27 February 2020

Industry veteran sees lingering solar storm

Having experienced extreme weather in the solar power industry, Samuel Yang Huaijin {楊懷進}, the “godfather of the photovoltaic industry”, knows when a storm has blown over.

The one that has been buffeting China’s solar sector may be weakening but the turbulence is far from over. It comes from overcapacity which Yang described as a “lingering issue”. The imbalance has improved but has not disappeared.

Yang, who co-founded Suntech Power (STP.US), China Sunergy (CSUN.US) and JA Solar (JASO.US), is chief executive of Hareon Solar (600401.CN), a solar cell and module maker which operates a dozen solar power stations.

While agreeing that the PV sector is recovering, Yang cautioned against excess optimism. Consolidation is only in its early days, he told the China Economic Information Network.

“In the past, you had 10 guys competing for the same bowl of rice. Now, it is three for one,” Yang said, implying that the shakeout of weaker players will continue.

Like all manufacturing businesses, China’s photovoltaic sector will go the way of mature industries as such as television and personal computers where market share tends to be concentrated in a few strong players, Yang said.

“Those with advanced technology and strength will stand out from the rest and become the Haier and Midea of the the sector.”

The meltdown of 2011-2012 reminded investors about the risks in the sector. It helped ensure that the rush of investment dollars into the solar industry that led to oversupply will not repeat itself. The capital market has a long and vivid memory of it.

Still, there are a few bright sports.

With excellent daylight conditions and vast desert areas suitable for building large solar plants, western China offers PV companies an opportunity to grow. However, harnessing that potential requires the removal of a lot of invisible barriers, Yang said.

He did not go into detail. Obviously, it’s not a good idea to pick a fight with local cadres if he wants to do business there, but media reports can shed some light on what those impediments are.

For example, if you want to build a solar power plant in Qinghai, you either need to build a factory there or procure locally made solar cells and modules. Some local governments stipulate that companies use solar products made within 500 kilometers of the power plant.

As might be expected, Hareon is proceeding cautiously.

“We are not going after capacity growth. Instead, we are pushing for better product quality and lower cost,” Yang said. The company expects a full-year loss for 2013.

Hareon, which is less than half the size of industry leader Yingli Green Energy (YGE.US) by revenue, is planning to ramp up investment in its downstream business.

But it faces formidable challenges in raising financing given that banks have become wary about the prolonged industry downturn and volatility. They are not very supportive of such projects, Yang said.

Despite the extreme cycles, solar power is here to stay. In fact, it has been growing faster than Yang’s wildest dreams.

“That does not mean everyone will make money. It is a more challenging business now and only those that are well prepared and well equipped are going to make it.”

– Contact the writer at [email protected]



EJ Insight writer