Chaos expansion of solar energy trapped into focus the plight of expanding downstream business

As the worlds largest solar energy producer, China over the past few years the pace of moving to cleaner energy sources is quite dazzling. At the same time, seize the opportunities in the past three years, solar energy companies listed abroad is rewarding. For example, between 2005 and DS90CR285MTD datasheet and 2008, the industry leader - Suntech Power Co., Ltd. (SuntechPower).

But affected by the financial crisis, hot Suntech Power shares have now only one-tenth of its peak value, the other shares in the domestic solar photovoltaic companies, without exception, also suffered heavy losses. Last year, the last three months, the solar photovoltaic (PV) module manufacturers gross profit dropped sharply, from the third quarter of 2008 fell to $ 129,700,000 $ 3,600,000, and DS90CR285MTD price and 30% of the staff being cut. And only one of many suffering the impact of Suntech solar manufacturing companies, a member. Its competitors JA Solar (JASolar) and DS90CR285MTD suppliers and China Sunergy (Sunergy) sharp drop in profits also appeared, a large number of small factories were forced to stop production.

Lead to reversal of photovoltaic business universe What is the reason? Needless to say, people will naturally blame the financial crisis as. Because of the crisis, solar energy developers can not get the funds needed to purchase PV modules, thereby curbing the demand for photovoltaic products. Of course, loans are not far from the photovoltaic business is not the only reason into the predicament. Industry analysts believe that, on the one hand large-scale expansion can cause excess supply rapidly, resulting in a price war intensified. On the other hand, due to economies of scale and the polysilicon and other raw material prices fell sharply, the price of PV modules also decline, thus paving the way for the market expansion, of course, not difficult for the photovoltaic business benefits. Although the international community for alternative energy sources is to maintain strong support for the policy, but observers still believe that Chinas PV industry mainly depends on whether the recovery of the Governments willingness to continue to provide more support for solar energy development. There are already preliminary indications that the government is moving in this direction.

Fast-changing industry

The development of photovoltaic industry has been changing. Manufacturers over the past year and more worried about the factors that are changing: Although the current economic environment is most worrying is the credit crunch, but the situation just a year ago is still very different. Restricting the development of photovoltaic industry was not only a lack of potential buyers to purchase capital, but manufacturers can not even buy the raw materials required for manufacture of silicon photovoltaic modules.

In Germany and Spain, due to generous government subsidies, solar technology has gradually started to promote. However, according to the New York-listed Trina Solar (TrinaSolar) Ji, Chairman and CEO, who recalled that two years ago for the supply of polycrystalline silicon PV modules also can only meet the needs of manufacturers into two or three. More PV module manufacturers have to compete for scarce raw materials, leading to higher prices of raw materials, end products (PV modules) price inflation. British research firm New Energy Finance (NewEnergyFinance) Xiao-Yu Analyst (JuliaWu) said that last year the market spot price of polysilicon, once as high as 450 U.S. dollars per kilogram.

Huge advances in under the weight of PV module manufacturers choose to flee the spot market, a large number of strategic sourcing directly from the source of raw materials, invest and build factories and they also produce their own polysilicon. LDK Solar LDK Solar Co., Ltd. (SinoVideoLDK) is a major photovoltaic manufacturer, started in August 2007 set up plants in the production of polysilicon, with a total investment of more than 12.0 billion, an annual capacity of 15,000 tons. Zhenjiang, Jiangsu Suntech shares of Central Pacific Silicon Technology Co., Ltd. (GlorySilicon) and the United States living Division Materials (HokuMaterial) and other polysilicon producers to become minority shareholders of both companies. Xiao-Yu

said that while a severe shortage of raw materials have, but this year the situation will no longer exist. Driven by high profits, builders are stepping up the construction of a new polysilicon plant. For example, the name of the Hemlock end the company plans to increase production capacity from 10,000 tons to 19,000 tons, WACKER Group (Wacker) plans increased from 10,000 tons to 18,000 tons.

Present, the annual total production capacity of high-purity polycrystalline silicon should not exceed 80,000 tons. In this case, the large-scale PV module manufacturers are also beginning to change strategy.

