Rise and fall of the world’s biggest solar company

In 2011, Suntech Power Holdings was the world’s biggest solar panel producer, shipping more than 2 gigawatts of panels. As Wayne Ma of the Wall Street Journal reported today:

Suntech is now in Chinese bankruptcy court, and [founder Zhengrong] Shi isn't allowed to leave China without court approval, as is customary with non-Chinese executives involved in bankruptcy proceedings

The article is a must-read for anyone who follows the solar industry.

One reason is the dramatic turnaround of the personal fortunes of Shi, a Chinese-born Australian citizen. With his holdings in Suntech, Shi was on the Forbes list of billionaires (with a net worth of $2+ billion) in 2006 and 2008. The WSJ says his holdings were worth $4 billion in 2007 but “around $31 million” today. The pictures also show a man dramatically aged in the past five years.

The failure of Suntech has been assumed to be due to falling solar prices, but this is a pressure that all Chinese producers are facing. It was highly leverage, borrowing heavily to grow capacity and volume after the financial markets collapsed in 2008.

However, there were also unique problems of self-dealing and fraud. The WSJ focused on the investments of Suntech and Shi in Global Solar Fund, which financed European sales of Suntech panels. The story is complicated, but apparently the GSF manager posted fraudulent security for a €554 million Chinese government loan. When GSF got in trouble, the fraud was discovered, and Suntech (an NYSE-listed firm) was forced to report the GSF liabilities on its books and found itself unable to refinance more than $500 million in corporate bonds.

A second questionable deal was that Shi founded a polysilicon producer, Asia Silicon, and provided the unproven startup with both financing and more than $1 billion in purchase contracts. Suntech's failure to disclose its dealings and Shi’s conflict of interest are the subject of a class action shareholder lawsuit filed in San Francisco last year — a lawsuit that’s curiously been ignored by the US media.

After a 2005 IPO and a peak price of near $90, Suntech shares closed Friday at $.61 after trading under $5 for the past 18 months. For Shi, his dreams of creating an enduring industrial empire have been destroyed, as has his personal fortune.

Some observations on global solar adoption

I just spent two days at a workshop for solar equipment producers sponsored by Festo AG. (I was invited to support its efforts to build a Festo-sponsored open innovation community.) Several of the speakers offered great statistics, history and other facts about the development of the industry.

Below are a few “stylized facts” about where PV is being produced and used.

1. Solar Price is Relative

Substitute costs are the key driver of solar adoption. If energy is cheap, no one wants expensive RE. If energy is expensive, RE may not seem all that expensive. European adoption is high due to high fossil fuel prices, while US has historically had cheap energy. However, with our high insolation and high (Tier 4 or Tier 5) utility bills California is almost break-even without subsidies today, Hawaii too. Germany is a long way off, China will be decades away at 5c/kWH.

2. Roadmaps Help

The PC industry grew for 40+ years with a a technology roadmap based on Moore's Law. There is evidence that PV cost cuts also provided a predictable roadmap. According to consultant Ruurd Boomsma, the prices generally fell 5-6% per annum, much more slowly than LCD prices over the past decade. (However, prices fell more dramatically in 2009 and it’s not clear if that’s the new normal or a one-time shock.)

3. US is Inherently Messy

It is clear that the US policy regime is more fragmented, confused and contradictory than either Germany or China. Although Germany has Federalism, the RE policy is mainly at the national level, not the staaten. In most other countries, the states/ provinces are relatively weak and the RE policy is made at the national level. Also, RE policies (eg. for residential solar) are better understood in countries with national policies than in the US (where the major policies are at the state level).

4. Jobs Follow the Entire Value Chain

There's been a lot of discussion (and hand-wringing) on the huge shift of PV production to China and elsewhere in Asia. However, the major shift has been for cells. Modules are more expensive to ship and to inventory, and may continue to be produced near (or closer to) actual use. Installer jobs will also remain in the developed economies and perhaps the balance of system too.

5. California isn’t Serious About Green Jobs

California has spent lots of money on RE subsidies and is proud to lead the nation in such subsidies — just as it led the nation in regulating tailpipe emissions for years. However, the state has been trying for 20 years to destroy the local manufacturing base through regulation and taxation. If not for the dot-com boom, this would have been pretty obvious a decade ago, but the lagging recovery (and 12% unemployment is making them visible now.)

