Working in the renewables industry, particularly solar, feels like a constant battle against an ever-shifting enemy. Challenges appear to randomly materialise almost on a monthly basis, forcing industry to limp from one fight to the next. Just when the industry thinks it has managed to successfully navigate the choppy water, a fresh storm breaks sweeping it back into treacherous seas. The sense of optimism that greeted the beginning of 2013 from within the solar industry was palpable; the troubles of the past seemed just that, a thing of the past. The industry had stable policy and was even elevated to a key technology in government’s thinking. Seasoned solar veterans warned me that the period of stability was to be short-lived – I dismissed them as cynics whose sense of perspective had been eroded by years of lobbying a succession of disinterested ministers. However, true to the veterans’ word, the European Commission (EC) announced that it was taking the UK government to court over the reduced VAT rate that solar and other energy-saving technologies enjoy. Hot on the heels of that announcement the EC also announced that it would be imposing the mandatory registration of all imported Chinese solar products in case it wanted to enact retroactive measures. Cue the uncertainty. Suppliers across the UK are now unwilling to import Chinese panels for fear of substantial retroactive duties. When you throw in poor exchange rates and limited availability you create a volatile cocktail. But at least back home the domestic solar policy is finally stable and predictable, right? Well, not quite… Announcing the FiT rates from 1 May, Ofgem listed that the quarter would end on 1 July not 1 August – shortening the FiT period by a month. The decision to shorten the FiT period wasn’t even trailed by DECC. Even when it was ‘announced’ it was just published in small print on the obscure, convoluted back pages of the Ofgem website. The logic behind the change in date is sound – to align solar PV’s quarters with other technologies – but why oh why did DECC feel the need to sneak the announcement out? The whole saga has jeopardised the slowly healing relationship between DECC and the solar industry. Could the Treasury and the chancellor Mr Osborne come to the rescue? The notoriously fossil fuel addicted Osborne (and extended family) has repeatedly pushed for a watering down of the UK’s green commitments. However, before the 2013 Budget, Treasury said it would be accepting the “overwhelming majority” of the recommendations from Lord Heseltine’s 2012 report on boosting growth in the UK; one of these warned that without the “real certainty” of a long-term energy policy, investors will “simply not risk the enormous sums of capital” needed to develop the UK’s energy infrastructure. Surely opening the door for Osborne to praise the shovel ready and low-carbon renewable projects across the UK. Or not. Osborne chose his words very carefully when he said in his Budget speech: “Creating a low carbon economy should be done in a way that creates jobs rather than costing them.” The chancellor then moved on to praise “low cost” shale gas, gifting it a “generous tax regime”. Anyone involved in renewables will take immediate issue to the Osborne’s use of “low cost”. In a recent Energy and Climate Change Committee investigation into the impact of shale gas, DECC itself stated: “EU shale gas production is not expected to have as great an impact on EU gas prices as has been the case with US shale gas production.” The Chancellor also talked up the proposed nuclear development at Hinkley Point, describing it as a “major step forward”, despite the failure to agree a strike price. There are various reports circulating that DECC will offer EDF a strike price of around £100/MWh for up to 40 years – much more generous terms then those being discussed for any renewable technology. STA head of external affairs Leonie Greene said: “The chancellor's fixation with old technologies flies in the face of mainstream evidence. The World Bank said last year that business as usual in the face of climate change presents an international crisis. Rising fossil fuel prices are impacting on inflation and household energy bills. Ofgem analysis shows a gas supply crunch is coming our way, increasing prices. For all these reasons, it is vital to divert energy infrastructure investment into renewables as quickly as possible. “Renewable technologies like solar need bold leadership and a positive vision if we're to compete successfully in the global race the Prime Minister keeps highlighting. We’re on a path to nowhere if his Chancellor continues to ignore climate change, the economic potential of the green economy, and the dangerous upward trajectory of fossil fuel prices.” So here we are again: solar against the world. It’s time to dig deep and start sharpening up the industry’s accidental expertise – lobbying. http://www.solarpowerportal.co.uk/editors_blog/treasury_decc_eu_vs._solar_industry_2356
Saturday, March 23, 2013
Treasury, DECC & EU vs. Solar industry
