Chinese fan makers hit Great Wall of debt

great-wall-of-china

China’s fan makers slam into a Great Wall of debt.

For any company to claim it is solvent it must be able to pay its debts as and when they fall due.  And, to remain solvent, a company’s revenue must exceed its expenses – over the long haul.

In China, fan makers (as well as those involved in making acres of solar panels) are saddled with a mountain of debt from which they will never escape.  A number have already collapsed, but it sounds like they’re just about to slam into a Great Wall of inescapable debt with fatal consequences.

Here’s the Financial Post on the collapse of China’s renewables industry.

Why China’s renewables industry is headed for collapse
Financial Post
Patricia Adams and Brady Yauch
10 December 2013

China’s aggressive push to “green” its economy and become the world leader in renewable energy is admired by many commentators in the West. Those admirers need to look again.

The country’s solar panel industry, which went from zero to become the world’s largest in five years, has crashed, with most producers now suffering from negative profit margins, soaring debt levels and idle factories.

Solar panel manufacturer Suntech, a national champion which became the world’s largest thanks to lavish state subsidies, filed for bankruptcy in March after it defaulted on payment of $541-million of bonds. The government is scrambling to tidy up the mess by offering tax breaks to all solar companies that acquire or merge with their competitors. One state-owned company recently tabled a $150-million lifeline to Suntech as it works its way through bankruptcy proceedings.

Likewise LDK Solar, another leading Chinese producer, was forced this year to turn to both provincial and local governments for protection from its creditors. The brainchild of the local Communist Party Secretary, LDK, received millions of dollars in state subsidies and cheap financing, land and electricity in 2005. The local government is now funnelling funds into the company to keep it from sinking, without complete success it seems – the company has shed 20,000 of its 30,000 employees and its shares are 98% below their peak in September 2007.

Yet China’s solar panel sector remains massively overbuilt. According to Bloomberg, if all of China’s solar producers were to run their factories at full speed, they could produce 49 gigawatts of panels annually – a ten-fold increase from 2008 and 61% more than global installed capacity last year. But demand for those panels has been shrinking as governments in the West cut many of the subsidies that made solar power attractive.

China’s experience with wind power is little different. Sinovel – one of the world’s largest wind turbine manufacturers – went from earning hundreds of millions of dollars in profits in 2010 when the renewable energy industry was booming to millions in losses that grow by the day. Revenues are now just a fifth of what they were in 2010. The company has closed its overseas offices and recently laid off thousands of employees.

All told, in 2012 17% of all windmills lay idle, their power too expensive to connect to the grid. In some regions, 50% of all windmills remain unconnected to the grid.

China’s green crash is a textbook example of what happens when central planners substitute their economic decrees for the complex supply and demand decisions of a market. Compounding the missteps of China’s green planners was a belief that the West’s love affair with green power was here to stay, despite its higher cost and unreliability.

Believing that it could meet the world’s surging demand for solar and wind power, the Chinese state – from the supreme planning agency, the National Development and Reform Commission down to city governments and state-owned banks – gave Chinese manufacturers near-monopoly powers and all-but-free money.

The torrid expansion of manufacturing capacity saw wind turbine capacity doubling every year until 2010.  According to the China Renewable Energy Society in Beijing, half of China’s 600 cities have at least one factory producing photovoltaic products. The ensuing flood of solar panels and wind systems on the global market caused prices for those panels to plummet and, in turn, negative profit margins for many of the world’s largest producers.

Those in the West almost all failed; those still standing, if tottering, are now mostly based in China. The worldwide renewables collapse left China’s renewables industry looking supreme only because it is the last corpse to fall. It is only by default that China makes seven out of 10 solar panels across the world and is home to eight of the 10 largest panel producers, many of which are on government life support. The combination of too much supply from years of over-expansion and too little demand produced low prices that have left most producers in China on the ropes.

