I observe market sentiment is not where it was, but we called for an advance of gargantuan proportio...
China's solar companies move production to the U.S. Good for jobs, bad for solar industry profits
11/18/2009 11:11 am EST
Just when the supply glut is showing signs of improving, China’s solar industry is about to embark on an expansion binge.
The goal? To build solar manufacturing plants in the United States to head off any U.S. rules that might limit China’s solar market share in the United States. No matter that the short-term profit and loss accounting on these new plants shows nothing but red ink.
The most high profile new plant announcement comes from Suntech Power Holdings (STP), one of the flagships of the Chinese solar industry and the world’s largest supplier of solar panels.
On November 16, the company announced that it would build its first U.S. manufacturing plant outside of Phoenix. When the plant goes into operation in October 2010 capacity will be a relatively modest 30 megawatts of solar panels a year (enough to power 7,500 homes). U.S. solar panel sales hit a high of 494 megawatts in 2008 and are projected by Suntech to climb to 1,000 megawatts in 2010.
Put the plant in this context. In late October the announcement that a company building a wind power project in Texas would use U.S. subsidies to buy turbines built in China led to threats of Congressional action to kill subsidies to the project. In the wind sector about 84% of the $1 billion in federal clean-energy grants released since September 1 have gone to overseas manufacturers according to the Investigative Reporting Workshop.
Building a Suntech plant in Arizona is a way to diffuse that issue just as U.S. support for alternative energy is about to take a leap upwards. Arizona, the site of the plant, has a renewable energy standard requiring that 15% of all electricity in the state come from renewable sources by 2025, for example. When the factory begins production, 75 U.S. workers will assemble solar panels from solar cells manufactured by Suntech in China.
"This is the first step in what I see as a long-term strategic investment in the North American market," said Suntech Chairman and CEO Zhengrong Shi.
And from the perspective of solar manufacturers looking to finally end a supply glut and return to profitability, a wave of new Chinese plants couldn’t come at a worse time. Prices for finished solar panels collapsed by 50% in 2008.
Solar panel makers, though, had started to see signs that the inventory glut was ending as low prices caused demand to soar in markets such as Germany and California with hefty subsidy or power-purchase programs. Market researcher iSuppli recently raised its forecast for worldwide demand to 5.2 gigawatts in 2009 from 3.9 gigawatts.
But even that higher forecast would still represent a 3.8% drop in demand from 2008.
Solar panel makers have been hoping that a return of demand, driven by falling prices, more aggressive subsidies in the United States, and a global economic recovery would stabilize prices in 2010.
Every new plant adding to supply makes that less likely. On November 16 HSBC predicted that solar panel prices would fall another 20% in 2010.
Good for the planet since lower prices lead to higher rates of installation. But not good for the bottom line at solar companies. Look for a round of mergers and acquisitions in 2010 as healthier solar companies devour their less efficient or under-capitalized competitors.
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