As the first half of 2013 draws to a close, solar industry players still are squabbling about everything under the sun. However, fatigue is setting in: Tired of the finger pointing and the trade disputes, the principal combatants – the European Union, China, and the United States – have begun to dial down the hostilities. They are hoping to parley a more level playing field, arrive at acceptable price points and provide incentives that will spur demand.
The solar sector has experienced several game-changing developments since January, including:
– A preliminary finding in the European Commission’s anti-dumping case against China’s manufacturers of solar modules and an assignment of punitive tariffs averaging 47.6% to be effective as of August 7, unless an agreement is reached within the next few weeks.
– The reluctance to date of the U.S. to negotiate alongside the EC and China on a solar trade accord (although America has given lip-service to going along with a final settlement between its two trade partners).
– A ruling by the World Trade Organization (WTO) that Ontario’s domestic content requirements constitute an unfair breach of trade conduct – opening that market (and in all probability, markets with similar requirements, such as India) to free commerce.
– The continued success of Japan’s nearly year-old solar feed-in tariff, which is boosting bottom-line profits for domestic firms, such Kyocera, Mitsubishi, Sanyo, Sharp, and Solar Frontier, as well as Panasonic – and drawing the interest of project developers worldwide.
– The shakeout of the industry, especially in China and Germany – with dire results for former tier-1 companies such as LDK and Bosch.
Looking forward to the second half of the year, some disruptive technology developments are expected – key among them, the rise of distributed residential generation and energy storage. In line with those trends, the downstream part of the industry is likely to continue to do well.
Coming to the table
On June 6, the European Commission began imposing duties on crystalline photovoltaic solar modules, cells and wafers manufactured in or imported from China. “Our action today is an emergency measure to give life-saving oxygen to a business sector in Europe that is suffering badly from this dumping,” said European Commissioner for Trade Karel De Gucht. “This is not protectionism. Rather it is about ensuring [that] international trade rules also apply to Chinese companies.”
Levies of 11.8%, a rate much lower rate than originally had been contemplated, are being enforced for the first 60 days – a step that De Gucht hopes will persuade China to participate in negotiations. If the EU and China fail to reach a compromise at the bargaining table, however, provisional import duties averaging 47.6% will go into effect from August through early December.
Speaking for the solar manufacturer that started all of the trade-related ruckus in both North America and Europe, Raju Yenamandra, vice president of Business Development for Bonn-based SolarWorld AG, told pv magazine late in June, “The European Union’s determination on China’s anti-competitive practices is a vitally important development in the world industry. Like the U.S. trade rulings in 2012, the finding in Europe confirms that markets lack rational, market-based pricing to support sustainable solar manufacturing.”
In Asia, tier 1 manufacturer Yingli Green Energy was irate, but not surprised. “We notice with regret that the European Commission insists on imposing preliminary anti-dumping duties on Chinese solar products despite massive opposition from EU member states,” said Liansheng Miao, chairman and CEO of the Baoding, China-based company. He added, “Punitive tariffs – no matter at what level – will inevitably lead to higher prices for solar products, causing at least the stagnation of the solar industry in Europe. We therefore encourage the prompt resumption of talks between China and the European Commission.”
Thus, a spirit of compromise is growing among the parties to the dispute. However, long-time solar advocate and entrepreneur Jigar Shah – who founded SunEdison, served as CEO of the Carbon War Room, and has just been named to the board of Empower Energies – is convinced that, without the European Union, there would be no negotiated solution.
Shah told pv magazine, “The thing that the European case did was it really, finally brought to the table a more mature partner [the EC] to try to negotiate a settlement with China. Even now, I just got confirmation that the United States has not engaged China yet formally. If the EC comes up with a deal, the United States might sign on, but they have never even been in the room.”
John Smirnow, vice president, Trade and Competitiveness for the Solar Energy Industries Association, based in Washington, D.C., disagrees. He believes that the U.S. is ready, willing and able to negotiate. “In the trade context,” Smirnow explained to pv magazine, “the biggest impact will be any negotiated settlement of the cases that exist between the United States, the European Union and China. China and the EC [already] are making progress. I think the United States would be open to alternative solutions, and I think the new U.S. Trade Representative [Michael Froman] has indicated that the he would be interested in …looking at some type of collaborative solution, maybe a price undertaking.”
