What does Suntech’s insolvency mean for solar?


Suntech Power Holdings Co. Ltd.’s giddy descent from a world leader to debt-riddled PV module manufacturer, which became the first U.S.-registered Chinese corporation to sink into insolvency, has raised numerous questions for every sector of the solar industry.

With every quarter of the last two years bringing news of plunging polysilicon prices, global overcapacity and colossal debt piles throughout solar manufacturing, the most pertinent question on people’s lips since Suntech’s infamous March 15 default, is whether the Wuxi-based manufacturer is just the first domino to fall.

Eyes have turned to fellow manufacturers in the People’s Republic with huge liabilities and stock inventories, as news emerges that Chinese banks have tightened lending criteria for solar companies.

Finance is set to become tougher as heavyweights on both sides of the Pacific, including LDK Solar Co. Ltd, First Solar Inc., SunPower Corporation and SunEdison Inc., talk about reducing manufacturing costs and consolidating the market shares so damagingly pursued until Suntech’s failure.

But if financing does become more costly, and the knock-on result is a halt in the precipitous fall of panel prices; and if rivals pick up the slack left by Suntech’s demise, it may not be all bad news as far as Tier 1 peers are concerned, Jesse Pichel, founder of Pichel Cleantech advisers, told pv magazine.

Good news for Tier 1 rivals

"It’s a shot in the arm for Suntech’s rivals," said Pichel. "A lot of their volume will go to competitors like Yingli [Green Energy Holding Co. Ltd.], Trina [Solar Ltd.], Canadian Solar [Inc.] and JA Solar [Holdings Co. Ltd.]. SunPower and SunEdison will [also] benefit because of their superior balance sheets."

Although the carve-up of the Chinese giant’s market share could prove a welcome development for hard-pressed rivals, there is a short-term risk that, if Suntech is abandoned by the Chinese government, its extensive inventory could flood the market with even cheaper panels in a fire-sale to satisfy creditor demands, added Pichel. "If Suntech starts dumping gigawatts of panels at liquidation prices it could create downward pressure on prices for a period," he said.

Another significant question arising from the Suntech affair is what the Chinese government does to intervene, either directly or, more likely, through a behind-the-scenes intervention to satisfy domestic banks left high and dry by the insolvency and through state governments hit by the loss of local jobs.

Regarding the effect of the Suntech affair on panel prices, IHS Solar’s Mike Sheppard is more optimistic. "If I was a Chinese bank I wouldn’t want to invest in another Chinese solar manufacturer now the Wuxi local government has said they will not honor Suntech’s existing obligations," said Sheppard, senior analyst for the market research company.

This opinion is shared by Pichel, who added, "They [Chinese banks] are going to pay more attention to suppliers to make sure they are financially solvent. Right now they are all trying to figure it out and I don’t think anyone has the answer yet."

Sheppard accepted the risk of a short-term fall in panel prices from a liquidation sale – "it depends how much inventory they have" – but said an inevitably higher cost of financing, post-Suntech, should feed through into the end product.

According to the IHS analyst, the question of whether the Chinese government abandons its most high-profile manufacturer or steps in will merely affect the extent of a rise in financing costs and, thereby, panel prices. "Trina and Yingli need to find investors from outside China," said Sheppard. "That will mean more expensive lending rates which could flatten or even drive up panel prices. If Chinese companies have to face issues that companies outside China need to face every day, that’s an interesting move."

Drawn on whether there would be a bailout, the solar expert would say only "it’s 50/50," adding, "Even if there is a bailout, Chinese banks would still be concerned so just covering your losses is not enough, the interest is fading in solar."

Will they or won't they?

Opponents in the EU, U.S. and further afield who took heart when Chinese premier Li Keqiang announced that the government was poised for a less active economic role are likely to end up disappointed, especially with Suntech having appointed Weiping Zhou, former manager of state-owned Guolian Development Group, as executive director of the board and president of the company as the U.S. bonds issue was coming to a head.

With fellow new appointee Philip Fan boasting a management science degree from MIT, it appears the company was preparing for the restructuring and possible state support expected to follow the March 15 meltdown.

Ben Santarris, a spokesman for the U.S. subsidiary of German company SolarWorld AG, which lobbied the American Congress to apply anti-dumping duties to imported panels from Suntech and their Chinese peers, is skeptical of any pronouncements China will let its over-extended manufacturers fail.

"The critical, as yet unanswered question now is how will the government and sub-governments of the People’s Republic of China respond to their troubled companies’ plight," Santarris said. "In several instances, the Chinese government already has, yet again, extended their investment in the solar industry’s trade aggression in foreign markets by lending yet more subsidized financing."

He continued, "The New York Times has reported the Wuxi region will come to Suntech’s aid, though no official word has come out on that front. How China responds to the unfolding financial troubles of its solar companies, which policies from its five-year planning process caused, will make clear whether the government will continue to interfere in foreign markets and distort them or allow the organic forces of supply and demand to put the industry back on a rational, competitive footing."

Pichel too, is among those who expect the Chinese government to intervene. He commented, "I think there’s too many jobs at risk in China and I think the government will do what they can to keep the Suntech employees working. Eventually the Chinese government has to rationalize the industry but a lot of companies have relied upon regional banks and the question of meaningful banking reform in China is a whole different kettle of fish."

Amid talk of tightening lending criteria, polysilicon manufacturer GCL Poly, said talk of more restrictive credit lines is exaggerated. "We do not feel the banks are tightening towards the industry not at least towards the largest players," GCL Poly investor relations spokesman Lu Yeung said. "We have very strong support from banks and we still have a large amount of untapped credit."

Yeung was quick to point out speculation about the knock-on effects of Suntech’s troubles was overblown for his company, stating, "They [Suntech] are one of our over 20 customers."

There is almost unanimous agreement on the need for consolidation with Pichel suggesting a need for "consolidation to a couple of leading providers."

Another question mark emerging from Suntech’s ashes is over who will be next.

"Yingli has a lot of debt but is the largest company in the world for solar and is in Beijing’s back yard so the government won’t allow them to fail," said Pichel. "The market is looking at LDK Solar because of their debt and also because their polysilicon isn’t cost competitive with companies like GCL Poly," he concluded.

Read the full article in the May edition of pv magazine, due out on May 3.

Edited by Becky Beetz.

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