Get ready for solar boom from China plants as Asia demand swells

[NEW YORK] Solar panel makers globally are preparing for their best year since 2011, when US-backed Solyndra LLC went bust, as China and Japan take advantage of falling prices to shift more of their energy production to clean power.

Panel production is forecast to grow by almost a third this year, according to data compiled by Bloomberg. That's a significant reversal for an industry that's been crippled by its own excess as companies in China including JA Solar Holdings Co and LDK Solar Co raised almost US$3 billion in 2007 and 2008 to expand production.

By 2010, the market was so oversupplied that the cost of solar cells began tumbling. With the cost of panels down by 66 per cent since then, demand is surging as solar technology, for the first time, is able to compete head-to-head on price with fossil fuels in many places.

"We're in a period of rational excitement," said Patrick Jobin, analyst at Credit Suisse Group AG, in a telephone interview. "It's night and day how different the industry is now than it was three years ago."

All that demand from Asia will benefit companies in China, which produce more than 75 per cent of the world's panels. Shipments are also increasing for U.S. companies including SunPower Corp, which said in April that China is becoming its fastest growing market.

China, in a pact with US President Barack Obama, agreed in November to get 20 percent of its energy from renewable sources by 2030, with its total carbon emissions peaking the same year. To reach that goal, the Chinese government earlier this year boosted its target for 2015 solar installations to 17.8 gigawatts from about 12 gigawatts.

Japan may install as much as 12.7 gigawatts of solar power this year, the most after China. The country has promoted wider use of renewable energies, especially rooftop panels, after the 2011 Fukushima nuclear plant meltdown.

Cheaper solar has also made the technology more economically viable for emerging economies such as India and South Africa. In India, for instance, developers are installing panels to replace diesel generators that cost more to fuel.

The promise of solar panels stumbled in 2011 when Solyndra became a symbol in the US of wasteful expansion in the industry. After receiving US$528 million in US backing, the company found it couldn't compete as capacity in China swelled and panel prices plunged.

Now, the industry is rapidly recreating itself. Led by its biggest producer, China's Trina Solar Ltd, manufacturers are expected to produce as much as 55 gigawatts of panels this year, enough to power 11 million US homes and 31 percent more than last year, according to Bloomberg New Energy Finance.

The Colorado researcher IHS Inc is more optimistic, anticipating 61 gigawatts of shipments, with profit doubling from last year to US$5 billion.

Shares have responded, with the NYSE Bloomberg Global Solar Energy Index of 132 companies gaining 65 per cent this year, outpacing the 3.4 per cent gain for the S&P 500.

"We see a boom this year and next," said Ash Sharma, a senior research director at IHS. He expects capital spending to rise through 2016.

The revival shows that solar power is becoming an increasingly viable alternative to fossil fuels as governments around the world work to curb global warming. More than 1,000 executives from all industries will be meeting Wednesday and Thursday at Unesco headquarters in Paris to discuss their plans to address climate change.

That's a turnaround from the solar slump that started with Solyndra's failure and pushed more than two dozen manufacturers into bankruptcy. This year, Trina and its competitors will invest more than US$5.6 billion in boosting output, according to IHS.

"We will expand our capacity," Teresa Tan, chief financial officer of Changzhou, China-based Trina, told analysts in March. She said Trina is "exploring other vehicles and venues to improve our capacity" and will invest US$250 to US$300 million this year, up from US$135 million in 2014.

Trina is spending US$160 million to build a plant in Thailand that will be able to make 500 megawatts of panels and 700 megawatts of cells. A rival Chinese panelmaker, JinkoSolar Holding Co, has said it plans to spend about US$100 million on a factory in Malaysia.

"There'll definitely be shortage of panel supply in the second half," said Xie Jian, president of JA Solar, in an interview. The Shanghai-based company, the fifth-largest panel maker, earned a profit for the first time since 2010 last year. It expects shipments to rise as much as 67 per cent this year to as much as 4 gigawatts.

JinkoSolar, too, sees itself increasing production. The company was running at 100 percent capacity in the fourth quarter, Chief Financial Officer Haiyun Cao told investors in March. "We are looking to expand our capacity by 20 percent to 25 percent in 2015," Haiyun said.

"We are coming off from a two to three year period where there was limited capacity expansion," Angelo Zino, an analyst at S&P Capital IQ in New York, said in an interview. "It illustrates the health of the industry."

BLOOMBERG