Suntech: Government Bailout Likely

The fate of the biggest subsidiary of Suntech Power, for several years the world’s number one manufacturer of PV panels, hangs in the balance as Chinese government officials determine whether to bail the company out. It’s rare for Chinese companies to fail, since the government usually rescues them to avoid damaging the reputation of Chinese business in general. In the case of renewable energy manufacturing, the government also wants to maintain employment in a high-tech sector.

While some analysts have declared Wuxi Suntech “too big to fail,” the company has already filed for bankruptcy and defaulted on a half a billion dollar bond. This bankruptcy could be the test of the national Chinese government’s willingness to continue to subsidize photovoltaic manufacturers in a market that is already flooded with an oversupply of cheap panels. Meanwhile, local government officials in Wuxi may push for a bailout, fearing the loss of 10,000 jobs and social unrest. They say they will “restructure” the company so that it can continue production.

Meanwhile, an Arizona Suntech plant that installed frames and junction boxes on modules in order to qualify Chinese panels for “Buy American” status, has closed, laying off 43 workers.

Over the past five years, Chinese subsidies for solar manufacturing have encouraged hundreds of companies to enter the market there. From 2008 to 2012, Chinese solar manufacturing capacity expanded ten-fold, pushing prices down 75 percent, to as low as 65 cents per watt ― so low that even Chinese companies cannot make a profit. Prices fell below the cost to manufacture, driving dozens of European and U.S. factories out of business. The list of politically-prominent failures includes Solyndra and Abound; General Electric delayed the opening of a large factory for its Primestar thin-film subsidiary, and is said to be investigating partnership possibilities with Chinese factories. In response to claims of illegal subsidies and dumping, the United States imposed stiff tariffs on Chinese-made solar cells and panels. Europe is considering similar penalties.

While low PV prices have been a boon for consumers and installers, the glut of PV panels, amounting to more than twice worldwide demand equivalent of 30 gigwatts this year, threatens the health of the PV industry overall. Analysts say that by preventing a  necessary correction in the market and allowing PV prices to rise, artificially low prices are stalling the incorporation of new technologies that would improve cell efficiency and further reduce costs of manufacturing.

A Suntech failure, if allowed, may be just the first of a series of Chinese solar business failures. Even business analysts in China say that two-thirds of the PV manufacturers currently operating in China may have to go out of business in order to restore the health of the industry worldwide. But China’s state capitalism system, which encourages government-owned banks to underwrite local production, may make it difficult to decide who the winners and losers will be.

Wuxi Suntech’s parent company, Suntech Power, is not going bankrupt and the company says it will stand behind the warranties on its panels. But Suntech stock, which once traded on the New York Stock Exchange for $85, has fallen to an all-time low of 30 cents.

In an indication of the jockeying that is going on over Suntech’s future in China, two executives have just been barred from leaving the country. Founder Shi Zhengrong, once China’s richest man and now an Australian citizen, has been prevented from leaving the country, as has Suntech CEO David King, while the Chinese government investigates the company’s finances.