Chinese Solar Photovoltaic Panel Businesses Are in a Dark Mood

They deal in products that promise to efficiently deliver heat and light, but the mood of hundreds of Chinese solar companies is decidedly dark and cold at the moment.

Chinese solar companies, despite being hailed as one of China's biggest success stories of recent times, and as champions for their efforts in reducing carbon emissions, creating jobs and lowering technology costs, are struggling to weather the market turmoil caused by domestic oversupply and uncertain overseas markets.

After the United States ruled in May that China's solar panel makers were dumping goods and receiving unfair subsidies, a recent complaint about dumping panels in Europe - the largest market for Chinese-made solar panels - may push the once vibrant industry off the edge of the cliff.

The potential anti-dumping investigation in Europe, seeking higher tariffs on solar products made in China, is seen as the last straw for the Chinese solar photovoltaic manufacturers that heavily rely on overseas markets.

Only the best ones will survive the latest turmoil, experts and insiders say.

"It would be catastrophic for China's solar industry once the higher import tariff is in place," says Meng Xiangan, deputy director of the China Renewable Energy Society. "But it will not be the end of the story. Companies that focus on innovation and reducing cost will come out on top after the solar PV industry emerges from the turmoil."

The complaint was filed by a group of European solar panel makers late last month, and the European Commission has up to 45 days to decide if it will start an investigation. The case is at an early stage and it is too soon to predict a result, but any policy disruption in major markets will make it difficult for manufacturers and installers alike.

Michael Barker, an analyst with NPD Solarbuzz, an international solar energy market research and consulting company, says that if the EU does impose tariffs on Chinese solar products, it is likely to hit second and third-tier manufacturers more than the main ones.

"Tier-one module manufacturers have the ability to change supply arrangements to protect against anticipated charges caused by any decision from the European Commission, whereas smaller suppliers may not have this ability," he says.

But China's biggest solar companies are still fearful of the outcome.

After a joint news conference last month urging Beijing's support and Brussels to think long and hard before reaching a conclusion, the four top solar panel makers in China - Yingli Green Energy Holdings Co Ltd, Trina Solar Ltd, Canadian Solar Inc and Suntech Power Holdings - planned a worker protest on Aug 2 against the European solar panel makers' complaint.

Though the protest was called off due to bad weather, Chen Zhuo, Yingli Green Energy's legal director, said everything will be done to prevent the investigation. More than 50 percent of Yingli's sales are generated in Europe, Chen says.

China is the world's largest solar PV producer with more than half the world's total production. About 60 percent of China's $35.8 billion (28.9 billion euros) worth of solar panel exports last year was to Europe.

The European market is also crucial because the entire solar PV industry in China is going through a tremendously tough time at present, says Meng of China Renewable Energy Society.
The profit margins of most Chinese solar manufacturers have fallen since last year because of excess global solar cell capacity and the massive slowdown in demand from the end markets.

NPD Solarbuzz says the growth of the global solar PV industry dropped from 153 percent in 2010 to 22 percent last year, driven largely by reduced government incentives in many European markets.
Shipments from the US-listed Yingli Solar rose 44 percent in the first quarter of this year compared with the same period of last year, according to the company's quarterly financial report issued on May 30.

However, the company's gross margin fell to 7.8 percent in the first quarter, compared with 27.3 percent in the same period last year.

The market downturn has already dragged some Chinese solar makers into trouble, and the Jiangxi-based LDK Solar, one of the largest solar PV makers, is heading for bankruptcy.

Though China's domestic demand for solar cells has taken off, with the National Energy Administration resetting its original plan of 5 gigawatt accumulative installed capacity of solar power to 21 gW by 2015 in July, only a few experts say the growing demand in China can offset the impact by the shrinking EU market.

Shen Hongwen, a research specialist in new energy with the CIConsulting of Shenzhen, says it is simple mathematics. "China's production capacity for solar cells has grown to more than 40 gW a year. Even with the new target of 21 gW by 2015, China's domestic demand for solar power is about 4 gW a year."

Despite all the difficulties, Michael Carboy, head of China research with Deutsche Bank Climate Change Advisors, still sees the solar industry in China as promising.

"Greenhouse gas emissions, air pollution concerns, the need for more power to electrify both a growing economy and an expanding and wealthier middle-class are all strong motivations for China to continue nurturing the domestic solar sector," Carboy says.

China invested about $4 billion last year, he says. "We believe China will connect to the grid an incremental 30 gW or more of solar power in the period from 2010 to 2020. With approximately 2.5 gW of PV now installed in China at the end of 2011, the incremental investment needed to increase China's grid-connected PV capacity to 35 gW by 2020 might approximate 233 billion yuan ($36.6 billion, 29.6 billion euros) to 255 billion yuan if installed solar PV prices continue to decline at a compound average annual rate of 11.5 to 12 percent."

Meng of China Renewable Energy Society agrees, saying the solar industry in China is a strategic one. "There will be a rosy future ahead as long as companies that have focused on high-quality products and innovation make through it."

At Yingli Solar's plant in North China's Hebei province over the past two months, red banners with the slogans "Climbing up the solar PV snowy mountains" and "Crossing the solar PV meadows" have been highly visible.

The slogans to encourage its employees to weather the storm are inspired by the settings of the arduous Long March in the history of the People's Liberation Army.

Liang Tian, director of public relations with Yingli Green Energy, says: "We all know there is a rosy future. But no one can be sure how long we will have to wait before we get there."