Since August 2011, the photovoltaic industry has experienced a surge in the development of solar power plants. Beyond traditional energy companies, many upstream manufacturers have also entered the sector, often at a loss, and even some industrial players with no prior experience in photovoltaics have joined the rush. To these investors, the projected return on investment for photovoltaic power plants is around 10%, which is significantly higher than the profit margins typically seen in the equipment manufacturing sector. This attractive return has created a "golden opportunity" for the industry, drawing in a flood of participants.
However, when reviewing the latest financial statements of these companies, it becomes clear that the promised 10% return is rarely realized. Instead, high debt-to-asset ratios are becoming more common, and photovoltaic power plant development has turned into a game of capital. Analysts point out that despite the “Twelfth Five-Year Plan†target of installing 35 GW of solar capacity, industry bottlenecks remain unavoidable. Companies must reassess their strategies to avoid dragging the photovoltaic sector into another cycle of instability.
The scale of investment planning has far exceeded expectations. A representative from a mid-sized Chinese photovoltaic company told a reporter from China Securities Journal, “Our timing was late, and the best resources were already taken.†The context is the fierce competition in solar power station development under favorable policies. Early entrants had already secured prime locations in western regions two years ago, while his company, as a latecomer, had to build projects on the edge of the desert in Zhongwei, Ningxia. In June, the company signed a 300MW project agreement with the local government.
Despite the challenges, he remained optimistic: “Although we were late, we can still catch up with the big players, as power station development is currently the blue ocean of the photovoltaic industry.†Indeed, since August 2011, the National Development and Reform Commission introduced feed-in tariffs for solar power, shifting capital focus from manufacturing to downstream power generation.
According to Solarzoom, a leading Chinese photovoltaic market research firm, the announced and ongoing projects have reached 130 GW—far exceeding the national target of 35 GW by 2015. At an average cost of 7.5 yuan per watt, trillions of yuan will be invested in the next few years. Participants in this wave come from diverse backgrounds, including major power groups, nuclear energy firms, aerospace companies, and even non-traditional players like lithium battery manufacturers and former auto parts businesses.
The second wave includes photovoltaic manufacturers expanding into power plant development. Many listed companies in the A-share market have entered this space in the past two years. Among them, Hairun Solar stands out, with nearly 500 MW of projects signed and a goal of reaching 1 GW by 2015. Even smaller players are entering the field, such as Zhongtian Technology, which plans to invest 200 million yuan in a Jiangsu project, and Songliao Automobile, aiming to raise 2.3 billion yuan for solar power.
Analysts warn that while the expected returns seem high, many projects face real-world challenges. The internal rate of return (IRR) of 8%-10% assumes stable performance over 25 years, but current conditions make this difficult. Many projects are not yet connected to the grid or sold, and the success rate of selling power stations is low. According to Solarzoom, only about 25% of the nearly 4,000 MW of projects completed in 2011-2012 have been successfully sold.
As a result, the industry is turning into a game for well-capitalized players. Building a 100 MW plant requires at least 10 billion yuan, with most financing coming from banks. However, due to the sector’s instability, banks are cautious, requiring developers to pledge substantial assets. This has led to rising debt levels, with companies like Tuoxin Energy and Hairun Solar experiencing sharp increases in short-term loans and debt ratios.
Some companies are now exiting the market or seeking partnerships. For example, Tuo Xin Neng is selling part of its stake in a joint venture, citing risks in financing and future revenue. Others, like Hairun Solar, are partnering with large capital players like Shunfeng Optoelectronics to finance large-scale projects. Meanwhile, asset securitization is emerging as a potential solution, though it remains untested in China.
In summary, the photovoltaic power plant boom has brought both opportunities and challenges. While the industry promises high returns, the reality is complex, with many uncertainties. As the sector evolves, only those with strong financial backing and strategic vision are likely to succeed.
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