Nearly three years ago, a political controversy over the U.S. government’s loan guarantee supporting the once-promising but now bankrupt California solar start-up Solyndra seriously damaged support for clean energy in the United States.
At the time, I speculated that financial forces similar to those that sunk Solyndra would sooner or later sink several of China’s major solar equipment manufacturers.
A series of recent defaults at Chinese solar manufacturers suggest I was at least partially right.
In 2013, Suntech Power, a solar manufacturer based in China’s eastern province of Jiangsu, defaulted on $541 million of convertible bonds. In February, Suntech filed for Chapter 15 bankruptcy in Manhattan to seek protection from U.S. creditors.
Meanwhile, LDK Solar, a solar manufacturer based in the southern province of Jiangxi, defaulted on an equally massive bond that matured in February.
Threatened with the prospect of bankruptcy, LDK Solar said it had received $321 million in loans from a consortium of lenders led by the China Development Bank, according to Bloomberg.
The same banks have already lent LDK billions of dollars. In 2011, LDK received $8.9 billion from the China Development Bank, according to Mercom Capital Group, an Austin, TX-based energy consulting firm.
The full scale of financial subsidies the Chinese government has provided domestic solar manufacturers is stunning.
In 2009, while testifying before the U.S. China Economic and Security Review Commission in 2009, Ethan Zindler, the head of Bloomberg’s New Energy Finance, suggested that these subsidies would result in a supply glut in the solar manufacturing sector.
Citing a $5.3 billion loan Yingli Solar had secured in 2010 from the China Development Bank, Zindler said: “That loan alone, and several others like it from the bank, could help double the world’s solar manufacturing supply of solar modules in just the next several years.”
Chinese manufacturers quadrupled production of solar panels between 2009 and 2011 and exported them at prices sufficiently low to expand China’s market share in the solar sector dramatically.
Between 2009 and 2011, the price of modules decreased from $2.79 to $1.59 per watt.
Chinese companies have argued that economies of scale and technical improvements are responsible for these dramatic cost reductions.
Not everyone agrees.
“The explanation for this simultaneous sharp increase in production and sharp price reduction is not entirely the happy economic event of unit cost reduction from economies of scale and improved technical performance with preservation of commercially attractive profit margins,” said the authors of an MIT report about the future of solar energy. “Rather the explanation for this price decline is overexpansion in global, primarily Chinese and Asian, production capacity of cells and modules, combined with a reduction in the demand growth of heavily subsidized PV markets in Europe caused by the financial crisis.”
After a 13-month-long investigation, the U.S. Department of Commerce similarly concluded that China has been illegally pricing solar exports below production costs to undercut foreign competitors and gain market share.
“Pervasive and all-encompassing Chinese subsidies are decimating our industry,” said Ben Santarris, the director of corporate communications at SolarWorld, a solar panel manufacturer based in Hillsboro, OR.
Meanwhile, the US Energy Department’s SunShot Initiative is funding research efforts that aim to cut the all-in cost of solar power to less than $1 per watt by 2020. To do so, solar manufacturers must produce modules that cost less than 50 cents per watt by 2020, which is 75% less than what they cost to make in 2010.
In March, only three years after SunShot began, a Chinese solar company announced that it was producing modules that cost less than 50 cents per watt.
What baffles me more than anything else is how many people seem to believe that technical innovation – rather than Chinese subsidies – is responsible for these stunning cost reductions?
“I believe this is the first time in human history that a module company has recorded cost under 50 cents per watt,” said Shyam Mehta, Senior Solar Analyst at GTM Research.