Soon in anticipation of the polysilicon oversupply of large manufacturers have abandoned plans to set up plants in the production of polysilicon. By Trina Solar, for example, the company invested approximately one billion U.S. dollars to give to build a production capacity of 10,000 tons of polysilicon plant project. At the same time, they pick up the pace to expand production capacity end products, the results (in the deterioration of the economic situation before the end of last year) harvest profits. Suntech to figures prove once again the strength of their own. September 2008, Suntech vice president Zhang Guangchun held in September last year, the 10th China Solar PV Conference and Exhibition on the speech that the company in 2008 to 1 PV module production capacity GW (equivalent to 1,000 MW ), roughly equivalent to the previous year of all domestic production of photovoltaic manufacturers combined. He expects the company in 2010 to increase production capacity of 4.2 GW.

Solar storm

PV companies in China, however legitimate that you are going to bail out the time, the rapid growth of production has brought other problems - massive oversupply. As early as before the outbreak of the global financial crisis, observers worry that the supply will soon exceed demand. July 2008, well-known research institutions SolarPlazaCEO Edwin PV - Kurt (EdwinKoot) published a report entitled "fasten your seat belts" (fastenyourseatbelts) research report, forecasting total demand in 2009 for the global PV 6 GW, the total production capacity is up to 9 GW. He wrote in the report, "This will lead to oversupply, prices and profits down."

Some experts worry that manufacturers will fall into the prisoners dilemma game, the players rational behavior (in this case by expanding the capacity of economies of scale) with the intention to bring the opposite results (ie industry-wide price war triggered.) At the same time, New Energy Finance, Wu pointed out that while polysilicon spot market price has dropped to 150 U.S. dollars per kg (only one-third of the peak), but because of the high price of raw materials inventory, the manufacturer is still the high cost of high.

She explained that companies such as Suntech Power profit slump in which there is demand factors, including Spain and the United States market is the key. The rise of the domestic photovoltaic industry, the Spanish market has made undeniable contributions, one last year alone the amount of 2.5 GW of new installations, but this year will not exceed 500 MW. At the same time, Barack Obama plans to domestic energy needs by 2012 to 10% from alternative energy sources, it is expected that the next few years will be the PV Xuqiu growth rate of 30%. Obama also supports the Bush administrations tax refund policy to allow solar energy plant after investors set up factories in a 30% tax rebate.

So some people think the U.S. can make up for the Spanish market shrinking demand. Although some truth to this view, but the United States can not save the situation. Supply generally exceeds demand this year, the forecast appears to be a reality. New Energy Finance expects the optimistic estimate of the market this year, demand for the supply of at least more than 2 GW, PV prices declined by 35% to 40%. PV manufacturers profit margins are so squeezed by both supply and demand, compounded depreciation of the euro also. Driven by this harsh environment, PV companies have stopped late last year and the construction of new plant expansion. Faced with such industry

winter, another possibility is that small solar companies merge onto the road. Secretary-General Wei Qidong, Jiangsu Photovoltaic Industry Association, said, "These small companies does not receive orders, funding is very tight." In 2008 there are about 400 manufacturers of photovoltaic components, the figure is double the previous year, but It is estimated that more than 300 of them have closed their doors. Although the exact number is unknown, but Xiao-Yu that the majority of enterprises are only temporarily dormant, until the arrival of market recovery. There are rumors that the government will intervene to save energy photovoltaic industry.

The new focus of competition

Oversupply and raw materials shortage of polysilicon is no longer the situation back to the other manufacturers of photovoltaic effect, that is to change the focus of their competition.

As just rely on economies of scale to gain competitive advantage opportunities are shrinking, PV companies have begun to seek new ways to beat the competitors.

Development of downstream industries, vertical integration is one of the ways not only to provide specific design, procurement, construction and engineering services and network connections, including financing and long-term maintenance. Deutsche Bank in May 2008 released a report that the complete system solution provider business model is the most secure, it can resist shrinking profits caused by excess supply. Trina Solar CEO, who also believes that discipline, "rather than the sale of energy components and systems to bring the best long-term returns." Even without direct investment in the construction of solar photovoltaic power plants, expand the business, provide a full range of solar EPC (design - procurement - construction) services can also bring huge profits. Sunergy Zhao Jianhua, chief technology officer noted that "the purchase of PV systems onto the roof and the cost of the system is almost equivalent."

Expanding downstream business has not only aroused the attention of large companies, also attracted the eyes of investors. In early 2008, China Environment Fund (ChinaEnvironmentFund) partner, has invested in three solar energy companies began to aggressively promote Zhang Lihui this new business model, because he believed that the supply of polysilicon is very full in the circumstances, is important to expand downstream operations. He said, "Once the material is no longer a shortage of PV market will immediately become a buyers market, when the focus of competition is the competition for end customers." Become a total solutions provider to enhance the competitiveness of manufacturers.

