Solar's Demise in China

China's aggressive push to 'green' economy and become the world leader in renewable energy has hit a road block. The country's solar panel industry, which went from zero to become the world's largest in five years, has crashed, with most producers now suffering from negative profit margins, soaring debt levels and idle factories. (1)

China's photovoltaic industry has been facing stiff headwinds since 2012 amid slowing demand in Europe, the world's largest market. The country's trade friction with the US and Europe is not helping either. In August 2012, China's big five firms were all reporting disastrous trading and heavily indebted balance sheets. (2) Things had gotten so bad in the solar industry that a major trade show, Intersolar China 2012, was canceled due to difficult market conditions. (3) Now China's Suntech, the world's largest solar panel manufacturer, has filed for bankruptcy. LDK Solar, another leading Chinese producer, was forced this year to turn to both provincial and local governments for protection from its creditors. The brain child of the local Communist Party Secretary, LDK received millions of dollars in state subsidies and cheap financing, land and electricity in 2005. The local government is now funneling funds into the company to keep it from sinking, without complete success it seems. The company has shed 20,000 of its 30,000 employees and its shares are 98% below their peak in September 2007. (1)

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As a result of the decline, the Chinese government is pushing for a drastic shakeout of the country's overcrowded solar cell industry, supporting only a quarter of players and practically telling the rest to get out of the business. This is essentially a death sentence to 75% of solar cell makers. The Ministry of Industry and Information Technology announced a list of 134 producers of silicon material, solar panels and other components of photovoltaic systems as meeting certain conditions, as measured by 2012 production, capacity utilization and technical standards. Since there are more than 500 companies in this sector, the ministry's move means that three-quarters didn't make the cut. These firms will not be able to get credit lines from financial institutions and thus will have a tough time borrowing. They will also no longer be eligible for refunds of export tariffs, a huge blow to companies that depend on overseas business. On the home front, it will be difficult for them to participate in state-run utilities ' auctions, sharply curtailing their opportunities to win orders, reports Toru Sugawara. (4) So China's solar bubble has burst. Walter Russell Mead concludes, “US policymakers may be tempted to sigh with relief that it's hitting China and not America hardest, but the Solyndra debacle ought to show the US not to feel too at ease.” (5) Solyndra, in the San Francisco Bay Area, is where US taxpayers lost around $535 million in a loan guarantee with the Department of Energy. In fact, the loss could be between $875 and $975 million, more than 50 percent higher. Solyndra's owners, Argonaut Ventures I LLC and Madrone Partners LP will realize tax benefits of between $875 and $975 million of net operating losses, while more senior creditors including the Department of Energy, which provided a $535 million loan guarantee to Solyndra, will receive nearly nothing. (6) Solydra isn't the only one. Abound Solar also shuttered it's operation. The company, a recipient of a $400 million Department of Energy loan guarantee, received approximately $70 million before shutting down. The bankruptcy will cost US taxpayers $40 to$50 million. (7) References

1. Patricia Adams and Brady Tauch, “China's renewables industry headed for collapse,” the gwpf.org, December 12, 2013
2. Malcolm Moore, “Dark clouds gather over China's once-booming solar industry,” telegraph.co.uk/finance, August 29, 2012
3. P. Gosselin, “Solar industry meltdown, Intersolar China 2012 trade show canceled due to difficult market conditions, notrickszone.com, October 24, 2012
4. Toru Sugawara, “China hands 'death sentence' to 75% of solar cell makers, Nikkei Asian Review, December 24, 2013
5. Walter Russell Mead, “Night falls on China's solar industry,” the gwpf.org, July 3, 2013
6. “Solyndra,” en.wikipedia, November 6, 2013
7. Michael Sandoval, “Bankrupt Abound Solar to bury unused solar panels in cement,” blog.heritage.org, February 26, 2013