Solar industry's critical juncture(2)

Such reckless development has resulted in excess capacity and disorderly competition. Last year, the total production capacity of Chinese PV producers was 30 GW, which already exceeded the global market demand of 29 GW. To seize market share, manufacturers have fallen into virulent price competitions.

In 2011, Suntech's output reached 2.1 GW, ranking first in the world for two straight years, up 34 percent year on year, with its business revenue merely increasing 5 percent.

Zhang Shuguang, a research fellow with the Institute of Economics at the Chinese Academy of Social Sciences (CASS), noted that local governments, spurred by the need for economic growth, tended to provide a propitious environment for PV enterprises to expand. Blind production expansion and rising asset-liability ratios have put the PV industry on the verge of collapse.

Now, the anti-dumping and countervailing duty investigations initiated by the United States and the EU have inflicted a crushing blow to China's PV industry. Wang Bohua, Secretary-General of China Photovoltaic Industry Alliance, argued that despite being the largest PV producer, overdependence on foreign markets has made China's PV industry vulnerable to external factors. "This fatal weakness has haunted China's PV industry for years. That's why the accusations put Chinese makers on tenterhooks."

Self-rescue

Yingli is mulling plans to set up factories overseas and build its own PV power stations. "Diverting some investment abroad will improve flexibility," said Wang.

Executives at Yingli agree that only companies that are persistent can survive. The crisis will come to an end in mid-2014, at which point the PV industry will achieve healthy and sustainable development.

Suntech is allegedly pondering a nationalization plan to gain state funds.

Some producers are shifting from overdependence on overseas demand to exploring domestic markets. On September 12, the National Energy Administration published the 12th Five-Year Plan (2011-15) for Solar Power Development, aiming to raise the total installed solar power capacity to 21 GW by 2015. Given the fact that the domestic installed capacity had only stood at 3.6 GW by the end of 2011, potential in the Chinese market remains huge.

Others chose to undergo transformations by shifting from the PV manufacturing industry to downstream businesses like PV power stations. On November 20, Hareon Solar announced it would invest 490 million yuan ($79 million) in building two PV power stations, following similar decisions made by Zhongli Sci-Tech Group and GCL-Poly Energy in late August.

The State Grid Corp. declared it would provide a free connection service for qualified solar power producers from November 1, allowing small and medium-sized producers (less than 6 megawatts of installed capacity) to apply to the local power grid company for connection to the national grid. The on-grid power operation can be completed within 45 working days, and state grid power generators will purchase surplus power generated by PV power generation programs at 1 yuan ($0.16) per kwh. The new policy is undoubtedly a boost to China's ailing solar industry.

The Ministry of Finance also plans to unveil subsidy policies for PV power generation. After being subsidized with 0.4-0.6 yuan ($0.06-0.1) per kwh, solar power will be sold at the same price as traditionally produced electricity.

At the 2012 New Energy International Summit & Exposition in November, experts and entrepreneurs discussed the current problems and challenges faced by the PV industry, such as the consolidation of solar enterprises, the integration of solar power generation and storage, connecting solar power with a smart grid and micro-grid applications.

Suggestions

Zhang from the CASS Institute of Economics believes mergers and acquisitions will shield the PV industry from collapsing.

Qu Xiaohua, CEO of CSI Solar Power, contends that PV enterprises should focus on making breakthroughs in developing technology and cutting costs rather than getting trapped in the low-price competition.

"The development of the PV industry should be decided by market demand. Local governments should not blindly support the expansion of the PV industry," said Zhou Junsheng, an independent financial commentator.

"The government should learn from the side effects of pushing economic growth with administrative power. Government bailouts can only help enterprises cope with a current emergency. The best approach is to take market factors into account," Zhou said.

Development of China's PV Industry for the Past Three Years

In 2009, the output of Chinese-made solar cells was 4 GW, accounting for 40 percent of the world's total output.

In 2010, the output of Chinese-made solar cells was 8 GW, accounting for 50 percent of the world's total output.

In 2011, the output of Chinese-made solar cells was 21 GW, accounting for 80 percent of the global total.

(Source: China Renewable Energy Industry Association)