According to a development plan released by the National Energy Administration on September 12, China's investment in solar power generation is expected to reach 250B Yuan ($39.5 billion) during the 12th Five-Year Plan (2011-15), and China's government will continue to provide supportive policies to China's solar industry for this goal.
China's supportive solar photovoltaic (PV) industry market policies have promoted PV companies' confidence to develop the domestic market, and so the domestic market in China has since been heating up.
China's share of exports to the EU has decreased from more than 70% in the past to less than 30% now, and share of exports to the United States has decreased from close to 20% in the past to slightly higher than 10%. This year, China will become the world's largest PV demand for the country, and the total demand will reach 8.5 - 9GW.

Benefitting from the supportive policies and electricity price subsidies, PV companies have launched a series of large-scale PV power generation projects. One example is Hareon Solar Technology Co., Ltd. (Hareon Solar).
After winning Shunfeng PV's 479MW PV power plant project, Hareon Solar recently announced a plan to invest 10 billion Yuan in building the Alashan 1GW PV power plant. The first phase investment of the construction of a 100MW solar PV power plant with the investment of 1 billion Yuan would be scheduled for completion in 2014.
The Shunfeng and Alashan projects have demonstrated Hareon Solar's rapid expansion ambitions. This reminds people of the idea of the guest supplanting the host, i.e., finding the opportunity to get involved, finding others' vital or weak points, and winning step by step.
Hareon Solar is one of the leading manufacturers of cells and modules, but has a lower profit ratio because of product overcapacity and price competition. The internal return rate of a power plant can reach as high as 15%, much higher than its current manufacturing products. Getting the opportunity to build power plants has more than one benefit to Hareon Solar: it can win higher yield, sell more of its manufacturing products, and obtaining higher profit by transferring the power plant soon after.
But it also faces challenges. One challenge is that many companies see the opportunity and join to compete. For example, on November 12, Zhonghuan Semiconductor Corporation announced that it would build China's biggest PV plant, with 7.5GW capacity, in Inner Mongolia, and would cooperate with an industry technology leader, the United States' SunPower Corporation, to have a technology advantage. Canadian Solar, Inc. (NASDAQ:CSIQ), JinkoSolar Holding Co., Ltd. (NYSE:JKS), Yingli Green Energy Hold. Co., Ltd. (ADR) (NYSE:YGE) and some others also gain in domestic market.
Another challenge is that manufacturing overcapacity, and thus low product prices, still exist in China. According to Wang Bohua, the Secretary-General of the China PV Industry Alliance, "the excessive growth of manufacturing overcapacity is obvious there; the manufacturing capacity will be over 60GW by the Spring Festival, while the market capacity would only be 30GW." Wang Bohua said that the financial losses since the beginning of the year still exist for most companies, and as there is so much technical challenge, many companies compete for market to lead to manufacturing overcapacity and low product price.
The biggest challenge of all, perhaps, is funding. Take Hareon Solar as an example. Its financial data shows that as of the end of the third quarter of this year, Hareon Solar's total assets is 11.6 billion Yuan, of which only 2.27 billion Yuan of net assets is attributable to shareholders, which is low to leverage a big project of 10 billion Yuan. The third quarterly financial report data show, from January to September of this year, that Hareon Solar has operating income of 3.669 billion Yuan, an increase of 0.36%; its net profit is -2.21 billion, and its loss has increased over last year. But the company has a net profit of 34.04 million Yuan for the third quarter.
"Funding is one of the big issues to be addressed later to Hareon Solar," financial analyst Han Qiming said. According to a PV professional, the construction of photovoltaic power plants requires a lot of money, and the payback period is very long, so companies need to be especially careful when considering investing in their business. The current financing options for PV power plants are mainly bank loaning and the involvement of new investors, while financial leasing is difficult to support the development of such a big project.
The business model of the PV power plant is not currently complete enough to draw investors, and the current financial support policies are targeted for corporate credit, while the power plant project cannot be used for financing. So, commercial banks lend large amounts only to big state-owned enterprises rather than small businesses, because small businesses' power plant projects have no clear earnings expectations to get loans and financing, with the result being that small businesses have more difficulty with entering the power plant development process.
Hareon Solar has quite a lot of challenges with funding their projects, especially for bank loans. But their managing teams are still confident with their financing. China's national plan has developed a good environment for them, at least in for the future. From now on, overseas companies will focus on how to enter China, instead of accusing Chinese firms of dumping products, according to Gao Jifan, the founder of Trina Solar Limited (ADR)(NYSE:TSL). New investors seem to be the key to the issue of PV manufacturers. The industry has already had sporadic transactions, but because there are disagreements regarding methods for assessing power plant assets, it is still difficult for buyers and sellers to come together.
Hareon must overcome described hurdles while dealing with competition at home, and in the future, from abroad. Ironically Chinese, but those listed in the US, can become the biggest thread to the company's plans. Having Chinese banks' support, international capital exposure and proven global operating experience, NASDAQ and NYSE listed names are moving aggressively into domestic turf. The combined number of projects in various stages is over 8GW, this year alone, noting that most are still in a state of not-committal MOUs (memorandum of understanding). Nevertheless, equipped with recently raised funds accompanying by profitability, they can certainly displace Hareon at its own game.