Some domestic enterprises have begun to transform. Nanjing PV companies in Optoelectronics (ETSolarGroup) into Zhang Lihui eye, then the company received from the China Environment Fund, $ 20,000,000 of the funds. Mid-2008, in Optoelectronics in Germany set up a subsidiary called ETSolutionsAG into systems solutions provider. December 2008, in Optoelectronics and Wa Tena Group entered into a total of 2 million euros contract for installing solar systems. Wa Tena is a closed group of energy and infrastructure funds of the German promoters.

In Optoelectronics, vice president and chief marketing officer She Haifeng (DennisShe) that the company has the advantage of both manufacturing and EPC proficient knowledge. Project started in China, with Chinese workers involved in construction can reduce the cost of the project. In addition the company also provides financing services through partners.

Large companies are also eyeing other staring at the Optoelectronics. Suntech Power has announced a total solution provider will enter, and in the end of last year and third-party finance partners with MMARenewableVentures Gemini Solar Development Corporation, a joint venture (GeminiSolarDevelopmentCompany, referred to as GeminiSolar), to develop more than 10 MW project and the project provide financing in order to capture the U.S. market for the growing needs of large-scale solar energy project opportunities.

Small PV into the downstream business in the process will certainly be difficult, but even big companies also felt a strong resistance. Perhaps the very cheap Chinese labor, but to maintain the workforce in Europe is not cheap. This point is important because 08% of the demand from overseas markets. She Haifeng said, "ETSolutionsAG business directors salary is equivalent to the Ministry headquarters staff costs in all markets combined." Managed a team of international enterprises in China, or for something new. ET is also the risk that overseas subsidiaries and parent companies may compete for customers.

Actively expand the domestic market

Side of PV companies in China to enter the U.S. market, the implementation of new business strategies, while continue to lobby the Chinese government to increase domestic solar energy technology promotion efforts. Xiao-Yu pointed out that so far China has installed only 130 megawatts of solar photovoltaic installations around, because the cost of solar power is much higher than traditional energy sources, especially coal. It is said that the government favored relatively most cost-effective than wind and nuclear power.

Reverse the situation but now there is the opportunity. While it is unlikely the cost of solar power and conventional power generation costs quickly fell quite, but in fact as long as solar power and peak prices will be very very cost-effective. Suntech CEO Zhengrong Shi, chairman and industry leaders believe that the cost of solar power by 2012 will drop to conventional power generation costs, a dollar per kilowatt-hour price. Xiao-Yu

that "as component prices, lower prices, and silicon technology continues to improve, I think this goal is achievable." She said in the United States has emerged in some parts of 0.2 U.S. dollars per kilowatt-hour of solar energy . But she also highlighted that the solar energy to a dollar before 2012 some regions in China. It is measured according to SolarPlaza

, "After that the photovoltaic industry will take off again, no longer rely on subsidies or subsidized project constraints. That may emerge unexpected PV industry growth opportunities, and even a shortage situation . "Even if the Chinese government

also the plight of the domestic photovoltaic industry feel sorry, but it also noted that there may be opportunity in this. Xiao-Yu said, "We think the government really should take measures to save these companies." Solar energy industry can solve many of the employment problem, the Government will not tolerate this kind of "green" industries this decline.

As solar prices fall, the government seems to have begun probing the potential of the domestic market. Dunhuang, Gansu, 10-megawatt solar power plant project, the Government implemented the first concession bidding process. This project is also the largest domestic solar energy project to date, while the government and the local coal for power generation solar power difference between the provision of subsidies. To the end of February, 50 domestic and foreign developers have pledged to participate in bidding. Bidding will end on March 30. This project will not only speed up the country by 2010 to achieve the target of 300 MW generating capacity (although this goal a bit conservative), but also to weigh the potential market size and the number of required funds. Another solar power plant is also planned several other of them.

Other countries than China government support continues unabated. Not only the traditional markets that, Greece and Eastern Europe, emerging markets are no exception. Promote the development of solar energy industry fundamentals, such as environmental issues and energy security remain. Although some PV companies fall in this crisis, but also solar energy falling prices of companies that survive this winter to open a vast new world. Although the flames some weak, but we believe that the sun does not fall of this star.