China Pledges Huge Solar Subsidies

The Chinese government announced what some industry analysts called the most aggressive and generous solar power subsidy in the world, giving Chinese solar companies a big market boost amid a generally gloomy outlook for short-term growth. China’s solar subsidy plan would offer 20 yuan (about $2.94) per watt for solar photovoltaic installations greater than 50 kilowatts. That would essentially cover half the cost of entire installations at today’s low solar panel prices, according to an RBC Capital Markets analyst note.

Shares of Chinese solar companies soared on Thursday’s news, though some were giving up part of their gains in Friday morning trading. American depository shares of Suntech Power Holdings (NYSE: STP) gained $3.44, or 43.8 percent, to close at $11.29 on Thursday but were down 43 cents, or 3.8 percent, to $10.86 in Friday morning trading. Trina Solar (NSDQ: TSL) likewise saw a Thursday gain of $3.54, or 40.8 percent, to close at $12.19, but were down 11 cents, or 0.9 percent, to $12.08 in Friday morning trading. JA Solar Holdings Co. (NDSQ: JASO) closed ahead by $1.11, or 41.7 percent, at $3.77 on Thursday, and had added 18 cents, or 4.8 percent, to rise to $3.95 in Friday morning trading.

Analysts were mixed on whether the Chinese subsidy plan justified big gains for those solar companies, given that they and their North American, European and Asian competitors are all facing big slides in prices for the solar cells and modules they produce.

“This new stimulus package is clearly a positive, but we believe stocks have over-reacted to the news,” Deutsche Bank analysts Steve O’Rourke, Peter Kim and Hari Polavarapu wrote in a Thursday research note. “Our near-term outlook for the broader solar PV industry remains negatively biased as credit issues drive prices down and inventories up.” Likewise, RBC Capital Markets analysts Stuart Bush and Sandeep Ayyappan noted Friday that the Chinese subsidy plan, while “an unexpected boost to global demand,” didn’t provide many details on when it would be implemented and how it would be structured.

Still, the Chinese subsidy announcement – combined with European nations’ existing feed-in tariffs and other supports for solar power, as well as new and more generous U.S. solar incentives – gave the analysts hope that prices would stabilize from their downward march, helping to stem the build-up of inventory throughout the silicon solar panel supply chain.

Whether China’s subsidies would directly boost already growing domestic manufacturers remained unclear, the RBC Capital Markets analysts noted. “We also do not know if China will dictate a domestic-produced requirement as they have done for the wind industry,” the analysts wrote. China has built up a sizeable solar industry based almost entirely on exports, but several large-scale domestic solar power projects have been announced in the past year.

Steve Chadima, vice president of external affairs with Suntech, said earlier this week that the company was bidding on a 10 megawatt solar field being supported by the Chinese government, and “We expect hundreds if not thousands of megawatts to follow” in the coming years. Of course, China – along with much of Asia – holds the advantage of lower labor costs compared to production facilities in the U.S. and Europe. Asia could produce 82 percent of the world’s crystalline silicon solar cells by 2012, up from 71 percent in 2008, according to a new GTM Research report, “PV Technology, Production and Cost, 2009 Forecast: The Anatomy of a Shakeout.”

But in the shorter term, the few solar power projects being built in the first quarter of this year have generally favored “Western” solar panels for quality assurance reasons, forcing Chinese panel manufacturers to offer steeper discounts on their products, RBC Capital Markets noted. How the subsidies might play into a host of Chinese government actions aimed at cleaning up the country’s environment also remains to be seen.