Chinese Bureaucracy Casts Cloud Over Shiny Solar Finance

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Doug Young

Bottom line: Complaints of problems from a major solar plant builder reflect the difficulty of new construction in China, and could wreak havoc on the sales and finances of panel makers and their construction partners.

Solar entrepreneur Shi complains of bureaucracy

Two solar energy news items are showing both the attraction and also the frustration that developers are feeling as they try to build new clean-energy power plants to help China wean itself from its dependence on fossil fuels. On the attraction side of the story, the industry has just won a major new backer in the form of insurance giant Ping An (HKEx: 2318; Shanghai: 601318), which is teaming up with panel maker Trina Solar (NYSE: TSL) in a new plant-building initiative.

But the frustrations that many plant builders are feeling were on prominent display in a separate report that cited another major developer complaining of the difficulties of new construction. Those kinds of complaints aren’t really new, and are being caused by provincial government interference and other local issues in the many remote locations where new plants are being built.

While solar power proponents are quite happy to talk about all the money they’ve raised and their big plans for new plant construction, few like to talk about the many troubles they face when they actually try to build those plants. Everyone is being attracted by Beijing’s ambitious plans to build up solar power in the country, partly to support the nation’s big field of solar panel makers and partly to clean up the nation’s polluted air.

Beijing has repeatedly boosted its target for new solar plant construction, with a current aim of installing 35 gigwatts of capacity by the end of this year. And yet an industry official was cited last fall saying that only 10 gigawatts were likely to be added by the end of 2014, making the 35 gigawatt target look nearly impossible to reach. Despite that, the ambitious target has continued to draw in big investors who believe Beijing and local governments will provide them with financial and other assistance in the drive to realize China’s solar energy dreams.

Now Shanghai-based entrepreneur and multi-millionaire Shi Yuzhu is showing just how difficult the road to solar construction can be in China. Shi announced a major new solar construction fund last year, but his enthusiasm has quickly turned into frustration since then. A new media report cites Shi as complaining on his microblog that of the 3 major plants his fund was planning, 2 have run into difficulties that could delay them indefinitely. (Chinese article)

The article details the situation with one stalled project in Inner Mongolia, but the bottom line shows that local government officials are playing their usual tricks designed to benefit themselves rather than facilitate business. Such games are quite common in China, especially in less developed provinces like the ones where many solar plants are being built. Shi is probably being hurt by his own lack of experience as well, but it’s quite likely that his story is being repeated at many similar projects around the country. That certainly doesn’t bode well for solar panel makers or plant builders.

One such panel maker that was counting on a local construction boom is Trina, which has just announced a new plant-building initiative with PingAn Trust and Jiuzhou Investment Group, an investment arm of the Jiangsu provincial government. (company announcement) The trio plan to build new solar plants with total capacity of up to 1 gigawatt over the next 3 years. The arrangement looks quite risky for Trina, as it appears Trina will borrow money from its partners for plant construction, and give them the option to convert the loans into equity ownership at a future date.

Trina and its peers like Yingli (NYSE: YGE) and Canadian Solar (Nasdaq: CSIQ) have announced a string of similar initiatives, which often see the companies join hands with financial backers for new plant construction. If a big portion of those plans runs into troubles like the ones we’re seeing from Shi Yuzhu, which seems almost inevitable, both panel makers and their plant-building partners could find themselves in a big mess that could wreak havoc on their finances and even threaten their survival.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.


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