However, Smirnow is concerned about the impact on consumers when all is said and done. “The one thing I want to point out is that we have some concern that any deal may not take consumers’ interest into consideration. Any deal must bear in mind the effect of the settlement on the entire supply chain. It can’t just benefit the manufacturers.”
A win for free trade
In the long-awaited resolution to yet another case brought before the World Trade Organization (WTO) – this one filed by Japan and the European Union in September 2010 and August 2011, respectively: the Ontario (Canada) Energy Department has announced plans to remove the domestic content provision from its feed-in tariff (FIT) scheme by early 2014. The provision had required that at least 50% to 60% of the components of solar systems developed and installed in Ontario to be manufactured in the province – a big advantage for local companies.
“This is a positive development,” the SEIA’s John Smirnow told pv magazine. “Now more U.S. companies will be able to market in Canada.”
He noted that the decision would have broader implications. “In light of this decision, we hope that India removes its domestic content requirements, too,” said Smirnow. “If they don’t, they may face offsetting tariffs. This decision should serve as a guide to other nations not to institute local content requirements as a way to support their own industries. This is a win for free trade.”
Meanwhile, even after a 10% cut imposed on April 1, Japan’s year-old FIT – intended to help the nation reduce its reliance on nuclear and diesel generation – has been an unqualified success. Business is booming for domestic companies and others are entering the market in droves – including U.S. tier 1 thin film manufacturer First Solar, which bought rooftop PV solar provider TetraSun in April.
This year, according to a research note from Bloomberg New Energy Finance, commercial and utility-scale projects in Japan will boost solar installations to a range of 6.1 GW to 9.4 GW, exceeding an earlier forecast of 3.2 gigawatts to 4 gigawatts. This reflects a change in the mix of deployments: Although residential applications had dominated the Japanese market prior to July 2012, industrial, commercial and utility-scale applications are increasing.
Jigar Shah observed, “The Japanese have created so much demand that they actually are losing their idle capacity – which is helping Sharp and Kyocera, Mitsubishi and Konica, and even Panasonic (which is focused only on the downstream segment of the market) realize good profits this year.”
Shah believes that “Japan has been one of the smartest policy-makers in the solar industry since it started its solar program in 1994; then phased it out in 1996 – and then jumped back into the game again last year as prices came down again. They deliberately set their FIT policy very high to kick-start the market; but now they are setting their feed-in tariffs down to more acceptable levels. Their strategy has been excellent.”
Raju Yenamandra of SolarWorld agrees. “The growth of the Japanese market is a significant development in 2013. Virtually overnight, Japan has gone from minimal annually installed capacity to an expected 4 gigawatts [or more] this year. It is a bright spot in the world industry.”
Putting its money where its mouth is, SolarWorld expanded into Japan last December with a new sales office in Tokyo. “Japan is one of the largest growth markets for solar energy in the world,” commented Frank Asbeck, CEO of SolarWorld AG. “After the catastrophe of Fukushima, people are looking for safe and sustainable prospects for energy supply.”
That was big leap of faith for a debt-ridden company that will gather its noteholders for a second round of meetings on July 8 and 9. SolarWorld’s main objective for the meetings is to appoint creditor representatives and outline its efforts to restructure.
Declining shipments, price pressure and a downturn in the domestic market took their toll on SolarWorld’s bottom line during the first quarter of 2013. The company posted a hefty €40 million (US$51.5 million) net loss for the first three months, up from a €300,000 (US$386,601) loss in the same period a year ago, as it struggled with a severe downturn in the domestic German market and continued its own internal restructuring process.
However, on June 18, the identity of a mysterious white knight investor for the company was revealed. Qatar Solar, a holding company owned by the Qatar Foundation – one of Qatar’s myriad government-backed investment vehicles – announced that it would take a 29% stake in SolarWorld for a price of €35 million (US$46 million), contingent on approval of the restructuring plan by noteholders in July. SolarWorld’s CEO Frank Asbeck plans to inject a further €10 million (US$13 million) into the company.
If the company holds on, it may be one of the regional exceptions to the rule. After months of speculation, in late March, Bosch confirmed that it would exit the crystalline solar sector. As of 2014, the German company will cease production of its photovoltaic ingots, wafers and cells. It will also “quickly” sell its solar business units, including its majority stake in Aleo Solar. Decreasing prices are being blamed for the decision. Up to 3,000 employees will be affected.
