Zha Zhenfa and His Solar Empire – Example of EPC in China

With the unique decision to focus early on PV power plant development and an eye on technological innovation, Zha Zhenfa and his company are quietly establishing a massive empire in the end market.

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At this year’s Solar Photovoltaic Development and Investment High-End Forum held on May 15^th in Shanghai, China, eyes of the press, solar panel manufacturers, solar investors, and directors of commercial banks all turned to one man and one company.

Zha Zhenfa, the man behind Zhenfa New Energy Science & Technology Co., Ltd., has always been a man of understatement who shies away from spotlight and adulation. However, in the past five years or so he has managed to quietly build up an empire of solar power generation stations across China with several cutting-edge innovations in solar technology and application – all of this under the radar of the press and even other companies in the solar industry.

Zhenfa New Energy’s quiet success is coming to notice only recently as the world market starts a new round of reshuffling amid the overhanging world financial crisis, and all the chaos that has come with it. Among the chaos is the EU’s imposition of hefty punitive tariffs upon Chinese-made solar panels in June, coupled with gross overcapacity on the side of Chinese solar manufactures as a result of years of unhealthy overgrowth and expansion.  As the hailstorms of the industry winter came and went, bringing down industry heavyweights such as Suntech Power Holdings Co., Ltd. (ADR)(NYSE:STP) and LDK Solar Co., Ltd. (ADR)(NYSE:LDK), Zha Zhenfa and his company found themselves to be the rarified few among the Chinese solar companies who have somehow managed to find a unique path to survival, and even more surprisingly, to success.

Empire-building

The empire started its first steps with a simple enough strategy: avoiding the big fish. Back then, that meant the lucrative upstream solar PV panel and module manufacturing business, which had inspired the overnight mushrooming of hundreds of companies big and small, all competing to be number one in the manufactured capacity of, if not the whole panel, at least one of the parts that come into the panels.

In retrospect, that decision could well have been the one factor that has made all the difference in Zhenfa’s success. By avoiding the oversaturated upstream market and focusing on the downstream solar power station development, Zhenfa New Energy was able to evade the waves of anti-dumping and anti-subsidy sanctions, from the US at first, and then followed by the EU, as well as the increasingly stagnating global market resulting from overcapacity, which was very much the upstream manufacturers’ own doing.

While the solar industry now might applaud Zha Zhenfa’s foresight, that business decision was as much a product of chance as of his business acumen. According to a former employee at Zhenfa New Energy, the company’s move to the downstream sector only came after its gross failure upstream. “Around 2011, Zha invested 30 RMB million into the upstream single crystal growth business, buying up all the most advanced equipment, only to lose all the investment in the end…Zha himself is very well versed in civil engineering but not at all familiar with chemical engineering stuff, which is what the upstream market is all about. Back then, upstream sectors, be it silicon growing or slicing, were a lot more profitable than the downstream sectors.”

Coincidentally, it was right around then that problems associated with overcapacity in the solar manufacturing sector began to surface across the country. In response, the government started moves to invigorate the domestic market by incentivizing toward solar and wind power generation projects, bringing downstream developers like Zha right into the front and center. 

Since 2011, riding on the waves of national policy incentives and its competitiveness in the less-populated downstream sector, Zhenfa New Energy has been cranking up its engine to establish an empire of large-scale solar power plant projects that stretches from China’s eastern coastline to its remote western desert, spanning provinces including Jiangsu, Jiangxi, and Shandong, all the way to Gansu, Ningxia, and Qinghai.

Since 2008, Zhefa New Energy’s cumulative total installed capacity from all its solar power generation projects has reached 1.4 GW, almost equal to the entire amount generated by solar power across China in 2011 (2GW).  According to Zha Zhenfa, in the future, the company plans to push further into the desert areas in western China to “establish a sea of solar panels across the great Tengger Desert,” a vast sea of sand in the Mongolian region.

Innovation is key

It is not only the big numbers that Zha takes pride in. He deems technological innovation as the crown jewel of his business success. Zhenfa New Energy is, by every measure, a trailblazer in the development of solar technology and techniques that are adaptive to diversified natural environments. The company is the first of its kind in China to establish an independent design, construction, application and maintenance department dedicated to research in integrating solar power generation into specific local eco- and economics systems.

Some of the unique solutions coming out of this team include a “Solar PV + Agriculture + Livestock Raising” model targeted at rural areas; a desert-integrated solar model that not only generates electricity, but also prevents desertification; and PV projects that complement local wind power generation or even commercial fishing.

The company is also the first to utilize adaptive tracking, a technology that was mostly used in solar power generation in space, to ground systems in a massive scale – an innovation which has won Zhenfa another 500MW project in Lanzhou this year, after a 100MW contract already signed in May.

Problems lurking 

Zhenfa New Energy, however, is not free from the operational demons that have proven prevalent in a business that has been both blessed and cursed by exponential growth in a very short time.

According to Wang Haisheng, analyst at Minsheng Securities, “Although Zhenfa’s financial reports are not available, as the company is not public, judging from the large number of large-scale projects the company is going into almost all at once, cash flow should be a big problem for the company.” This is an estimation that has been testified to some extent by a former employee of Zhenfa New Energy, who confesses that nonpayment of wages for several months consecutively was a major reason for him leaving the company.

Another problem that has surfaced seems to be bubbling from the company’s management. Sky-high salaries promised to newly recruited mid- to high-level executives – usually at an impressive 300,000 to 500,000 RMB a year – are held in stark contrast to the relatively meager and stagnant wages of the company’s long-time employees.  A supplier has also pointed a telling detail indicative of the potential negligence in Zhenfa’s management: “We have been doing business with Zhenfa for many years. The company is expanding, and the projects are numerous, but Zhenfa’s employees don’t even have a company email address.”

Be it simply a case of doing the right thing at the right place at the right time, or a wonderful stroke of business genius, as the Chinese economy undergoes transition away from heavily relying on export and investment to a more sustainable consumer-driven economy, Zhenfa New Energy is positioned at a highly advantageous position, in terms of both scale and policy, to lead the second wave of growth and development in China’s solar PV industry.