Working in the renewables industry, particularly solar, feels like a constant battle against an ever-shifting enemy. Challenges appear to randomly materialise almost on a monthly basis, forcing industry to limp from one fight to the next. Just when the industry thinks it has managed to successfully navigate the choppy water, a fresh storm breaks sweeping it back into treacherous seas. The sense of optimism that greeted the beginning of 2013 from within the solar industry was palpable; the troubles of the past seemed just that, a thing of the past. The industry had stable policy and was even elevated to a key technology in government’s thinking. Seasoned solar veterans warned me that the period of stability was to be short-lived – I dismissed them as cynics whose sense of perspective had been eroded by years of lobbying a succession of disinterested ministers. However, true to the veterans’ word, the European Commission (EC) announced that it was taking the UK government to court over the reduced VAT rate that solar and other energy-saving technologies enjoy. Hot on the heels of that announcement the EC also announced that it would be imposing the mandatory registration of all imported Chinese solar products in case it wanted to enact retroactive measures. Cue the uncertainty. Suppliers across the UK are now unwilling to import Chinese panels for fear of substantial retroactive duties. When you throw in poor exchange rates and limited availability you create a volatile cocktail. But at least back home the domestic solar policy is finally stable and predictable, right? Well, not quite… Announcing the FiT rates from 1 May, Ofgem listed that the quarter would end on 1 July not 1 August – shortening the FiT period by a month. The decision to shorten the FiT period wasn’t even trailed by DECC. Even when it was ‘announced’ it was just published in small print on the obscure, convoluted back pages of the Ofgem website. The logic behind the change in date is sound – to align solar PV’s quarters with other technologies – but why oh why did DECC feel the need to sneak the announcement out? The whole saga has jeopardised the slowly healing relationship between DECC and the solar industry. Could the Treasury and the chancellor Mr Osborne come to the rescue? The notoriously fossil fuel addicted Osborne (and extended family) has repeatedly pushed for a watering down of the UK’s green commitments. However, before the 2013 Budget, Treasury said it would be accepting the “overwhelming majority” of the recommendations from Lord Heseltine’s 2012 report on boosting growth in the UK; one of these warned that without the “real certainty” of a long-term energy policy, investors will “simply not risk the enormous sums of capital” needed to develop the UK’s energy infrastructure. Surely opening the door for Osborne to praise the shovel ready and low-carbon renewable projects across the UK. Or not. Osborne chose his words very carefully when he said in his Budget speech: “Creating a low carbon economy should be done in a way that creates jobs rather than costing them.” The chancellor then moved on to praise “low cost” shale gas, gifting it a “generous tax regime”. Anyone involved in renewables will take immediate issue to the Osborne’s use of “low cost”. In a recent Energy and Climate Change Committee investigation into the impact of shale gas, DECC itself stated: “EU shale gas production is not expected to have as great an impact on EU gas prices as has been the case with US shale gas production.” The Chancellor also talked up the proposed nuclear development at Hinkley Point, describing it as a “major step forward”, despite the failure to agree a strike price. There are various reports circulating that DECC will offer EDF a strike price of around £100/MWh for up to 40 years – much more generous terms then those being discussed for any renewable technology. STA head of external affairs Leonie Greene said: “The chancellor's fixation with old technologies flies in the face of mainstream evidence. The World Bank said last year that business as usual in the face of climate change presents an international crisis. Rising fossil fuel prices are impacting on inflation and household energy bills. Ofgem analysis shows a gas supply crunch is coming our way, increasing prices. For all these reasons, it is vital to divert energy infrastructure investment into renewables as quickly as possible. “Renewable technologies like solar need bold leadership and a positive vision if we're to compete successfully in the global race the Prime Minister keeps highlighting. We’re on a path to nowhere if his Chancellor continues to ignore climate change, the economic potential of the green economy, and the dangerous upward trajectory of fossil fuel prices.” So here we are again: solar against the world. It’s time to dig deep and start sharpening up the industry’s accidental expertise – lobbying. http://www.solarpowerportal.co.uk/editors_blog/treasury_decc_eu_vs._solar_industry_2356
How Wuxi Suntech’s Bankruptcy Impacts China’s Solar Industry
The bankruptcy of Wuxi Suntech, the primary operating unit of Suntech Power
(NYSE:STP), is viewed as a sign of changing times in China’s solar
sector. Although the unit will continue production as it works to
restructure debt, the bankruptcy underscores that government support for
the solar sector could be weaning and only the fittest firms will
survive in the long term.