What’s more, the German engineering giant Siemens AG is shutting down its Solar & Hydro Division – and is shuttering its Israeli acquisition, Solel, after trying unsuccessfully to find a suitable investor for the past seven months. Add Centrosolar and HaWi Energietechnik to the list of debt-burdened firms and you get a more complete picture of the struggles of the formerly stalwart German suppliers.
However, despite the “bearish” market, Germany reportedly added 290 megawatts (MW) of new photovoltaic capacity in March, according to Federal Environment Minister Peter Altmaier – for a total of 775 MW in Q12013.
And the winners are …
In the U.S., a total of 537 MW of new large-scale photovoltaic capacity was added during the first quarter of 2013, according to the Federal Energy Regulatory Commission. In 2012, a total of 264 MW were said to have been installed in the first quarter. Thus, compared to this year, the installed capacity almost doubled (a 49% increase) to 537 MW across 38 systems.
Business in the States was buoyed by the release in February of US$150 million (€115 million) in Advanced Energy Manufacturing Tax Credits for clean energy and energy efficiency manufacturing projects in the country by the U.S. Department of Energy and the Treasury.
American billionaire and über-investor Warren Buffet’s MidAmerican Energy Holding Company was bruited to be involved in two major deals this year – but only one of them actually materialized. In January, the company spent US$2 billion-plus (€1.5 billion-plus) to acquire San Jose-based SunPower’s Antelope Valley Solar Projects, which are actually two adjacent arrays in California that comprise 579 MW of capacity, or, cumulatively, the largest solar installation in the world. Buffet also was said to be considering bailing out struggling Suntech Power Holdings, based in Wuxi, China, but he denied any interest in the transaction in early May.
With manufacturing still at a virtual standstill, most American firms turned to project development for profits. In its 2012 EPC rankings, Wellingborough, England-based IMS Research, identified U.S. thin film leader First Solar as the world’s biggest developer, in terms of megawatts completed, with more than 500 MW in operation. SunEdison took second place globally, followed by Germany’s Belectric, juwi, and Enerparc in positions three, five, and six, respectively. China’s Power Investment Corporation came in at number four.
Meanwhile, following its IPO last December, San Mateo, California-based SolarCity continues to shine. In May, the company’s stock price jumped yet again when founder Elon Musk announced that he had obtained financing from the New York City-based investment banking and securities firm Goldman Sachs for US$500 million (€387 million) in rooftop solar systems that the company will deploy this year. The deal, which represents the largest single such U.S. financing agreement, will enable SolarCity to build about 110 MW of solar power systems at nearly no up-front cost to homeowners and businesses, the company announced. The agreement was initiated in 2012 and expanded per its initial terms at the end of April.
Farther East, China continued to support its tier 1 companies. On April 26, Yingli Green Energy announced that the company had signed two loan agreements with China Development Bank (CDB) with an aggregate of US$165 million (€126 million). Under the terms of the agreements, CDB provided Yingli Energy (China) Co., Ltd. with a one-year loan of US$110 million (€84 million) and a three-year loan of US$55 million (€42 million) to complement its working capital needs and support the procurement of raw material.
According to Liansheng Miao, chairman and CEO of Yingli Green Energy. “With the new financing in place, we’re confident to continue to solidify and reinforce our leading position globally. At the same time, as our operating cash flow position is on track to gain improvement, we expect to continuously optimize our balance sheet.”
Canadian Solar also continued to expand, with announcements of a new sales and business development office in Sao Paulo, Brazil; as well as CNY 270 million (US$40 million/€30.5 million) loan from the Bank of China to build a 30 MW solar project in western China, as it continues its downstream focus.
In fact, the downstream is so attractive at the moment that a former financial analyst has jumped into the fray. Richard Keiser who had worked at Sanford Bernstein in New York as senior analyst in the Technology Strategy division for nearly a decade, has just started the Salt Lake City-based solar installation firm, Level Solar.
Why make the jump now? Keiser told pv magazine, “There were two drivers of my decision to enter the solar industry directly: impact and return. After many years in finance, I wanted to work on something more meaningful. Climate change is one of the world’s most important problems, and I want to contribute to the solution directly. Installing solar panels enables companies and individuals to reduce their carbon emissions and save money at the same time. Every solar module we install saves our customers 2 tons of carbon dioxide. Every household we serve saves around 40 tons of carbon dioxide. This has a real, measurable, positive impact.”
