This Week in Solar

We're just entering earnings season, so solar companies have gone into quiet mode before they release their numbers. But that doesn't mean the industry was quiet, and in fact we may have gotten some key information about how China will handle solar in the future. Here are the most important pieces of information investors should take from this week in solar.

China strikes back
When the U.S. imposed tariffs on Chinese solar manufacturers, the retaliatory actions the Chinese would take were unknown. Right now, it looks like China is going to look into similar anti-subsidy and anti-dumping tariffs for polysilicon makers in the United States. China imports a lot of polysilicon from U.S. manufacturers, leading to net exports of solar products, and retaliation would have a wide-ranging impact.

Hemlock (a venture majority-owned by Dow and Corning (NYSE: GLW  ) ), MEMC (NYSE: WFR  ) , OCI, and REC are three of the major exporters of polysilicon, and this could put even more pressure on their margins.

While manufacturers of polysilicon may be hurt, one important supplier in the U.S. probably won't be. GT Advanced Technologies (Nasdaq: GTAT  ) makes most of the equipment that makes polysilicon in China, and even though the company is based in the U.S., its manufacturing is in Asia, so it isn't exporting from here. The company will likely be affected, but it's unclear whether it will hurt equipment sales at this point.

What's interesting to note is the impact on the overall supply chain in the industry. One of the reasons U.S. manufacturers are exporting to China is their high-quality production that Chinese manufacturers can't meet. In conversations with industry experts, I have gathered that LDK Solar (NYSE LDK) and Renesola, two of the largest polysilicon manufacturers, don't meet the same quality as some of the U.S. manufacturers. This will put Chinese manufacturers in a precarious position making a decision between cost and quality.

LDK is bailed out
I've written many times about the troubling debt piling up at Chinese solar manufacturers. The million-dollar question is how China will handle the billions of dollars of short-term debt its banks have handed to solar manufacturers. We got a small peek this week.

The city of Xinyu paid off $80 million of debt for LDK solar in support of the company based in the town. This indicates that China may find ways to prop up its solar industry without letting it going bankrupt. Debt is piling up and losses are growing, so if China will continue to support the industry, the shakeout may take longer than it should naturally.

Project updates
There are a number of huge projects being built in the U.S. right now, and this week there were some interesting updates.

Agua Caliente, a project being built by First Solar (Nasdaq: FSLR  ) and that will be owned by NRG Energy and MidAmerican Solar, has now installed 200 MW of its final 290 MW capacity. The installed modules are now powering the grid in Arizona and are a major step forward in one of First Solar's large utility-scale projects.

On the flip side, over at Antelope Valley Solar Ranch One, the First Solar project was vandalized, causing $100,000 in damage. First Solar has battled with local residents about the project for years, and it appears that at least one disgruntled person took to criminal means to make his or her displeasure unknown.

This just shows how delicate solar projects are right now in certain parts of the world. Installers need to walk a fine line between pleasing residents and their project plans. Hopefully, First Solar can get this figured out in the near future.

Foolish bottom line
I'll keep a close eye on China's reaction to the U.S. solar tariffs and how China handles solar companies' debt, because these will have a big impact on the industry.

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Fool contributor Travis Hoium has no position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw.

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  • Report this Comment On July 23, 2012, at 1:02 PM, BillStacker wrote:

    "The company will likely be affected, but it's unclear whether it will hurt equipment sales at this point."

    -How do you come to this conclusion? WHAT is going to affect it if not lose of equipment sales?

    That sentence seems to directly contradict your first sentence about GTAT, unless you mean that it WILL be "affected" but NOT "hurt". As in, it will be positively affected?

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