Here are key takeaways of the bankruptcy and its implications for the broader Chinese solar sector and some of the solar firms that we cover.
Raising Funding From International Investors Will Become Difficult
Suntech, like most other Chinese solar firms, expanded its operations through heavy borrowing (debt of over $2 billion). With the default on its convertible notes and the consequent cross defaults and bankruptcy, international investors in particular are likely to be apprehensive about making loans to Chinese solar firms, since Chinese banks often have priority claims over a firm’s assets compared to international lenders in the event of insolvency. Raising equity will also be difficult. The enormous debt levels and weak cash flows that most firms are experiencing put equity holders in a very fragile position. For instance, Suntech raised around $742 million in two stock offerings on the Wall Street in 2005 and 2009. The stock is now worth less than 1% of its peak value.
Raising funds from domestic investors is also likely to be difficult given China’s relatively underdeveloped domestic bond markets and firms will have to increase there dependence on China’s state run banks such as the China Development Bank and the Industrial & Commercial Bank of China Ltd. With Wuxi Suntech’s bankruptcy, it is possible that state-run banks will get more selective in their lending to solar companies as well.
Highlights That China’s Central Government Is Reluctant To Bail Firms Out
The government has played a central role in developing China’s solar industry by providing loans and credit lines for companies to build and expand their manufacturing capacities. Later, state governments began bailing firms out and providing for liquidity needs when the situation in the global solar market took a turn for the worse. These measures haven’t been very effective in improving the overall health of the industry since the primary issues plaguing the industry were overcapacity and rising trade barriers.
Now, the central government seems to have taken cognizance of this with China’s state council’s announcement in December that it would refrain from propping up weak solar companies and indicated that consolidation and bankruptcies would help the industry. The central government’s reluctance to step in and bail Suntech out is certainly a sign that the government is holding firm on its word. Regional governments on the other hand could bail companies out on the premise of protecting jobs and the local economy, however whether the central government will allow such a move remains to be seen.
Industry Consolidation Could Be Imminent
Suntech has a total manufacturing capacity of around 1.8 GW of which around 1.2 GW was part of the Wuxi Suntech unit which filed for bankruptcy. ((Bloomberg)) Since the firm is likely to continue its manufacturing operations as it restructures debt, it is unlikely to have an immediate impact on the industry capacity. However, the broader industry trends point towards consolidation within the solar industry. China alone estimated to have as much as 59 GW of manufacturing capacity while global demand in 2012 was a mere 30 GW. [1] This has lead to severe competition among manufacturers with panel prices falling by around 30% over the last year.
Most Chinese solar firms have had gross margins which were negative or in low-single digit during 2012 which is definitely not sustainable in the long run and firms continue to hemorrhage cash. Now, considering that international funding could tighten and government support could also wean, it looks increasingly likely that smaller and less healthy firms would be forced to shut shop or be acquired. Consolidation within the industry would bring about better pricing and profitability.
http://www.trefis.com/stock/ldk/articles/175418/how-wuxi-suntechs-bankruptcy-impacts-chinas-solar-industry/2013-03-22
Here are key takeaways of the bankruptcy and its implications for the broader Chinese solar sector and some of the solar firms that we cover.
Raising Funding From International Investors Will Become Difficult
Suntech, like most other Chinese solar firms, expanded its operations through heavy borrowing (debt of over $2 billion). With the default on its convertible notes and the consequent cross defaults and bankruptcy, international investors in particular are likely to be apprehensive about making loans to Chinese solar firms, since Chinese banks often have priority claims over a firm’s assets compared to international lenders in the event of insolvency. Raising equity will also be difficult. The enormous debt levels and weak cash flows that most firms are experiencing put equity holders in a very fragile position. For instance, Suntech raised around $742 million in two stock offerings on the Wall Street in 2005 and 2009. The stock is now worth less than 1% of its peak value.
