European Solar Consolidation

Brian Hicks

Written By Brian Hicks

Posted July 8, 2013

The solar industry remains on shaky ground.

German solar company Conergy (OTC: CEYHF) has filed for insolvency after failing to win over one of its 10 creditors. The filing places 800 out of 1,100 jobs on the line.

Once the largest solar company in Europe, Conergy is in the business of manufacturing solar inverters and panels.

Chinese Solar FirmsLike most solar manufacturers in Europe, the company has suffered from oversupply, plummeting prices, and subsidy withdrawal from cash-strapped governments. Conergy’s home nation of Germany has withdrawn a significant amount of subsidies to the solar industry and has mostly relied on coal imports as a cost-cutting method. And Germany is just one of many European nations being hit hard by the glut of devalued Chinese solar panels driving down market prices.

Trade Battle

A trade war is ensuing between the EU and China, beginning with Europe’s new tariff on China – an 11.8% hike on all Chinese solar panels coming into the country. That number could rise to 47.6% in August and could become permanent if negations are never reached.

The Chinese are also launching probes into the so-called wine dumping into Chinese markets. Chinese wine makers raised the issue with the government, the allegation being that wine from Europe is being subsidized at a cheaper cost in the same way solar panels have been flowing into Europe.

The EU denies the allegations. European wines have been high in demand as a result of China’s growing middle class.

Overall, 480 billion euros of goods are traded between China and Europe, and the Chinese solar panel exports comprise 21 billion euros. The EU itself makes up half of China’s solar panel market.

Chinese officials do believe the trade dispute will be resolved by next month.

Under Chinese proposals, manufacturers will export a maximum of 10 gigawatts of photovoltaic modules to Europe per year, with a minimum 0.5 euro per wattage. Any exports exceeding that limit would be subject to EU tariffs. In exchange, the EU would not heavily tax any Chinese solar panels that reach Europe.

Negotiations are ongoing, and there is no word if the EU plans to accept such a proposal.

While the Chinese hope to do business with Europe, the government does plan to branch into other markets while boosting domestic demand. This would fall in line with China’s campaign to reduce pollution, which has become a signature trait of the country’s industrial economy.

China has already been in consolidation mode with Chinese manufacturers, allowing domestic companies to sink or swim on their own without assistance from the Chinese Development Bank, the main creditor of the domestic solar market.

The Chinese have a goal of boosting solar power to 100,000 megawatts by 2020.

U.S. solar manufacturers underwent a similar fate to those in European, suffering from the influx of sub-priced Chinese panels into the market. The Obama Administration imposed a trade tariff on China in 2012, but some critics believed it was too little, too late.

SolarWorld (OTC: SRWRY) was a primary advocate for trade tariffs against China in the United States. However, not all American solar manufacturers were for the tariffs. Companies like Dow Corning, GT Advanced (NASDAQ: GTAT), and SunTec America believed that a trade tariff would pose greater damage to an already fragile industry.


Companies Affected

The solar industry is doing better in 2013 and will continue to do so in the coming years.

European, Chinese, and American companies have all entered consolidation in some form, but it will be a few years before the supply glut will run its course. China’s cutting of subsidies and credit lines will be a great help in trimming down the industry and reducing excess supplies in the future.

Current prices for solar remain at 83 cents per watt, according to data by Bloomberg.

More consumers and utility companies are switching to solar technology, and there is healthy competition between solar companies offering competitive deals. More utility companies are using to solar power to compete with solar-based companies.

And big-time investors like Warren Buffett are investing in the industry. Buffett himself invested in two large solar projects in California, titled the Antelope Valley Solar Projects.

But for the average investor who doesn’t have the massive investment war-chest as Buffett, solar still remains a risky bet.

First Solar (NASDAQ: FSLR), a powerhouse in solar utility projects, has managed to fare relatively well through troubled times with the restructuring of internal positions and the consolidation of its manufacturing department. The company’s presence in the utility field kept operations afloat. And low wattage prices helped First Solar expand into German, Chinese, and Italian markets.

Like FirstSolar, Sunpower (NASDAQ: SPWR) also made changes to management and cut costs where necessary. Sunpower was the company that sold Antelope Valley to Buffett’s MidAmerican Energy Holdings.

GE (NYSE: GE) recently poured $15 million into Sungevity Inc. so the California-based company can expand beyond its current market. GE foresees greater demand due to lower costs for solar products and installation.

But stagnant prices are proving to be a death sentence for other companies.

Solyndra filed for bankruptcy in 2011 after receiving a $535 million loan guarantee from the government. Evergreen Solar Inc. filed for bankruptcy that same year, two years after receiving $5.3 million in stimulus funding in 2009. And SpectraWatt Inc. also filed for Chapter 11 bankruptcy protection despite government help.

The U.S. bankruptcies appear to have tapered out, but those in Europe could be beginning with Conergy.


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