Mayors, legislators and governors claim to want green jobs, but their bureaucracies tie up new manufacturing efforts with red tape through opaque discretionary approval processes. (I heard a few choice examples Tuesday). It’s no coincidence that the silicon has left “Silicon Valley: that Santa Clara-based Intel is building factories in Oregon and Arizona and New Mexico but has closed its last factory in Silicon Valley. SV alumni and VCs start companies here because it’s convenient, but the manufacturing is going elsewhere.

Five years from now, I predict there will be no large-scale solar manufacturing in California. The PV manufacturing growth for California and the Southwest will be in Nevada (no income tax), Arizona and New Mexico.

Can we win the clean energy race? Should we?

Browsing the WSJ.com website, I found an advertorial that proclaimed

China Becomes “Clean Energy Powerhouse”

China, determined to be on the forefront of green technology, “is emerging as the world’s clean energy powerhouse,” according to a recent study from The Pew Charitable Trusts, an independent non-profit organization based in Washington, DC

For the first time ever, China topped all nations last year in investments in low-carbon energy like wind and solar power. Over the past five years, environmentally friendly energy finance and investments in China grew from $2.5 billion to $34.6 billion, almost double the $18.6 billion in investments attracted by the United States.

And that is only one part of the country’s growing emphasis on environmentally friendly products and practices. Along with ambitious targets for wind, biomass and solar energy, China aims to spend 34 percent of its $586 billion stimulus package on green projects.

The advertorial, sponsored by Hong Kong-based Cathay Pacific, went on to note the airline’s involvement in carbon offsets and the other customary forms of greenwashing used by big businesses. (I don’t take the dead tree WSJ anymore, so I didn’t see when/if it ran in the real paper.)

Pew is an environmental advocacy group that got a lot of coverage when their study of G-20 countries (entitled “Who's Winning the Clean Energy Race?”) came out in March. A well-orchestrated PR campaign — tied to legislative hearings in Congress — brought the issue back to the forefront last month.

The numbers in the report compiled by Bloomber New Energy Finance seem accurate. However, the conclusions seem intended to stampede US public sentiment towards greater Federal spending (or mandated ratepayer spending) to subsidize the sale of RE equipment in the US. To quote from the executive summary:

This report documents the dawning of a new worldwide industry—clean energy—which has experienced investment growth of 230 percent since 2005. Demonstrating its strength, the clean energy sector declined only 6.6 percent in 2009 despite the worst financial downturn in over half a century. In 2009, $162 billion was invested in clean energy around the world. …

Within the G-20, our research finds that domestic policy decisions impact the competitive positions of member countries. Those nations—such as China, Brazil, the United Kingdom, Germany and Spain—with strong, national policies aimed at reducing global warming pollution and incentivizing the use of renewable energy are establishing stronger competitive positions in the clean energy economy. …

There are reasons to be concerned about America’s competitive position in the clean energy marketplace.

Relative to the size of its economy, the United States’ clean energy finance and investments lag behind many of its G-20 partners. For example, in relative terms, Spain invested five times more than the United States last year, and China, Brazil and the United Kingdom invested three times more. In all, 10 G-20 members devoted a greater percentage of gross domestic product to clean energy than the United States in 2009. Finally, the Unites States is on the verge of losing its leadership position in installed renewable energy capacity, with China surging in the last several years to a virtual tie.

The U.S. policy framework for reducing global warming pollution and promoting renewable energy remains uncertain, with comprehensive legislation stalled in Congress. On the other hand, America’s entrepreneurial traditions and strengths in innovation—especially its leadership in venture capital investing—are considerable, giving it the potential to recoup leadership and market share in the future.

Policy, investment and business experts alike have noted that the clean energy economy is emerging as one of the great global economic and environmental opportunities of the 21st century. …

Nations seeking to compete effectively for clean energy jobs and manufacturing would do well to evaluate the array of policy mechanisms that can be employed to stimulate clean energy investment. This is especially true for policymakers in the United States, which is at risk of falling further behind its G-20 competitors in the coming years unless it adopts a strong national policy framework to spur more robust clean energy investment.

In other words, the Pew argument is that there is a “race” and the US is losing. This is a proven rhetorical device: The “missile gap” was used during the Eisenhower administration and the Space Race during four administrations to build support for massive Federal spending on aerospace technology.

But perhaps the argument is less effective today. Some of a libertarian bent would argue against Pew by saying (roughly) “if other countries want to waste their money renewable energy, let ’em.” This is probably preaching to the choir — those who buy this argument weren’t going to listen to Pew and vice versa.

