My colleague Shyam Mehta wrote an interesting column the other day on why the solar industry hasn't experienced the long-awaited shakeout that will leave only the leanest and meanest panel producers standing. Solar panel prices have dropped, excess capacity exists, and Germany has cut its feed-in tariff.
Just as interesting, the companies expected to get hurt in a shakeout -- namely, European and U.S. manufacturers -- seem to be weathering the storm so far. Chinese and Asian manufacturers, which have lower cost structures, are actually the ones with excess manufacturing capacity. Why the reversal?
Bankability, it turns out, played a larger role in the market than expected. Solar developers need credit and banks have favored projects built with European panels over Asian panels.
"Essentially, the bankability factor has restricted the field of available producers to a much smaller pool; those firms that are not considered bankable are effectively shut out of the market," he wrote. "There is no shortage of module capacity, but rather of bankable module capacity."
(Demand has also remained more robust than expected. It's a good article on solar economics.)
The situation, though, will likely change, and the change will not come, I believe, because of a change of heart among U.S. bankers. It will come because Beijing and Shanghai say so.
The history of technology and industry is best understood as a government project. The electronics industries in Japan, Taiwan, and South Korea all came out of efforts to boost exports driven by governments working closely with entrepreneurs. In Taiwan, for instance, the tax credits given to chip makers are so generous that in many years, profitable companies see an increase in their profits after taxes because of accumulated credits. In one country, an executive told me that the government initiated a publicized probe of Microsoft (Nasdaq: MSFT) after tech companies complained about being busted for using pirated copies of Windows. I never found solid evidence of that, but the fact that high-ranking, respected execs talked that way said something. In South Korea, LCD and memory manufacturers have found friends in bureaucrats in lean times.
Similarly, China's alternative energy program exists to boost exports. China will plant solar panels and wind turbines in its territories, but will reduce those goals if it can export the products first.
To that end, the government already works with banks to move internationally. A-Power Technologies (Nasdaq: APWR), a turbine maker, is building a factory in Nevada and a massive wind farm in Texas in a joint venture funded by a Chinese bank.
Coda Automotive, a Sino-U.S. car company, will get batteries from a joint venture funded by a bank that itself was prompted to invest by the government. The battery factory will be built in Ohio.
These same techniques could easily be used to accelerate the solar industry. In fact, plans may already be underway. Duke Energy (NYSE: DUK) has formed an alliance with ENN to build solar power plants in the U.S. Who is ENN? It started as a car rental agency -- its first car sits in the corporate headquarters' lobby, according to sources -- but now, it is a sprawling conglomerate with a solar division. It is located in China.
Rumors circulate that Yingli is creating a fund to bankroll the construction of solar plants with its panels, sort of the way GE (NYSE: GE) and GM fund equipment and car purchases.
The Chinese government also likes solar. It was the main investor in Suntech Power Holdings (NYSE: STP).
U.S. companies, meanwhile, will also ally with Chinese solar makers to boost their own interests. Innovalight has already signed two Chinese deals. So will U.S. politicians. A-Power's U.S. move showed how well it understood the U.S. Initially, it just planned to build a 1.1. gigawatt wind farm and export turbines. Then U.S. senators complained about jobs going overseas, so the company decided to build a turbine factory in Harry Reid's home state. The complaining stopped. Suntech and other Chinese module makers also have plans to construct U.S. manufacturing facilities. As a result, Chinese companies have in a short time become a significant driver of new factory jobs for Americans. Point that out to a U.S. executive when they start to complain about high wages and foreign competition.
And with all due respect to U.S. banks, Chinese financial institutions can probably do what you do -- loan out money on projects guaranteed to generate revenue and accept checks in return -- with far less pomposity and overhead.
In short, look for names like Shenyang and Bank of Tianjin. They will be changing the U.S. solar industry soon.
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