Tuesday, August 21, 2012

Solar-panel "oversupply"

If you ever needed a reason to condemn Leisure Class bankers and the way they are mismanaging the economy, this example will do.  The planet is in critical need to replace its trillions of fires with solar power.  And yet we see a Chinese company teetering on the brink of collapse because they have "excess" production capacity for a product the planet dearly needs to avoid destruction.  We don't have an oversupply of solar panels, we have an acute undersupply of customers with some money.

Once-Mighty Suntech Struggles to Survive

The Chinese solar giant is in deep trouble, but even its collapse wouldn't be enough to stabilize a massively oversupplied market.

Monday, August 20, 2012

The world's largest supplier of solar panels, Suntech Power, based in Wuxi, China, is teetering on the brink of insolvency. The Chinese business icon (see "Solar's Great Leap Forward") will likely survive, but its woes show how it's become nearly impossible for any company to be profitable selling solar panels.

Suntech's founder (and solar industry pioneer) Zhengrong Shi has been replaced as CEO by former chief financial officer David King, a Chinese-American who joined the company last year.

The surprise move is meant to get Suntech's financial house in order after four consecutive unprofitable quarters and a stock price that has fallen more than 50 percent this year. The company has a crushing debt load of over $2.2 billion and says it was a victim of a fraud involving solar projects in Europe that could further damage its balance sheet.

In many ways, Suntech is suffering from the stifling market conditions it helped create. To achieve greater scale, it borrowed heavily and rapidly expanded production to lower solar panel costs and keep pace with competitors (see "The Chinese Solar Machine"). But now, the market is flooded with panels, and the leading Chinese solar manufacturers are overextended financially.

It's created a situation where even the most technically advanced and established companies are operating at a loss. "Even if Suntech were to vanish overnight, it wouldn't have a profound long-term effect on the market," says analyst Nathaniel Bullard at Bloomberg New Energy Finance. "It may spook the others, but it's not enough to address the supply-demand dynamic."

What will happen now to Suntech and other debt-laden Chinese manufacturers is anyone's guess. Suntech could ratchet down expenses to remain independent, or it could combine with another large business. Some sort of debt relief from a government-owned Chinese bank is possible, too, since solar is a strategic industry in China and Suntech is a high-profile company.

But such a move could inflame tensions in the ongoing trade case against Chinese solar manufacturers accused of dumping products and receiving unfair government subsidies (see "Analysis: Chinese Solar Companies Sell Below Cost"). "There's already a backlash and [a debt write-off] will add further scrutiny," says Mark Bachman, an analyst at Avian Securities. more


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