My own concern is: is it reasonable to believe that US mandates for RE will create jobs and a self-sustaining US industry? The success of Vesta and other Danish wind turbine companies is the best case. The NYT reported Wednesday about similar hopes by Silicon Valley companies using advanced technology to efforts to keep up with Chinese manufacturing costs.

Worst case is the ongoing collapse of the German solar industry (after years of the world’s best solar incentives). Another is the one-way shift of solar jobs by US designers to Chinese factories — in parallel to most other medium-technology manufacturing moving to China or other offshore locations.

But suppose we can win the race: Should we? The leading academic journal on innovation policy, Research Policy, ran a series of four articles this month on how innovation policy should respond to the global warming threat. The lead article by three of the world’s leading innovation economists emphasized the broad dissemination of clean energy technology to reduce global carbon emissions rather than hoarding to help domestic energy producers:

In recent years, the threat of global climate change has come to be seen as one of the most serious confronting humanity. To meet this challenge will require the development of new technologies and the substantial improvement of existing ones, as well as ensuring their prompt and widespread deployment.
…
Combating global warming, as we noted earlier, requires that technological solutions be deployed on a global scale as soon as possible. … Much more than “technology transfer” will be required, although support for the global dissemination of information and, potentially, subsidies for other nations to stimulate the adoption of technological solutions may be important parts of the international scope of such a program.

To put it in plain English: technological solutions to climate change must be shared and perhaps even subsidized for the rest of the world.

So for any US policy, I see at least a four-way tug-of-war of competing goals: helping the business growth and profits of US companies, providing US jobs, spending government (or ratepayer) money most efficiently, and saving the planet. When the US DoD invented the Internet we could have all four, but that outcome seems unlikely for today’s challenges due to both the capital investment and large number of foreign competitors and countries chasing these same clean energy jobs.

I don’t know which goal (or goals) will win out, and without knowing the specifics I can’t personally say which one should win out.

References

David C. Mowery, Richard R. Nelson, Ben R. Martin, “Technology policy and global warming: Why new policy models are needed (or why putting new wine in old bottles won’t work),” Research Policy, Volume 39, Issue 8, (October 2010), Pages 1011-1023. doi: 10.1016/j.respol.2010.05.008

Pew Charitable Trusts, “Who's Winning the Clean Energy Race? Growth, Competition and Opportunity in the World’s Largest Economies,” Pew Charitable Trusts, March 2010

Warren Buffett helps make PHEV maker rich

The richest man in China is now 43-year-old Wang Chuanfu, founder of BYD (“Build Your Own Dream”). According to an annual ranking of Chinese billionaires, Chuanfu is worth 35 billion RMB or $5.1b.

Founded in 1995, BYD worked its way up to become the world’s leading maker of cellphone batteries. The Shenzen-based company (and Chuanfu’s holdings) gained tremendous legitimacy by selling a 10% stake last year to a subsidiary of Berkshire Hathaway, the investment vehicle of the Oracle of Omaha. The $232 million investment has appreciated fivefold since then.

Part of the attraction of the BVD investment was its foothold in China’s high-growth auto industry. Last December it got favorable publicity for its pathbreaking F6DM plug-in hybrid. However, earlier this month it revealed it had only sold 100 units since introduction, rather than the target of 3000+ units. It still hopes to sell the PHEV in Europe next year.

14¢ solar?

The Cleantech Group posts an interesting article about planned price cuts in PV electricity generation in China:

Solar cell maker … were among the companies that submitted a proposal to the Ministry of Science and Technology to cut the allowance for solar power generation [from $0.584] to $0.146 per kWh in 2012. The government had planned to reduce the allowance to that price in 2015.

The 75-percent price drop by 2015 is feasible, according to the Jiangsu Photovoltaic Industry Association. Industry leaders had predicted last year that it would take until 2020 to reach solar electricity at a cost of $0.146 per kWh.

Part of the reason for the accelerated decline is the price drop for polysilicon, which makes up 70 percent of the cost of silicon solar photovoltaic products. Polysilicon hit a peak of $400 per kilogram in July 2008, falling to less than $100 at the end of the year. Polysilicon is now trading for $30 to $40 per kilogram and is likely to continue dropping.

The 14.6¢ cost is significant because it brings solar in line with fossil-fuel based energy.

If the policy takes effect, this would mark an important milestone on the path to grid parity.

However, I don’t quite know what to make of it: the article is unsigned and no source is given. And from my own research on telecom, when it comes to Chinese industrial policy, there’s always more than meets the eye.