China’s solar companies may buy into domestic operations to access markets.

Despite duties, Chinese companies are betting their future on US market

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In January 2012, Bloomberg announced that SolarWorld was planning to file anti –dumping petition in EU. While American filing caused few written statements and forming of the CASE which according to founding organizations represented 97% of the industry in US, German threat was met with serious considerations for business arrangements. LDK Solar has offered to buy Konstanz based Sunways, even prior to the announcement. Chief Executive Officer Guenter Weinberger declared that Solar-Fabrik was in talks with other companies in the industry, including some from China. Berlin based Solon was reportedly in talks with a “handful” of possible buyers, as a bid deadline was set for the end of January. According to Ruediger Wienberg, insolvency administrator, buyers comprised domestic and international strategic investors including ones from Asia.

Despite duties, Chinese companies are betting their future on US market. LDK has bought 70% interest in Solar Power Inc. in January 2011. Chinese took over the plant in Shenzhen and principles of the LDK took seats on board of SPI. In January of this year, LDK got $64 million in construction financing facilities from the country’s state-owned China Development Bank for projects in New Jersey and California. SPI and LDK agreed in June, to provide construction financing for as much as $750 million in solar projects. LDK may be caught in the outcome of the decision, to be announced in preliminary shape in February; however, CEO of the company Xiaofeng Peng in recent conference hinted on having strategies to circumvent duties. The fact the financing has been provided by Chinese Bank this month, suggests that LDK has a plan, which at least satisfied bank executives.

Suntech also counts on domestic content. Modules assembled in Arizona, proudly show “American made” label. This may continue, as the company contracts with Taiwanese for cells. Despite 50% of wafer needs coming from import, Taiwan’s domestic capacity for wafers is 5.5GW, a lot more than American demand for next 2 to three years, there is no risk of running out of the product. While Suntech has the potential to be unharmed, none of the companies announced preparations. Yingli and Trina appear to be most exposed, selling between 15 to 20% of shipments to US in Q3. Both companies make own wafers, while Trina buys heavily from GCL Poly, a Chinese wafer giant. In the draft of the petition, wafers have not been named as a subject of duties. However, they have not been excluded unlike thin-film products. Wafers are listed as an intergral part of making cell process, not the standalone product. I speculate, because of this setting, wafer maybe also a target of the petition.

Despite this condition, there is a chance that companies may prove their “innocence." Both, Suntech and Trina have been asked to participate in the Department of Commerce (DOC) and International Trade Commission (ITC) and allow retorting on own behalf. Yingli Solar is also trying to take the part of the investigation as a voluntary respondent, which leads observers to believe that Yingli is not vulnerable to charges. Since duties will be passed on the individual basis, there is a remote chance for few companies to evade penalties. Almost certain second and third tier producers will be affected. In cases of companies like Renesola, which sells majority of its wafers to Taiwan, this condition may create problems. Ja Solar has been developing module assembly lines, but still largest production belongs to cells. The company seems susceptible if European business takes a negative move.

In one bit of positive news, India had confirmed no duties on importation of solar products from China. The emphasis has been placed on quality, but this is good for tier ones. India similarly to Canada has the domestic content clause for companies to participate in feed in tariff schemes. However Indian states have a free hand to opt out from such clauses, and recent events show that local market cannot self-sustain its own ambitious plans with too few and small-scale home manufacturers.

In Canada, Canadian had built 200MW module assembly line in Guelph, Ontario. Fully compliant with the rules of domestic content, they sold 86MW of solar plants in arrangements made with TransCanada Pipelines. Canadian is also heavily buying from GCL Poly, but the company has contracts with SolarWorld out of all places. Hanwha SolarOne is also eligible in Canada as well, through agreement with Photowatt, arm of ATS Automation. Photowatt Canada uses cells from Hanwha to assemble modules for Canadian market. The case of Hanwha SolarOne could turn out to be very atypical. Company is owned in 49% by Hanwha Chemical, a South Korean company. For those who like speculation, Hanwha parent may execute the agreement to complete the acquisition allowing for unobstructed presence in American market.

Although this author does not believe that illegal subsidies took place, large credit lines have been extended by state own banks to Chinese solar. Equipped with those funds Chinese can easily buy up brand names, using the low pricing environment as an opportunity. The prospect to acquire equipment of bankrupt businesses has been already executed on more than few occasions.

Canadian Solar has bought equipment form SpectraWatt, an Intel-related company, for a giveaway $4. 9M. Evergreen had sold its core assets to Hong Kong private equity firm. Once worth billion dollars it went for $13M split between cash and stock. The poster child for insolvency and the burning example of government solar initiative, Solyndra, have its core asset auction on January 25th and 26th. The original price tag of $360M, may result in 10% auction value, chances are it will be a lot less. In last two auctions, specialized equipment sold for penny on a dollar and recently workers at Solyndra plant were caught on camera throwing tubular solar cells into a dumpster, sign that particular technology has not caught anywhere else, leaving no doubt to cause of the Solyndra’s fate. The possible outcome of one of the Chinese companies bidding for the plant may only infuriate political watchdogs, who have condemned Chinese for Solyndra’s failure. Previously mentioned Solon is selling in separate transaction its American equipment, which includes two 2009 Swiss Solar System Models 3S Laminators (Process for both Crystalline and Thin Film Photovoltaic Modules) with a capacity of up to 100 megawatts each, a 2008 REIS Robotics Automated Framing Module (75 megawatts), three REIS 6 Axis Robots and a REIS Framing Station. There is a very good possibility, those items will be bought by Chinese company.

Above suggests that Chinese companies may have their own response to importation duties. They possess financial strength to take the advantage of collapsed evaluations and they can takeover domestic operations to facilitate access to markets.

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