SAN FRANCISCO – Not so long ago, China’s solar industry was at the top of the global renewable energy heap, knocking out millions of solar panels while steadily driving down their price - to the delight of U.S. consumers. For U.S. competitors, of course, it was a different story: squeezed profit margins were driving many U.S. companies out of business or to offshore manufacturing locations like China.
We toured at a big North American solar exhibition here recently and were immediately struck by the sheer number of well-heeled Chinese solar manufacturers exhibiting at the event. But lately there are clear signs that even Chinese solar manufacturers are suffering as their own profit margins have been whittled down to the thickness of a polysilicon wafer.
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Reports out of China indicate that key segments of China’s renewable energy infrastructure like photovoltaic technology are nearing collapse. In August, the head of a Chinese solar company leapt to his death when he realized his company couldn’t pay off a government loan. Other Chinese solar panel manufacturers have recently cut production.
All this as oil futures continue to rise and gasoline prices remain above $5 a gallon in key markets like California.
With trade tensions rising between the U.S. and China, some Chinese vendors at the Inter Solar North American exhibition here also evinced a growing awareness of how the global trade system operates when rival economies are hurting. One Chinese vendor prominently display at its booth a key passage from a U.S. International Trade Administration ruling that the company did not dump solar panels on the U.S. market.
Growing trade tensions between China and the U.S. along with the exodus of solar manufacturing to China have placed solar politics at the forefront in a presidential election year. One of candidate Mitt Romney’s so-called presidential debate “zingers” accuses the Obama administration of surpassing the old GOP saw about “picking between winners and losers” with picking only losers -- a not-so-subtle reference to last year’s Solyndra debacle.
Factors like climate change, the drive for energy independence, access to capital, technological advances and plain-old politics are constantly reshaping renewable energy markets. We offer a snapshot of that market and where it might be headed.
SolFocus' concentrator photovoltaic panels use optics technology to capture sunlight and concentrate it hundreds of times on a solar cell.
"The central planners in Beijing probably never considered persistent cheap and plentiful natural gas supplies, which are really hurting solar sales"
Photovoltaics supply electricity, but while natural gas is used to fire many of the generating plants that produce electricity, oil is a negligible factor and I believe the majority of plants are still coal fired.
The issue in terms of electricty cost in the US isn't the fuel used to turn the generators - it's the ferocious cost of building and operating the plant, and building and maintaining the grid over which power is distributed. It's a classic capital intensive business, where a lot of the costs that determine the price at which you must sell are amortization of the cost to build the production capacity to begin with.
Beijing's central planners suffered the critical blind spot unsurprising in an economy shfiting from "domestic command" to "international market". Lots of Chinese companies saw an opportunity in photovoltaics, jumped in to produce them, and glutted the market. Prices fell to where they are below production costs, even for China. Chine is seeing the boom and bust cycle common to semiconductor electronics. (DRAM, anyone?)
If you are only concerned with a totally planned domestic economy, you know exactly what demand and supply will be, because you stipulate both as part of your planning. In an international market economy, you *don't* know what demand will be, and you make your best guess as to what you must be able to produce. The Chinese are still figuring out forecasting demand that *isn't* government mandated, and many of those solar firms will go belly up or be acquired as competition continues.
Welcome to competition and market based economies, China. It will be a learning experience for you.
That's likely if China can't generate more global demand. In the final analysis, China grabbed a market by the throat, flooded it with cheap panels, then the market went south. The central planners in Beijing probably never considered persistent cheap and plentiful natural gas supplies, which are really hurting solar sales.
China's strategy of investing massively in solar panel production in order to dominate the industry globally doesn't seem so hot now. A recent NY Times article quoted a Chinese bureaucrat with the country's top economic planning agency saying that it would be good for China if two-thirds of its solar panel producers died out and only one third survived.
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