Analysis: Western solar firms feel heat of rising China threat
HONG KONG/FRANKFURT (Reuters) - Chinese companies are attacking the last stronghold of Western dominance in solar power, undercutting bigger rivals and winning orders in the booming $12 billion photovoltaic power equipment industry.
Rapid solar-power expansion in energy-hungry Asia and the ability to provide equipment at much lower rates to an industry looking to cut costs and stay competitive are helping Chinese companies find a firm foothold after elbowing out Western rivals in photovoltaic modules and cells.
Expectations of strong demand for alternative energy are boosting orders for furnaces and slicing equipment used to make the solar cells of panels that convert sunlight into electricity.
HSBC expects a 20 percent growth in global solar-power demand this year to 20 gigawatts, thanks to solid demand from Europe and rising orders from markets such as Canada and India.
Renewed interest in clean energy since the nuclear crisis in Japan would also boost demand.
Germany's Centrotherm Photovoltaics AG and U.S. firms Applied Materials and GT Solar Inc were the biggest equipment suppliers in 2010, according to California-based research firm VLSI, but Chinese firms are catching up fast.
State-owned China Electronics Technology Group Corp (CETC), through its unit 48th Research Institute (CETC-48), was the industry's No.9 in VLSI's ranking, marking the first Chinese company to make it to the league of big equipment makers.
Analysts expect more Chinese names to populate the top tier in the next three years as an increasing number of equipment makers are boosting production capacity and winning orders.
Earlier this month, Zhejiang Jinggong Science & Technology said it won a 649 million yuan ($99 million) contract to supply solar equipment to the country's largest polysilicon company GCL-Poly Energy Holdings.
The company has an order backlog of up to 1.8 billion yuan as of March, according to KGI Research.
Chinese equipment makers' biggest advantage yet could be their captive home market, providing an entry point into the industry that is expected to grow 19 percent to $12.4 billion globally in 2011.
China is the world's biggest buyer of PV equipment, representing 51 percent of the market in 2010, up from 35 percent in 2006.
China will remain the biggest buyer of PV equipment this year and next with the country's plan to build 2,000 new solar cell manufacturing lines over the period, according to Nomura Securities.
"The year 2011 should see China's PV equipment sector grow in leaps and bounds," said Stephen Wang, an analyst at KGI Research, who predicts most PV equipment in China will be locally sourced in the next few years.
Home to the world's largest solar cell producers such as Suntech Power Holdings and Yingli Green Energy Holding, China had been the biggest buyer of PV equipment from mostly European suppliers such as Centrotherm, Meyer Burger Technology and Manz Automation.
But as local manufacturers like CETC, Jiangsu Huasheng Tianlong Photoelectric and Beijing Sevenstar Electronics Co improved product technology and boosted capacity, an increasing number of Chinese cell and panel makers are turning to locally produced machines.
"No point buying a Ferrari if a Kia can be just as good to bring you to your destination," said Jason Chow, chief financial officer at Chinese wafer maker Solargiga Energy Holdings, which taps local suppliers for more than 50 percent of the machines used for its production.
"The point is it gets the job done," Chow said.
Local firms are using their pricing prowess to win orders, with some undercutting rivals' prices by as much as 30 percent.
Price tags on these machines are a powerful lure for Chinese cell and panel makers trying to bring down costs.
In 2010, Chinese makers of equipment such as ingot-casting furnaces, screen printers and cutting blades held about 17 percent of the global PV equipment market, up from 10 percent in 2006, said VLSI.
That compares with European manufacturers, whose market share declined to 42 percent last year from 57 percent five years ago.
More than half the number of machines in China last year were from local suppliers, a market which less than a decade ago was dominated by global brands.
For the production of solar cells alone, CETC holds the single biggest share of 17.6 percent of the Chinese equipment market, according to solar-focused research firm ENF Ltd.
KGI's Wang favors local makers of ingot casting furnaces such as Zhejiang Jinggong and Jiangsu Tianlong, which he expects could snatch business from top furnace makers like GT Solar.
Wang forecasts Jinggong's earnings per share to jump nearly five-fold this year and Henan Hengxing's EPS to triple.
Analysts also favor Chinese makers of cutting wires like Henan Hengxing Science & Technology, whose wafer-cutting steel wires are winning over local solar wafer firms.
Chinese makers are also eyeing Taiwan, South Korea, India and Japan where the market for solar equipment is growing fast.
The China threat is felt among global equipment makers such as Applied Materials' Baccini and Centrotherm, many of them keen on reducing costs.
"With joint activities in research and development ...we play a crucial role in further reducing the costs along the value chain in photovoltaics," said Meyer Burger Chief Executive Peter Pauli, announcing its acquisition of Germany's solar cell equipment maker Roth and Rau on April 11.
"This is just another step to sustainably reduce the costs of solar power."
(Editing by Vinu Pilakkott)