion of credit to wrest supremacy from Germany, Japan and the U.S., saddling an industry with losses for at least two years.
“There is definitely a slew of smaller zombie companies out there that are going to continue to fall one by one,” said Angelo Zino, an analyst at S&P Capital IQ in New York. “You’ll see 10 to 12 names here when it all shakes out. The remaining names will either go bankrupt or be consolidated.”
Government support created manufacturing giants such as LDK Solar Co. (LDK) and Suntech Power Holdings Co. (STP)and made them dependent on financial aid from local authorities. As the price of PV products recovers, those companies remain crippled with debt and overcapacity, leaving a return to profits over the horizon.
China’s backing for the solar industry has left at least one factory producing photovoltaic products in half of the country’s 600 cities, according to the China Renewable Energy Society in Beijing. Panel prices even after gains in the past six months are 60 percent lower than in November 2010 and have forced into bankruptcy dozens of those companies, including the largest unit of Suntech, once the industry’s biggest producer.
The market, known as Silicon Xinyu, was the first permanent trade fair of its kind in the country when it opened last year. Today, it’s a ghost town, highlighting the unfulfilled promise following China’s investment in building its solar industry.
“The state of the industry is not good,” said Ou Xiaoliang, the 23-year-old operating officer of Money Leopard New Energy, a developer of solar projects in rural China and one of the complex’s remaining tenants. “They went back to headquarters because there were no profits to be had here.”
LDK and Suntech are in the top tier of Chinese solar manufacturers that prospered with state support and sold shares to investors in New York in the past decade. China’s solar industry now accounts for seven out of every 10 solar panels produced worldwide and eight of the top 10 panel makers, according to data compiled by Bloomberg.
All that building led to overcapacity. Were they to run at full speed, China’s factories could produce 49 gigawatts of solar panels a year, 10 times more than in 2008 and 61 percent more than installed globally last year, according to data compiled by Bloomberg. A gigawatt is about as much as what a new nuclear reactor can supply. [...]
China’s solar factories were running at half their capacity last year, Meng Xiangan, vice chairman of the Renewable Energy Society, said in an interview. Local governments are choosing which companies to champion and which to abandon, said Meng.
“This means lending a hand when potential problems occur,” Meng said. “The industry is like our own children. They will make mistakes before becoming adults. It is every family’s job to help and train them.’
The national government’s response is to boost purchases of solar panels within China, once a tiny market. This year, China and Japan are forecast to surpass Germany and Italy as the world’s biggest market for solar panels.
“They’ve shifted to subsidizing the demand side,” said BNEF’s Chase.
China estimates it will spend as much as 1.8 trillion yuan ($294 billion) on renewable energy in the five years to 2015, Xie Zhenhua, vice chairman of the National Development and Reform Commission, said at a conference in Beijing in July.
In Xinyu, a city of 1.1 million in China’s Jiangxi province 1,615 kilometers from Beijing, the trading market was built with backing from local government and LDK, Xinyu’s biggest taxpayer, according to Peng Shaomin, the company’s director of media.
The goal, according to a report in the Jiangxi Daily at the time of its opening in April 2012, was that the market would serve as an incubator, bringing together raw material providers, equipment makers and developers — all with the help of the local government. LDK was a principal backer of Silicon Xinyu, known officially as the Xinyu Photovoltaic Trade Market, and remains one of the main employers in the town.
Now that the building is mostly empty, it’s more obvious that there has “been some misallocation” of credit, said Zino, the analyst for S&P in New York. “For them and the other bigger, tier-one companies, the Chinese government will continue to support them to make sure those companies continue to run due to the number of employees they have.”