Raising funds from domestic investors is also likely to be difficult given China’s relatively underdeveloped domestic bond markets and firms will have to increase there dependence on China’s state run banks such as the China Development Bank and the Industrial & Commercial Bank of China Ltd. With Wuxi Suntech’s bankruptcy, it is possible that state-run banks will get more selective in their lending to solar companies as well.
Highlights That China’s Central Government Is Reluctant To Bail Firms Out
The government has played a central role in developing China’s solar industry by providing loans and credit lines for companies to build and expand their manufacturing capacities. Later, state governments began bailing firms out and providing for liquidity needs when the situation in the global solar market took a turn for the worse. These measures haven’t been very effective in improving the overall health of the industry since the primary issues plaguing the industry were overcapacity and rising trade barriers.
Now, the central government seems to have taken cognizance of this with China’s state council’s announcement in December that it would refrain from propping up weak solar companies and indicated that consolidation and bankruptcies would help the industry. The central government’s reluctance to step in and bail Suntech out is certainly a sign that the government is holding firm on its word. Regional governments on the other hand could bail companies out on the premise of protecting jobs and the local economy, however whether the central government will allow such a move remains to be seen.
Industry Consolidation Could Be Imminent
Suntech has a total manufacturing capacity of around 1.8 GW of which around 1.2 GW was part of the Wuxi Suntech unit which filed for bankruptcy. ((Bloomberg)) Since the firm is likely to continue its manufacturing operations as it restructures debt, it is unlikely to have an immediate impact on the industry capacity. However, the broader industry trends point towards consolidation within the solar industry. China alone estimated to have as much as 59 GW of manufacturing capacity while global demand in 2012 was a mere 30 GW. [1] This has lead to severe competition among manufacturers with panel prices falling by around 30% over the last year.
Most Chinese solar firms have had gross margins which were negative or in low-single digit during 2012 which is definitely not sustainable in the long run and firms continue to hemorrhage cash. Now, considering that international funding could tighten and government support could also wean, it looks increasingly likely that smaller and less healthy firms would be forced to shut shop or be acquired. Consolidation within the industry would bring about better pricing and profitability.
http://www.trefis.com/stock/ldk/articles/175418/how-wuxi-suntechs-bankruptcy-impacts-chinas-solar-industry/2013-03-22
Tuesday, March 19, 2013
Suntech Default Signals Chinese Solar Industry Consolidation
Suntech Power Holdings Co. (STP)’s notice
that it defaulted on $541 million of bonds brings China a step
closer to consolidating its solar industry, which includes four
of the top six panel makers.
The company, based in Wuxi, China, received a notice of default from the trustee administering the convertible bonds, which matured March 15, according to a statement yesterday.
Suntech’s default signals that the government and China Development Bank Corp., which bankrolled the industry, is reluctant to continue funding the solar industry’s expansion, said Angelo Zino, an analyst with Standard & Poor’s Financial Services LLC.
“It just doesn’t make sense for any type of support from the government,” Zino said in an interview yesterday. “There’s not going to be that white knight out there that saves Suntech.”
The company’s American depositary receipts fell 8.4 percent in New York trading to close at 64 cents.
China has supported solar companies through credit lines from local government or state-backed agencies, prompting panel makers to expand factories. Suntech more than doubled its annual production capacity to 2,400 megawatts in 2011 from 2009, according to data compiled by Bloomberg. That made it the biggest solar manufacturer. Yingli Green Energy Holding Co., which may take that title based on 2012 results, almost tripled its capacity to 1,700 megawatts during the same period.
That wrested control of the global solar industry away from German and Japanese companies. The boom in capacity led to a global glut and triggered a 23 percent decline in the price of panels in the past year, according to Bloomberg New Energy Finance.
