Monday, June 1, 2009

The Expansion of Solar Energy in China

Last week, I had the pleasure of meeting a consultant who is familiar with the Chinese solar market. He works with Chinese solar companies on engineering and manufacturing issues. While China produces about 1/3 of the world’s solar panels, solar has a small presence in China. Further, he believes that solar’s penetration in China will be slow.

Earlier this year, the Chinese Academy of Sciences stated that it wanted solar to become a major energy source for China by 2050. The CAS is pushing for substantial R&D investments in solar, with the objective of improving the effectiveness of solar technology and lowering its cost. The National Development and Reform Commission recently noted that high costs, the lack of government subsidies, and limited market access pose obstacles to solar’s expansion in China.

While China installed 20 MW of solar power in 2007, the country installed more than 50 MW in 2008. The installed MW of solar power is expected to increase 20% each year until 2012. The National People’s Congress has set a goal of having 10% of China’s energy needs come from renewable energy sources by 2020.

Is this goal ambitious enough? Can the goal be achieved without significant participation by foreign companies? Will foreign companies have the opportunity to compete in China’s domestic market? Will the government permit foreign direct investment in Chinese solar companies?

These questions are related. If the government pushes up the timetable for meeting the 10% goal, then foreign solar companies may be needed to supplement the domestic companies. Investors who are bullish on the Chinese solar market can park their money in LDK Solar Co. Ltd. (NYSE ADR: LDK), Yingli Green Energy Holding Co. Ltd. (NYSE ADR:YGE), and JA Solar Holdings Co. Ltd. (NYSE ADR: JASO). The Chinese government recently announced that it is looking to open up the energy industry to foreign direct investment. At this time, it is unclear whether the solar market will be opened to foreign investors. Given the government’s increasing recognition that solar is a promising area, investors should keep an eye on this market space.

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