Friday, March 28, 2014

China Solar Faces Credit Crunch As Power Stations Starved For Capital

China’s solar panel makers have reaped what they have sewn. Overcapacity has put them in the crosshairs of a financial market reluctant to extend debt. And now the entire sector faces a dilemma — consolidate, or face continued pressures on the bottom line.

Many of China’s best known solar companies have been posting net losses instead of profits.

To add insult to injury, there is the newly added problem of Chinese power stations unable to get financing to acquire solar panels. The capital demand for new power station construction is predicted to be around 60 billion yuan ($9.79 billion) per year, much of which cannot be satisfied by local capital markets.

Cai Ning, president of Shanghai Ronglian Finance Leasing Share Co, mainly attributed the capital shortage to lagging financial aid from Beijing despite strong official support for green energy. Solar power accounts for less than 1% of China’s electric power grid. Moreover, most banks are hesitant to lend for the construction of new solar power stations, although the solar panel manufacturing sector is slowly recovering, Ning told China Daily on Monday.

A bright spot for solar just got dimmer as power companies struggle with financing to fund solar electricity.
China’s government wants solar power to go from around 10 gigawatts currently to 35 gigawatts by the end of 2015. But demand will have to come from outside of China if power stations there are unable to spur demand due to capital costs.

JA Solar Holdings, a major China solar company trading an average of 2.6 million shares daily on the NYSE, reported fourth quarter and year ending results on Monday showing net income of $23 million in the fourth quarter compared to a net loss of $37 million in the third.  At the end of the year, the company was sitting on $350.2 million in cash with short term debt of $327 million.

For the first quarter of 2014, JASO said it expects total TOT +0.52% cell and module shipments to be between 580 megawatts and 610 megawatts, respectively. For the full year 2014, JASO expects total cell and module shipments to be between 2.7 gigawatts and 2.9 gigawatts, including 200 megawatts of module shipments to the company’s downstream projects. Last year, JASO shipped 302.2 megawatts of cells and 363.3 megawatts of modules worldwide.

JASO’s numbers are indicative of a slightly healthier than expected China solar industry. The manufacturers are coming off a very low base following European trade sanctions in 2012 and the ongoing crisis in the E.U., China’s main market for photo-voltaic panels.

On March 4, rival Trina Solar reported its fourth quarter and year-enders that showed a decline in shipments and top line.  For Trina, solar module shipments were 770.1 MW during the fourth quarter compared to 774.6 MW in the third quarter. Net revenues were $525.6 million, a decrease of 4.1% from the third and net income was $9.6 million, a decrease of 3.5% from the third.

Those numbers might look a little depressed for a year that actually ended on a high note for Trina Solar.

For example, module shipments were approximately 2.58 GW, compared to 1.59 GW in 2012. Total net revenues hit $1.77 billion, an increase of 36.9% from 2012. And the company’s net loss for the full year was $77.9 million, a decrease of 70.8% from 2012′s losses.

At least Trina is heading in the right direction.

Then in November, LDK Solar said its third quarter net revenues rose to $156.6 million, compared to $114.7 million in the second quarter of fiscal 2013, and $291.5 million for the third quarter of fiscal 2012. The stock has been the biggest lower of the threesome, down 22.8% year-to-date.

For equity investors, JASO has been the clear leader, up 27%.

But China’s credit crunch could ultimately pose a problem for all three.

JASO’s CEO Baofang Jin said today that the company plans to diversify further out of China and Europe. ”We plan to build out our position in key markets across Asia, Europe and North America…Latin America and the Middle East, where we have gained a solid foothold in recent months,” said Jin in a statement before today’s conference call with investors.

JASO’s target is to grow its shipments by over 30% this year to between 2.7 GW and 2.9 GW, credit crunch be damned.


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