Balance sheet wars – US solar companies vs. the Chinese government. Who’s going to win?
by ilene - August 31st, 2009 3:44 pm
Warm solar-powered welcome to Financial Hippie, the long and the short of it…
Balance sheet wars – US solar companies vs. the Chinese government. Who’s going to win?
Courtesy of Financial Hippie
We all know the foot race that is going on in the solar industry – companies are trying to achieve the lowest per megawatt cost for an installed system. Until the next leapfrogging technology comes along, the most important factor to drive down cost is scale*. Here is where the US solar companies will have serious problems competing against the Chinese solar companies because the US solar companies lack cheap, indiscriminate access to capital like their Chinese cohorts.
Let’s take First Solar (FSLR) for example. FSLR is funded by private money. Even though the US government is offering tax incentives for installing solar projects, they are not however involved in the funding of the company in any way. Why would they? FSLR has one plant in the US, the rest of the plants are mostly in "low cost locations" – ie. Malaysia. Have you ever heard of the "United Solar Workers"? I would guess a few hundred out of the 3,500 FSLR employees are Americans. My point is… if they closed shop tomorrow, there will be plenty of companies to fill the supply void. I wonder if the Malaysian government has the capacity or the desire to step up and lend.
The Chinese solar manufacturers are a different story. Remember, the number one goal of the Chinese government is to maintain social stability. Suntech Power (STP) employs close to 10k employees by itself, and these are "high quality" jobs that are looked upon favorably by the Chinese Government. If I include all of STP’s peers in China, their upstream suppliers such as LDK Solar (LDK) and the downstream system installers, I would guess the Chinese solar industry employs probably a few hundred thousand people throughout the value chain.
Now let’s look at the banking relationships. Many of these loans are unsecured and covenant lite and represent roughly on average 25% of total capital. Top 3 Chinese solar related company by market capitalization and their respective government backers are:
- Suntech Power (STP) : China Construction Bank, Bank of Communication.
- Yingli Green Energy (YGE) : Export-Import Bank of China, China Development Bank
- LDK Solar (LDK) : China Construction Bank, China Development Bank, Bank of China, Agricultural Bank of