Sustainable Sites for Solar Production – China Creating Homes for Photovoltaic Industry
by The RightSite Asia Team,
Last week SunTech Power Holdings, the Wuxi-based solar power giant announced that its total net revenues for third quarter 2010 came to USD $743.7 million – a 57.2 per cent increase over the same period last year., However, at the same time, its stock was in the midst of a plunge of nearly 10% over a one month period.
This market turbulence and uncertainty is part of the overall uncertainty regarding the photovoltaic industry.
Players in the photovoltaic market are still reliant to no small degree on government incentives and subsidies worldwide, and will be until the price of producing electricity from sunlight is able to compete directly with electricity derived from fossil fuels. It’s clear that in the future, the price of electricity from photovoltaics will decrease as the industry matures, and fossil fuel generated electricity will continue to rise in cost as these sources become increasingly scarce.
However, until then companies investing in photovoltaic production need to be on the lookout for the most favorable production sites that will enable them to source materials and resources at low enough rates while still maintaining access to major markets. For many of these photovoltaic companies, that location is China. And many cities in the country are competing to foster photovoltaic investors in their industrial parks and economic zones.
Still Some Time Left Before Solar Industry Consolidates
Right now some companies that have invested in the photovoltaic industry worldwide are struggling because of lower fossil fuel energy costs than were experienced a few years ago, and uncertainty about the sustainability of government incentives during difficult financial times.
In the US, during 2008 natural gas (often used to generate electricity) cost $0.40 per cubic metre. That rate now is $0.16 per cubic metre. The cost of other fuels, such as gasoline, has dropped by as much as 33 per cent or more over the same period.
Energy Uncertainty Has Been Reflected in Solar Stocks
Given the instability in energy prices, SunTech has not been alone in struggling on the stock market. Several of the company’s leading competitors have joined SunTech at the whipping post, including First Solar – whose shares plunged 11 per cent during mid-November, and Trina Solar (also based on China) which has slid 29 per cent from its peak level in October.
The reason for this uncertainty is tied to investor fears of changes in government subsidy programs in the US and Europe that have been propping up the photovoltaic market. According to statements in the press by First Solar CEO Rob Gillette, starting in 2011, subsidies in Germany for solar installations will expire which may lead to significant softening in demand for photovoltaics in the country.
For First Solar, as recently as 2008, some 80 per cent of the company’s output ended up deployed in Germany. But Gillette now expects that German demand will account for 45 per cent of the company’s sales in 2010, and this proportion should drop to between 25 per cent and 30 per cent in 2011, as German demand softens and the wider PV market catches up.
In order to free solar companies from the whim of government subsidies, the prices of photovoltaic equipment and materials to be reduced until it matches that of energy produced from fossil fuels. To do this, produces need the means to manufacture photovoltaic equipment cheaply and efficiently. And a major part of establishing this efficient production is setting up a modern facility in a strategic location.
Solar Needs Scale
Key to achieving the low production costs critical to making photovoltaics competitive is increasing production to scales where lower unit costs can be achieved. And in 2010 alone, there have already been significant increases in the amount of photovoltaics being manufactured in China.
According to its official financial results, in the third quarter of 2010, Suntech solar panel shipments jumped 25.3 per cent over the previous quarter, and 107.1 per cent over the same period for 2009. Other companies have achieved similar results.
In fact, the total market for solar photovoltaic projects is growing rapidly. According to studies of the US market, in the first half of 2010, 339 megawatts of solar photovoltaic projects were installed, almost as much as over the entire previous year, according to a report by Solar Energy Industries Association and GTM Research.
This jump in production has resulted in immediate decreases in the cost of solar panels, which are now about half what it was two years ago. Of course, while this is good news for spurring user adoption of the technology, it will also put additional pressure on producers to manufacturer economically.
China’s Solar Hot Spots
Choosing the right location for production is important to achieving this efficiency and cost reduction. Having access to low cost materials, as well as being assured of receiving ample government support can help photovoltaic producers to gain the edge that they need to triumph in this emerging market. And, so far, China seems to be the destination of choice for photovoltaic investors. When Greentech Media, a Cambridge, Massachusetts-based energy research firm issued a report this year looking at the world’s 15 most successful producers of solar panels, it found that eight were based in China (including numbers two, three, and four on the list).
In explaining the advantages of producing photovoltaics in China, Shyam Mehta of Greentech Media explained in a press report, “The cost of capital there is so cheap, and the labor costs are lower by a factor of at least five. So their profit margins don’t need to be as high as others do.’’
Eco-Industrial Parks Contributing to the Rise of Solar
One of the signs of government support for photovoltaics and other energy conservation industries iw the growth of eco-industrial parks aimed at promoting sustainable industries, and these parks provide attractive site selection options for photovoltaic producers in China.
One example of these dedicated industrial parks and their measure to welcome the solar power industry is a chain of energy conservation-focused developments established by China Energy Conservation and Environmental Protection Group (CECIC).
In explaining how their parks are getting directly involved with the photovoltaic industry, Mr Yang Xiaochuan from Cooperation and Development Department, Shanghai International Energy Conservation & Environmental Protection Development Company noted that, “At present, we are negotiating with a famous company on a large Photovoltaic Roof project. As a clean energy, solar energy is very consistent with our conception of creating a low carbon park.”
CECIC is currently developing these eco-industrial parks in Shanghai, Kunshan, Jiaxing (Zhejiang province) and other locations in China. Mr Yang pointed out that, “The energy-saving environmental protection industry in China is just beginning to develop, many promising small and medium enterprises may face various problems involving capital, technology, information and policies. Our responsibility is to provide a professional platform for them and to lead them in the right direction.
Categories: The Big Picture