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Manufacturers race to slash solar costs amid China market turmoil

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With Beijing pushing to consolidate China's solar manufacturing sector, GCL-Poly Energy Holdings Ltd. expects a "huge wave" of cost-competitive solar power to sweep the globe after 2020.
Source: Associated Press

Beijing's decision to cut solar subsidies is ratcheting up pressure on China's manufacturers, setting in motion a consolidation that Chinese companies said will ultimately lay the groundwork for a global industry that is cost competitive without government incentives.

"Advantaged enterprises already have the ability to survive without subsidies, and are just one step away from grid parity," GCL-Poly Energy Holdings Ltd. said in an Aug. 29 filing to the Hong Kong Stock Exchange. "We expect China to enter the era of [grid] parity gradually in the second half of 2019," with a "huge wave" of cost-competitive solar power spreading across the globe after 2020.

To get to that point, however, manufacturers will have to endure "serious challenges" and a "deep adjustment period," GCL-Poly said.

"In China, the consolidation is happening," JinkoSolar Holding Co. Ltd. CFO Haiyun Cao said on an Aug. 13 earnings call. "And we are seeing several companies have stopped their production. And I think some of them — the capacity will never come back."

The latest round of solar industry turmoil started at the end of May when a trio of Chinese government agencies announced a raft of policies aimed at slowing the pace of construction in the world's biggest solar market. The goal is to "improve the quality of development" and slash subsidy costs, according to the agencies. The new policies led to a contraction in China's solar market, resulting in an equipment glut that is driving down prices globally.

At GCL-Poly, profits attributable to the company's owners fell 68% during the first half to 382 million yuan from more than a billion yuan a year earlier. The steepest losses came from the company's solar materials business, which supplies polysilicon and solar wafers to other manufacturers. GCL-Poly also makes money building solar plants and selling electricity.

JinkoSolar said second-quarter earnings more than doubled to nearly 99 million yuan despite a 24% decline in revenue. The company's financial results benefited from a currency exchange gain as the U.S. dollar appreciated against the yuan.

Shunfeng International Clean Energy Ltd. saw its net losses widen 252% during the first half to 1.15 billion yuan. Citing an "adverse change" in market conditions, the company recorded an impairment loss of 674.4 million yuan for machinery and equipment in its solar manufacturing division, according to an Aug. 29 filing to the Hong Kong Stock Exchange. Like GCL-Poly, Shunfeng also builds and manages solar power plants.

Solar executives in China said they are focused on technological innovation and cost-cutting.

"We believe that product quality and cost advantage will be crucial in the upcoming era of solar energy," Shunfeng said. The company has been expanding its geographic focus, with sales to overseas customers accounting for about 42% of revenue during the first half, compared to 17% a year earlier.

GCL-Poly is also looking to grow its solar farm business through mergers and acquisitions. When equipment prices fall, project development can serve as a hedge for manufacturers.

ReneSola Ltd., a project developer based in China, still sees "lucrative" opportunities in the country's rooftop solar market, Chairman and CEO Xianshou Li said on an earnings call Sept. 6. Li previously said the company's business in China is insulated from the latest policy changes, noting that most of its portfolio relies on net metering policies or generates electricity for on-site consumption.

ReneSola, which sold its manufacturing business in September 2017, reported a second-quarter net loss attributable to ordinary shareholders of $691,000 compared to a net loss of $31.5 million a year earlier. The company is in talks to sell more than 200 MW of distributed solar projects in China to Brookfield Asset Management Inc.

"Lower equipment costs and stable electrical rates will enable us to finance unsubsidized net metering and self-consumption projects," Li said in June.

Local governments in China are also expected to offer subsidies to support project development, said Gener Miao, vice president of global sales and marketing at JinkoSolar.

Canadian Solar Inc. Chairman, President and CEO Xiaohua "Shawn" Qu is more skeptical, saying it is unclear when solar power will be competitive with the cost of grid-supplied electricity on a large scale. Canadian Solar, which manufactures solar panels and builds power plants, is headquartered in Canada but makes much of its equipment through Chinese subsidiaries.

"There hasn't been a sustainable grid parity market in China yet, so I would expect it to take a while" for one to develop, Qu said on an Aug. 14 earnings call. "People are trying to develop grid-parity projects. But I haven't seen any large ones breaking ground yet."

As of Sept. 6, US$1 was equivalent to 6.83 Chinese yuan.