China's GCL enters U.S. solar power-plant business

SAN FRANCISCO Thu Nov 18, 2010 11:37am EST

SAN FRANCISCO (Reuters) - A subsidiary of China's GCL-Poly Energy Holdings Ltd has formed a joint venture with SolarReserve, a California developer, to build photovoltaic power plants in the United States.

The deal, to be announced Thursday, marks a major bid by a Chinese solar company to enter a market dominated by European and U.S. firms. Last week, GCL obtained a commitment from Wells Fargo to provide $100 million in financing for its solar projects.

GCL is China's largest manufacturer of polysilicon and wafers used to make photovoltaic modules. The company also builds conventional power plants in China along with wind and solar projects. The state-owned China Investment Corporation owns a 20 percent stake in GCL.

"We value the U.S. market as one of the most important markets for us and we wanted to get into the development side of the game," Yumin Liu, president of GCL Solar Energy Inc, the company's San Francisco-based subsidiary, said in an interview.

"To support the continued growth of the company we have to have a portfolio for years to come. The only way to do it economically is to secure a pipeline of projects."

GCL will acquire a 50 percent share of SolarReserve's 1,100-megawatt project pipeline in photovoltaics for an undisclosed price.

SolarReserve, based in Santa Monica, California, has focused on developing large solar thermal power plants using molten-salt technology licensed from United Technologies Corporation. This type of plant is not part of the joint venture.

Kevin Smith, SolarReserve's chief executive, said the startup last year began to acquire control of 40 sites throughout the desert Southwest that would be suitable for smaller-scale photovoltaic-power projects. The company hired Macquarie Capital to search for a partner to share development costs.

"The U.S. market is a hugely competitive market on pricing, given the current policy structures and limited federal government support for renewable energy," Smith said. "Partnering with a low-cost Chinese company gives us insight on how to maintain competitiveness in these markets and we will learn a trick or two."

He said that SolarReserve will handle land acquisition, permitting and negotiating power purchase agreements with utilities while GCL will oversee procurement of solar panels and construction. Work on 400 megawatts' worth of projects should begin in 2011.

Chinese solar panel makers have captured about 40 percent of the California rooftop market but have shied away from developing photovoltaic power plants. Suntech Power Holdings Co, for instance, recently ended a short-lived joint venture with Fotowatio Renewable Energy to develop solar farms.

Ted Sullivan, a senior analyst with Lux Research in New York, said the joint venture with SolarReserve was a smart investment for GCL.

"They get access to some prime real estate, they're moving to lock up tax equity financing and lock up a pipeline of projects that keeps their polysilicon plants running at high capacity," he said.

A state-backed Chinese solar company competing for scarce project financing in the United States may raise some hackles, Sullivan noted. On the other hand, he said, the joint venture will be employing American construction workers and buying inverters and other products from U.S. companies.

Liu stressed that GCL Solar Energy's parent company already spends hundreds of millions of dollars on American-made machines for its factories.

"We consider ourselves an American company," he said of GCG Solar Energy.

(Reporting by Todd Woody; Editing by Gary Hill)