| HONG KONG
HONG KONG Jan 24 China's solar panel industry
is showing signs of booming again after a prolonged downturn -
raising fears of another bust when the splurge of public money
that is driving a spike in demand dries up.
Lured by generous power tariffs and financing support to
promote renewable energy, Chinese firms are racing to develop
multi-billion dollar solar generating projects in the Gobi
desert and barren hills of China's vast north and northwest.
The sweeteners have not only lured traditional energy
investors like China Power Investment Corp, but also a host of
solar panel makers and even companies such as toll road operator
Huabei Express and Jiangsu Kuangda Auto Textile
Some solar panel manufacturers, encouraged by a recovery in
sales in the last two quarters - largely on surging demand from
China and Japan - are expanding production capacity, even though
the overall sector remains mired in a severe glut.
But industry officials worry fast-growing generation
capacity will increase fiscal pressures on China and Japan and
force them to cut subsidies which will then hit demand, just as
happened with previous big solar users Germany, Spain and Italy.
"The key is whether the Chinese government is determined
enough to boost solar generation," Sun Haiyan, senior executive
at Trina Solar, said when asked if the current solar expansion
in China was sustainable.
China already boasts solar manufacturing capacity of about
45 gigawatts (GW), enough to meet global demand this year.
Trina Solar, JinkoSolar, Yingli Green Energy
and Canadian Solar - among the world's largest
solar manufacturers that also include Japan's Sharp Corp
and U.S. SunPower Corp - are adding 3 GW of
capacity, according to industry specialists and Chinese media.
Beijing is trying to consolidate the sector and force out
the legion of small "zombie plants" currently sitting idle, but
analysts say it faces stiff resistance from indebted regional
and city governments that have backed local solar champions.
Michael Barker, analyst at global solar research firm
Solarbuzz, said a risk now faced by the solar panel industry was
manufacturers may react to improved demand "with somewhat
"This could upset the stabilisation process that has
occurred during the past year, once again creating an
overcapacity situation," he wrote in a note this week.
Beijing's decision in July to more than quadruple solar
generating capacity to 35 GW by 2015, and Japan's push to find
alternatives to lost nuclear power following the 2011 Fukushima
disaster, have revitalised the moribund Chinese panel industry.
China installed 8 GWs last year, turning it into the world's
largest solar market. That included 6 GW of solar farms -
utility-scale, ground-mounted facilities - and 2 GWs of
distributed solar energy such as rooftop installations. This
year, it is talking about adding 14 GWs.
Installing 35 GW of solar capacity would cost around $50
billion, plus subsidies granted to solar power producers under
long-term purchase agreements.
But it's uncertain how long the current strong Chinese and
Japanese demand, expected to account for 40-45 percent of global
installations forecast for this year, will last.
With 100 million people still living in poverty, Beijing is
unlikely to keep doling out generous solar subsidies
indefinitely. Previous investment in solar plants in China has
been hurt by delays in subsidy payments.
Japan has already lowered solar power tariff once in 2013.
Globally, the solar industry has made significant gains in
driving down costs over the last few years, but it has yet to be
weaned off big subsidies. Critics say the world should hold back
from large-scale solar expansion until costs come down further
and conversion efficiency of solar panels improves.
So far solar power only accounts for a small proportion of
total installed power capacity in China, the world's largest
energy user, which is predominantly fired by coal.
But whilst the potential would seem to be large, a rapid
build-up of solar and wind farms in western China has already
created a problem.
State Grid Corp of China has been struggling to transmit
power from there to population hubs in the south and east due to
a lack of a comprehensive high-voltage and smart grid to harness
the intermittent renewable power.
Lin Boqiang, director of the China Centre of Energy
Economics at Xiamen University and an adviser to China's
National Energy Administration, said he has long-term faith in
China's solar power development but reckons grid access is a
Yet generous power tariffs and sweet loans granted by China
for solar development have triggered what some analysts call
"solar rush" for mostly solar farms in remote western China,
where sunshine is abundant.
Beijing is buying electricity from solar farm investors at
up to 1.0 yuan/kilowatt hour for up to 20 years, attractive
terms that offer a relatively predictable annual return of more
than 10 percent.
In the last few weeks, Chinese solar panel makers have made
a slew of announcements to develop solar farms. They expect it
to become a key part of their business as it would form a stable
source of demand for their products.
Trina said on Dec. 30 that it had signed a deal to develop a
mega 1-GW solar farm project in the western province of
Xinjiang. It also announced a plan to build a panel factory
there for the project.
Shunfeng Photovoltaic, which is buying the main
unit of bankrupt former top solar panel maker Suntech Power
Holdings, this month vowed to invest 80 billion yuan ($13
billion) to develop 10-GW projects - nearly 30 percent of
Germany's solar installed capacity - over the next three years.
"We want to develop 3 GWs a year so we need more panel
capacity," said Shunfeng chairman Zhang Yi.