U.S. Solar Company Bankruptcies a Boon for China

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Workers installing solar panels at a power station in Hami, China, last month.

HONG KONG — The bankruptcy of three U.S. solar power companies in the past month, including Solyndra of California on Wednesday, has left China’s industry with a dominant sales position, almost three-fifths of the world’s production capacity and rapidly declining costs.

Some U.S., Japanese and European companies still have a technological edge, although seldom a cost advantage, over Chinese rivals, according to industry analysts. But loans at very low rates from state-owned banks in Beijing, cheap or free land from local and provincial governments across China, huge economies of scale and other cost advantages have transformed China from a minor player in the solar power industry into the main producer of an increasingly competitive source of electricity.

“The top-tier Chinese firms are kind of the benchmark now,” said Shayle Kann, a managing director of solar power studies at GTM Research, a renewable energy market analysis firm based in Boston. “Pricing is determined by where they price, and everyone else prices at a premium or discount to them.”

In addition to Solyndra, Evergreen Solar of Massachusetts and SpectraWatt of New York also filed for bankruptcy in August. BP Solar shut down its factory in Frederick, Maryland, last spring. Those bankruptcies and closings represent almost a fifth of the solar panel manufacturing capacity in the United States, according to GTM Research.

“There is no question that renewable energy companies in the United States feel pressure from China,” said David B. Sandalow, the assistant secretary for policy and international affairs at the U.S. Energy Department. “Many of them say it is cheap capital, not cheap labor, that gives Chinese companies the main competitive advantage.”

China’s Big Three solar power companies — Suntech Power, Yingli Green Energy and Trina Solar — have all announced in the past two weeks that their sales in the second quarter were up between 33 and 63 percent from a year earlier. Yingli and Trina were also profitable in the quarter; Suntech posted a loss mostly because it broke a longstanding agreement to buy solar wafers, a step in the production process, from a Singapore affiliate of MEMC Electronic Materials of Missouri, in order to manufacture more wafers itself.

Shares in large and small Chinese solar power companies have mostly rallied in the past two weeks on the New York and Hong Kong stock markets as investors have welcomed their strong quarterly results and the prospect of dwindling competition from Western rivals; in addition to the bankruptcies in the United States, solar power companies in Germany, another big producer, have been laying off workers and retrenching.

The recent strength of Chinese solar stocks “truly reflects the low cost base of the Chinese solar manufacturers, and it is great to see their positioning, particularly relative to their American and European counterparts,” said K.K. Chan, the chief executive of Nature Elements Capital, a Chinese clean energy investment company based in Beijing. He attributed the Chinese industry’s low costs not to inexpensive labor in China, as solar panel manufacturing is a high-technology industry that is not very labor-intensive, but rather to free or subsidized land from local governments, extensive tax breaks and other government assistance.

Solar panel prices have plunged by 42 percent per kilowatt-hour in the past year as manufacturers have sharply increased capacity, particularly in China. Meanwhile, demand has been somewhat weak in the main markets in the United States and Europe.

Costs for electricity generated by utility-scale solar installations now approach costs for natural gas in some markets, like California’s, when subsidies of as much as 30 percent of the price are included. However, costs remain well above the cost of electricity from coal.

The United States and the European Union have tried to build demand for solar power by subsidizing buyers of solar panels, but increasingly those subsidies are being used to purchase solar panels from China. Chinese government policies have differed in that they have been tightly focused on building the competitiveness of the country’s manufacturers; China exports 95 percent of the solar panels it produces.

Green energy has been identified as a national priority in the last five-year plan and in the current plan, which just started this year. Chinese leaders have voiced alarm about the country’s rising dependence on oil imported from volatile countries in the Middle East, Africa and elsewhere and have put energy security at the top of their agenda. The country’s influential military and spy agencies have become more visibly involved in energy policy and promoting energy self-sufficiency, including green energy.

The United Steelworkers union filed a legal complaint a year ago with the U.S. government, asking the Obama administration to investigate China’s clean energy subsidies and other policies and bring cases against them at the World Trade Organization. W.T.O. rules strictly prohibit export subsidies, so as to prevent countries from buying market share in foreign markets for their producers.

The administration did challenge the Chinese government’s practice of giving subsidy grants equal to between $6.7 million and $22.5 million to Chinese wind turbine manufacturers that agreed not to buy imported components. China agreed in June to discontinue the practice but has already built the world’s largest wind turbine manufacturing industry in the past five years and now has highly competitive producers for almost every component.

The Office of the U.S. Trade Representative has continued to investigate whether other Chinese policies may violate W.T.O. rules. If a government does not cancel a policy immediately when it is challenged at the W.T.O., it takes nearly two years for a case to work its way through the W.T.O. dispute resolution process.

With the cost of solar power down more than 75 percent in the past four years through technological breakthroughs and large-scale production, the Chinese government is beginning to experiment with more installations. In early August, it introduced a national feed-in tariff for solar power installations to sell electricity to the national grid for 1 renminbi, or 15.6 cents, to 1.15 renminbi per kilowatt-hour. As recently as 2007, Chinese companies were still doing small solar projects to produce electricity at four times that price.

By comparison, the grid now pays around 0.4 renminbi per kilowatt-hour for electricity generated from coal, the dominant fuel in China, and a little less than 0.6 renminbi per kilowatt-hour for electricity generated from wind turbines.

The New York Times


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