Hanergy Buys Solibro, High CIGS Costs Could Wipe Out Benefits

With polysilicon priced in the mid $20s per kilogram, Hanergy’s a-Si production lines are likely to become obsolete the moment they come online

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On June 5 2012, Chinese power company, Hanergy announced it would buy Q-Cells CIGS division, Solibro. This is a second acquisition this year executed by the China-native company. LDK Solar (NYSE: LDK) bought inverter and module maker, Sunways AG based in Constance, Germany earlier this year. Initially, positive reactions seen the Chinese tap into a technological advantage of concepts like proprietary co-evaporation technology, which is capable of producing commercial thin-film modules with unprecedented efficiencies.

However, soon after industry started to wonder about Hanergy’s intentions, particularly in view of high manufacturing costs associated with CIGS, while Chinese solar flagships, Trina Solar (NYSE: TSL), Suntech (NYSE: STP) and Yingli (NYSE: YGE)  are hitting ever lower costs in crystalline polysilicon.   

According to its website, Hanergy Holdings Group Limited established in 1994 and it primarily engages in clean energy business such as hydropower. In China, Hanergy is known for building and operating hydropower stations in southern and southwestern provinces. It claims to have an installed hydropower capacity of 6 GW. In 2011, Hanergy started to move into solar PV manufacturing by announcing 5 major production bases in 5 different provinces with 1 GW capacity at each site. It said it would invest a total 89B RMB in these projects. In Nov 2011, Hanergy said Chinese Development Bank would provide a 30B RMB line of credit to help finance development of clean energy projects.

Obviously Hanergy has won support from the government to stake such a prominent place; yet few people in the PV industry appreciate Hanergy’s effort.  First of all Hanergy is betting on a-Si thin-film solar cell technology which is in danger of going into oblivion after polysilicon price plummeted last year. Secondly, there is a suspicion that Hanergy has done some under-the-table maneuvers to receive that many projects. This belief is only compounded by the slow progress of construction in any of the locations, casting doubt about real motives of the company. In China, land is very expensive and local governments typically use discounted pricing and other means to attract investments. There is speculation that Hanergy’s motive was to grab a hold of cheap land by promising big investments. Thirdly, the amount of the money to be invested does not match the amount required for the announced capacity. It appears grossly inflated, while questions are posed about the financial status of Hanergy and its ability to afford the 89B RMB price tag. Meanwhile, Hanergy keeps its books closed from prying eyes, enjoying status of a private enterprise. Even line of credit from CDC may not be as easily available. All deals have strings attached requiring meeting certain covenants and in case of large undertaking, performance milestones. In light of snail-paced construction, they would be impossible to reach.

With polysilicon priced in the mid $20s per kilogram, Hanergy’s a-Si production lines are likely to become obsolete the moment they come online. Typical a-Si module efficiency in China is between 7-9%, far behind the 14-16% for c-Si modules. Rapid cost decline in c-Si modules also deprives a-Si of the cost advantage. Adding the extra space and BOS needed for a-Si projects, a-Si is widely considered a dead subject. Yet strangely, Hanergy officials keep touting the benefits of a-Si from time to time, seemingly living in a different world.

Buying Solibro provides Hanergy with a route of divesting from a-Si, so there is logic behind the purchase, yet there are reasons to be pessimistic on the deal. Though numbered at second place in CIGS world, Solibro’s shipment in 2011 is merely 58 MW, well behind Solar Frontier. The cost is roughly $1.00 per watt and the efficiency ranges anywhere 10% to 12.7%, also behind Solar Frontier.

CIGS is a technology with almost 20-year history. As an alternative for c-Si cell technology, it is pursued by a number of small companies such as Stion, MiaSole, and HelioVolt. It was also explored by now defunct Solyndra. Solar giant First Solar (NASDAQ: FSLR) also tried CIGS, but gave it up late last year since it was unable to beat Solar Frontier in terms of cost. FuRi, a Chinese CIGS company did not go to full production after building two lines using equipment from a German supplier, citing cost reasons. The primary difficulty in commercialization of CIGS is the apparent low production yield, which keeps cost at the high end. So far, Solar Frontier appears to be the only CIGS manufacturer successful on the cost front. If Solibro was assumed to do the catching, Hanergy has a long haul before reaching the destination, if ever.

Even if Hanergy managed to get down its costs, after investing heavily in R&D, its success is still not guaranteed. Not long ago FSLR shut down all of its German CdTe cell production lines. FSLR was the only close competitor in ranks of thin-film on par with Solar Frontier in terms of scale, efficiency and costs, but it failed to address the market needs. While the results of acquisition may never be seen, odds are not in favor of Hanergy to experience a different outcome.