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China Gets Serious on Solar Energy

Sep 28, 2012

After talking for much of the past year about plans to develop its solar power industry, Beijing may finally be starting to transform its words into action based on the latest signals coming from mid-sized panel maker JA Solar (Nasdaq: JASO) and an unusual move by leading US manufacturer First Solar (Nasdaq: FSLR). These two developments are interesting from a number of angles, as they could provide a welcome lifeline to the struggling global solar panel sector and also help to diffuse trade tensions with the west, which accuses China of unfairly subsidizing its industry. But before those tensions can really ease, Beijing will have to show it won't favor its own solar panel makers in bidding for new China-based projects at the expense of western rivals. It will also have to take more concrete steps to wean its sector from the kinds of unfair subsidies behind the western complaints, including policies like low interest loans and export rebates.

Let's take a look at the latest news, which comes just over a year after China announced attractive pricing rates for solar-produced power designed to spur construction of new plants. Announcement of those rates came amid reports that Beijing aimed to build up to 50 gigawatts in solar and wind power generating capacity by 2015, a huge figure for a country that still gets nearly all of its power from traditional fossil fuels.

In the latest news, JA Solar has just announced it has won orders to supply solar cells to generate up to 160 megawatts of new power producing capacity for two domestic customers building projects in interior provinces including Qinghai and Xinjiang (company announcement 1company announcement 2). The news was welcomed by investors, who bid up JA Solar shares by 3.5 percent in Thursday trade in New York. But even after the gain, JA Solar shares still only trade at $0.90, and have now traded below the key $1 mark for about a month, meaning the company is in danger of de-listing.

Investors will no doubt be watching the stock over the next few weeks to see if it can climb back above the $1 mark, which could perhaps happen if we start to see more similar announcements from other companies about new projects in China.

Meantime, in another somewhat surprising and encouraging development, US-based First Solar announced the hiring of a Chinese industry veteran to head up its China operation, including responsibilities for business development (company announcement). The announcement makes no mention of First Solar's previous efforts to sell its products in China, but I suspect that the company had little or no sales presence in the country as it faced stiff competition from locally based Chinese rivals like Trina (NYSE: TSL) and Yingli (NYSE: YGE).

If that's the case, then this latest announcement means that First Solar not only believes China is set to quickly expand its building of new solar power plants, but also that it has a reasonable chance of winning some of the business despite cost and home-field advantages enjoyed by most of its Chinese rivals. Based on the First Solar announcement, it appears the company will try to compete by focusing on its technological edge over its Chinese peers, especially in the fast-emerging thin-film area. Look for more similar announcements of new power-generating projects and related moves in the China solar market in the months ahead, as Beijing looks to resuscitate its struggling panel manufacturing sector.

Bottom line: New announcements from JA Solar and First Solar indicate Beijing may finally be serious about building new solar power plants, providing a needed lifeline to the struggling panel sector.

The information and views expressed in this blog post are solely those of the author and not necessarily those of or the companies that advertise on this Web site and other publications. This blog was posted directly by the author and was not reviewed for accuracy, spelling or grammar.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China B...


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