Their prospects are likely to get even worse. The Bank of China, one of the country’s largest state-owned commercial banks, says that 21% of its solar loans are in or near default. By Bloomberg’s calculation, the country’s 10 largest solar manufacturers hold $28.8-billion worth of liabilities, most of which is owed to government-backed institutions. The average debt ratio of those companies – the amount of debt as a percentage of total assets – is 75.8%.

The wind industry fares no better, as seen by the consequence of its wind turbines not being plugged into the grid. The 12.3 billion kilowatts of power wasted last year by windmills amounted to $1.73-billion in lost revenue — nearly double the amount in 2011.

Many solar companies in China are resorting to cutting corners in production to try and make themselves profitable. According to a New York Times report, many producers are turning to cheaper, untested materials. Some solar power generators now say that some of their panels are under-performing or failing prematurely.

To save the renewables industry, and to save face, China’s central planners have changed tack. The state is now switching from subsidizing suppliers to subsidizing demand by mandating local power producers to meet green targets in the domestic market. With a market the size of China’s, and the power of government fiat to force Chinese consumers to buy solar, this industry-on-life-support may yet be resuscitated. If it is, it will be another grim green victory. Chinese power consumers will pay the price in more expensive and less reliable power.
Financial Post

As STT has been saying for some time when something is economically UNSUSTAINABLE it will – inevitably – FAIL.

Even in China – with its lax environmental control (see our post here about China’s rare earth processing plants upon which wind turbine manufacturers around the world depend) and low wages and production costs – fan makers are going belly up.

It is only a matter of time before Suzlon and Vestas join them.

bankruptcy

An inevitable one-way journey.

About stopthesethings

We are a group of citizens concerned about the rapid spread of industrial wind power generation installations across Australia.

Comments

  1. Harry Makris says:

    Money…Money ..Money ….
    ….is so funny….in Big Wind World…..

    http://www.abc.net.au/news/2013-12-19/good-neighbour-payments-on-offer-near-wind-turbines/5166476

    check this out……smacks of old fashioned graft to me….

  2. Sick of these dirty little secrets.
    Why is this not on the world news?
    YES WORLD NEWS we are part of this toxic story.
    GREEN LIES
    WHY keep them ignorant they will buy the BS
    WE are being lied to.
    I am not seeing Green
    I am seeing RED
    Solar batteries in a car clean green energy to run your car on.
    What a joke.
    Light bulbs saving electricity made out of this toxic stuff from CHINA.
    What do they say May God have Mercy on us all.
    Start doing what a song says,

    START SPREADING THE NEWS.

  3. Jackie Rovenksy says:

    It doesn’t matter where you look, this industry is finished. They cannot survive with the truth about the health implications, the financial cost to consumers and Governments and the dangers to the environment – they’ve become a liability.

    Maintenance of existing ones is becoming so expensive it’ll be cheaper to pull them down.

    Currently the only way to help reduce emissions is to assist individuals to help themselves create their own energy, with any extra they produce going into the grid to help reduce the need for large scale production facilities to cater for those days when more is needed elsewhere.

    All new buildings should have to have a component of energy self sufficiency designed into their plans, that includes homes, blocks of flats/units, shopping centres, and industrial buildings both large and small, schools, hospitals – every structure that requires electricity to function.

    Research into other forms of energy production and how to store it should receive funding. There are scientists waiting for the opportunity to undertake or further their efforts in this work but are hindered by the lack of backing for their research.

    All the money wasted on the Wind Industry could have been better spent to find other efficient and cost effective methods to produce and store electricity.

    For Governments to keep subsidising the industry is insane, it’s good money after bad, they are nothing more than a folly of the grandest grossest proportions.

    No more waste, they need to call a moratorium on the installation of any more turbines until it can be proven they are not causing health problems, they are financially capable of standing on their own two feet and they can produce the energy at a consistent useful level to meet their touted production capability. Those that have been given approval should also be stopped before they can cause damage and before they would have been eligible for any Government financial payments.

  4. Look out wind weasel and greentard GOONS it is all coming to bite you all on the bum, and I hope it hurts like hell, couldn’t happen to nicer GOONS.

    Simon will tell you it is all in your mind.

    Happy wind.

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