BOTTOM LINE: Complaints of problems from a
major solar plant builder reflect the difficulty of new
construction in China, and could wreak havoc on the sales and
finances of panel makers and their construction partners.
Solar entrepreneur Shi complains of bureaucracy
Two solar energy news items are showing both the attraction and
also the frustration that developers are feeling as they try to
build new clean-energy power plants to help China wean itself from
its dependence on fossil fuels. On the attraction side of the
story, the industry has just won a major new backer in the form of
insurance giant PING AN (HKEx: 2318; Shanghai:
601318), which is teaming up with panel maker TRINA SOLAR
(NYSE: TSL)
in a new plant-building initiative.
But the frustrations that many plant builders are feeling were on
prominent display in a separate report that cited another major
developer complaining of the difficulties of new construction.
Those kinds of complaints aren't really new, and are being caused
by provincial government interference and other local issues in
the many remote locations where new plants are being built.
While solar power proponents are quite happy to talk about all
the money they've raised and their big plans for new plant
construction, few like to talk about the many troubles they face
when they actually try to build those plants. Everyone is being
attracted by Beijing's ambitious plans to build up solar power in
the country, partly to support the nation's big field of solar
panel makers and partly to clean up the nation's polluted air.
Beijing has repeatedly boosted its target for new solar plant
construction, with a current aim of installing 35 gigwatts of
capacity by the end of this year. And yet an industry official was
cited last fall saying that only 10 gigawatts were likely to be
added by the end of 2014, making the 35 gigawatt target look
nearly impossible to reach. Despite that, the ambitious target has
continued to draw in big investors who believe Beijing and local
governments will provide them with financial and other assistance
in the drive to realize China's solar energy dreams.
Now Shanghai-based entrepreneur and multi-millionaire Shi Yuzhu
is showing just how difficult the road to solar construction can
be in China. Shi announced a major new solar construction fund
last year, but his enthusiasm has quickly turned into frustration
since then. A new media report cites Shi as complaining on his
microblog that of the 3 major plants his fund was planning, 2 have
run into difficulties that could delay them indefinitely. (Chinese article)
The article details the situation with one stalled project in
Inner Mongolia, but the bottom line shows that local government
officials are playing their usual tricks designed to benefit
themselves rather than facilitate business. Such games are quite
common in China, especially in less developed provinces like the
ones where many solar plants are being built. Shi is probably
being hurt by his own lack of experience as well, but it's quite
likely that his story is being repeated at many similar projects
around the country. That certainly doesn't bode well for solar
panel makers or plant builders.
One such panel maker that was counting on a local construction
boom is Trina, which has just announced a new plant-building
initiative with PINGAN TRUST and Jiuzhou
Investment Group, an investment arm of the Jiangsu
provincial government. (company announcement) The trio plan to build new solar plants with total capacity of up to 1 gigawatt over the
next 3 years. The arrangement looks quite risky for Trina, as it
appears Trina will borrow money from its partners for plant
construction, and give them the option to convert the loans into
equity ownership at a future date.
Trina and its peers like YINGLI (NYSE: YGE)
and CANADIAN SOLAR (Nasdaq: CSIQ)
have announced a string of similar initiatives, which often see
the companies join hands with financial backers for new plant
construction. If a big portion of those plans runs into troubles
like the ones we're seeing from Shi Yuzhu, which seems almost
inevitable, both panel makers and their plant-building partners
could find themselves in a big mess that could wreak havoc on
their finances and even threaten their survival.
Doug Young has lived and worked in China for 15 years, much of
that as a journalist for Reuters writing about Chinese companies.
He currently lives in Shanghai where he teaches financial
journalism at Fudan University. He writes daily on his blog, Young's China Business Blog, commenting on the latest
developments at Chinese companies listed in the US, China and Hong
Kong. He is also author of a new book about the media in China, The Party
Line: How The Media Dictates Public Opinion in Modern China.