He added, “With respect to the industry’s potential, the U.S. solar industry is just getting started. As the cost of solar PV decreases, more and more people will be able to save money by switching to solar. Because of the shape of the U.S. electricity consumption curve – and the fact that solar PV attacks the retail price of electricity, not the generation cost – the potential magnitude of this shift is very large. As costs continue to decrease, demand for solar PV, especially at the residential level, will accelerate, creating a large opportunity for solar installation companies. I and my team hope to capitalize on that.”
Analyzing his competition, Keiser stated, “As far as equity values are concerned, obviously SolarCity and SunEdison have been big winners. With respect to SolarCity, this has been a result of continued customer growth, expanded access to financing, and a reversal in negative investor sentiment toward the sector in general.
“My primary interest is the residential segment and, here, the most important determinants of success are customer acquisition, access to financing, and operational efficiency. SolarCity is well-positioned on the first two, but still has some work to do on the third. Vivint Solar [of Provo, Utah] appears strong on all three. While we are not at their scale yet, we are building Level Solar from the ground up to compete and win on these metrics.”
An emerging market
In terms of trends for the rest of the year, the most popular emerging market this year looks to be South Africa, with major projects being announced by many players. In February, Siemens began work on two 50 MW photovoltaic projects in South Africa for Globeleq Generation Limited. They are scheduled to be operational by mid-2014. In May South Africa’s public utility Eskom signed power purchase agreements (PPA) for nine photovoltaic projects with a capacity of 417.1 MW, under the country’s renewable energy expansion program. The projects involved under the agreements are Solar Capital De Aar 3 (75 MW), Sishen Solar Facility (74 MW), Aurora (9 MW), Vredendal (8.8 MW), Linde (36.8 MW), Dreunberg (69.6 MW), Jasper Power Company (75 MW), Boshoff Solar Park (60 MW) and Upington Solar Power Plant (8.9 MW).
And in June, a consortium comprising Google, SolarReserve, the Kensani Group, and Intikon Energy successfully closed project financing for the Jasper Solar Energy Project, a 96MW solar photovoltaic project. The project is located in the Northern Cape in South Africa near Kimberly.
Distributed energy generation
Other strong trends include a transition to residential distributed generation, as well as investments in energy storage to support these systems. Richard Keiser stated, “Distributed generation will continue to be an important driver in the energy sector, in general, and for solar, in particular. Generating electricity at the point of consumption disintermediates the utility, and in doing so, eliminates a number of cost components that households and businesses pay: transmission costs, utility profit margin, taxes, and local fees. This is the reason why solar is economically viable for many electricity consumers, even though it is not economically attractive for most utilities.
“In the United States, the balance between distributed and utility-scale generation will continue to fluctuate,” he predicted. “The residential segment will continue to have the most stable growth, while utility-scale solar will continue to experience large fluctuations, driven by the timing of large-scale deals. The United States has approximately one-fifth the population density of Western Europe, and so we have potential to have robust residential, commercial and utility-scale development at the same time. At present, the United States has a nearly even split between distributed and utility-scale solar. I expect that to shift back to distributed over the next few years.”
America’s largest trading partner also is switching over to distributed generation, but, Jigar Shah believes, “China has a challenge. They are very used to central generation, which works for wind, but not for solar. They are learning distributed generation. They are slowly learning how to maintain the volumes they want through distributed generation. You have to identify rooftops for distributed generation; it’s not just picking 10,000 acres in Mongolia. However, I think that they will be well-educated and ready to go by next year.”
With respect to energy storage, “This is and will be an important trend, but we are still too early on the technology and cost curves for widespread adoption,” commented Keiser.
However, ready or not, Germany launched its own PV battery storage incentive program on May 1, with funding of €25 million (US$33 million) from the state bank KfW. The purchase of new battery storage for photovoltaic systems will be subsidized with up to €660 (US$864)/kilowatt (kW) of solar power, said Germany’s solar industry association BSW-Solar. Plant operators can apply for financial support for photovoltaic projects that are installed in 2013 and have a maximum capacity of 30 kW.
Finally, don’t count solar thermal out, according to Steve Elkin, CEO of Branford, Connecticut-based SolarUS. He believes, “Solar thermal always has been the ‘red-headed stepchild’ of this industry, but it is now just starting to catch on. Companies that have gone the PV route and are looking to further reduce their bills are looking at thermal as an attractive option.”