China, forecast to become the largest solar-power market this year, may abolish subsidies for some of the largest projects and target aid for smaller ones, according to Meng Xiangan, vice chairman of the China Renewable Energy Society, which acts as a conduit between government and industry in Beijing.
For Suntech, which had more than $2.2 billion of debt at the end of March 2011, the outlook for survival is bleak, said Zino. The company hasn’t released earnings since then, after announcing in July that it may have been the victim of fraud involving 560 million euros ($725 million) of German bonds that may have never existed.
“The endgame for Suntech doesn’t look good,” Zino said. “They are essentially insolvent.”
Other bondholders haven’t agreed to the deal and are preparing to file a lawsuit against the company, according to James Millar, a partner at the law firm Wilmer Cutler Pickering Hale & Dorr LLP in New York. He represents bondholders who own more than 1 percent of the debt and expects more to join the suit this week.
There is “nothing I’m aware of that will stop our lawsuit,” he said in an interview. Suntech “may be forced to file bankruptcy.”
The company is “likely” to file for bankruptcy after defaulting on the debt, Aaron Chew, an analyst with Maxim Group LLC in New York, said in a March 14 research note. “A nasty fight could be in order.”
http://www.bloomberg.com/news/2013-03-18/first-china-bond-default-signals-consolidation-in-solar-industry.html
The company, based in Wuxi, China, received a notice of default from the trustee administering the convertible bonds, which matured March 15, according to a statement yesterday.
Suntech’s default signals that the government and China Development Bank Corp., which bankrolled the industry, is reluctant to continue funding the solar industry’s expansion, said Angelo Zino, an analyst with Standard & Poor’s Financial Services LLC.
“It just doesn’t make sense for any type of support from the government,” Zino said in an interview yesterday. “There’s not going to be that white knight out there that saves Suntech.”
The company’s American depositary receipts fell 8.4 percent in New York trading to close at 64 cents.
China has supported solar companies through credit lines from local government or state-backed agencies, prompting panel makers to expand factories. Suntech more than doubled its annual production capacity to 2,400 megawatts in 2011 from 2009, according to data compiled by Bloomberg. That made it the biggest solar manufacturer. Yingli Green Energy Holding Co., which may take that title based on 2012 results, almost tripled its capacity to 1,700 megawatts during the same period.
That wrested control of the global solar industry away from German and Japanese companies. The boom in capacity led to a global glut and triggered a 23 percent decline in the price of panels in the past year, according to Bloomberg New Energy Finance.
Excess Capacity
Now, the government is seeking to pare excess manufacturing capacity and reduce the dozens of companies making solar products into a few companies that can survive.China, forecast to become the largest solar-power market this year, may abolish subsidies for some of the largest projects and target aid for smaller ones, according to Meng Xiangan, vice chairman of the China Renewable Energy Society, which acts as a conduit between government and industry in Beijing.
For Suntech, which had more than $2.2 billion of debt at the end of March 2011, the outlook for survival is bleak, said Zino. The company hasn’t released earnings since then, after announcing in July that it may have been the victim of fraud involving 560 million euros ($725 million) of German bonds that may have never existed.
“The endgame for Suntech doesn’t look good,” Zino said. “They are essentially insolvent.”
Local Support
The company is talking with local government agencies in Wuxi about financial support. It’s also negotiated a two-month forbearance with 63 percent of its bondholders, who have agreed not to exercise their rights until May 15.Other bondholders haven’t agreed to the deal and are preparing to file a lawsuit against the company, according to James Millar, a partner at the law firm Wilmer Cutler Pickering Hale & Dorr LLP in New York. He represents bondholders who own more than 1 percent of the debt and expects more to join the suit this week.
There is “nothing I’m aware of that will stop our lawsuit,” he said in an interview. Suntech “may be forced to file bankruptcy.”
The company is “likely” to file for bankruptcy after defaulting on the debt, Aaron Chew, an analyst with Maxim Group LLC in New York, said in a March 14 research note. “A nasty fight could be in order.”
http://www.bloomberg.com/news/2013-03-18/first-china-bond-default-signals-consolidation-in-solar-industry.html
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