China's Solar Plans Could Stall Without Installers

online.wsj.com
August 7, 2009

SHANGHAI (Dow Jones)--China is on its way to becoming a solar energy - with financial incentives coming from every corner of the country - but a lack of experienced project developers and equipment installers may cast a shadow over the growing industry.

The country is already a powerhouse when it comes to solar manufacturing, with several large solar cell and module manufacturers located in the country. But unlike the U.S, and Europe, China hasn't had much experience developing and installing solar projects. For instance, in 2008 the country had an installed base of solar energy of only 50 MWs.

"In the mid term, installers could be the key factor preventing China from expanding its global market share in annual solar installations at such a rapid rate as Spain did from 2005 to 2008," said Charles Yonts, an analyst with the Hong Kong-based brokerage, analysis and advisory services firm CLSA. "But I don't think lack of installers will prevent China from reaching my 1500 (MW) 2011 target and then some." The Chinese government is targeting solar energy capacity of between 10 and 20 GWs by 2020 and is ratcheting up funding to achieve it.

On July 21, China's Ministry of Finance, Ministry of Science and Technology, and National Energy Administration officially announced details of the country's "Golden Sun" program. Under this program the Ministry of Finance will subsidize half of the total construction costs of an on-grid solar energy plant, including transmission expenses. The ministry of finance will also pay for up to 70% of off-grid installations. Its sweeping subsidy program is also not limited to one or two provinces around the country. Instead, China is offering the subsidies for up to 20 MWs of demonstration projects in each of China's 22 provinces, and in its five autonomous regions.

Given those targets, analysts expect that China could develop more than 500 MWs of solar energy over the next two to three years. Analysts say that figure could rise, noting that some Chinese solar manufacturers have an even larger pipeline thanks to several non-binding contracts that were signed ahead of the ministry's announcement. Those contracts aim to take advantage of local subsidies that are being offered at the provincial level. However, of the big module manufacturers in China, only SunTech Power Holdings Co. Ltd. (STP) in Wuxi, Xinyu-based LDK Solar Co. Ltd. (LDK); and Yingli Green Energy Holding Co. Ltd. (YGE) in Baoding have integration and installation businesses.

Around two years ago, SunTech created a subsidiary company called SunTech Energy Engineering to gain more experience in the installation and component integration business. Then, in October 2008, SunTech acquired the U.S.-based solar integrator and installer EI Solutions Inc. Meanwhile, in July, LDK acquired a majority stake in a Milan, Italy-based system integration company Solar Green Technology SpA. Yingli has a small installation and renewable energy project development group. The lack of installation expertise could represent an opportunity for international companies, even if Chinese solar companies have an advantage in bidding for new projects because of their ties to local government.

Shanghai-based JA Solar Holdings Co. Ltd. (JASO), for instance, has joined with longtime partner BP Solar on many of its bids in China, according to Anthea Chung, JA Solar's chief financial officer. "We don't have the (engineering, procurement and construction) team, or the system engineering team in house," Chung said in an interview. "And we don't want to build a big team and spend all of that money (so) at the preliminary stage we team up with other companies."

Chung said that the strategy may change as the China market develops but for now, partnering with a more experienced system integrator with a recognized brand makes the most sense. Foreign companies can also look at the example of Enfinity Development (HK) Ltd., the Chinese arm of a Belgian renewable energy project developer, Enfinity BV. The firm, together with China Guangdong Nuclear Power Holdings, a state-owned enterprise and Best Solar Co., won a bid to install the first 10 MWs of a planned 500-MW solar photovoltaics project in Dunhuang, China.

With the help of a fund that the firm expects to raise over the next year, Enfinity has said that it wants to develop approximately 1 GW worth of solar projects that it already has identified with a group of partners. Still, some are skeptical that the China market can ever be truly opened. "I am not sure if the Chinese government will let non-Chinese in on the game as the whole point is to stimulate the economy," wrote one analyst in an email. "They may allow a 50% (joint venture) for non-Chinese to 'help out the Chinese.'"