Since August 2011, the photovoltaic (PV) industry has experienced a surge in the construction of solar power plants. This wave has attracted not only traditional power companies but also upstream manufacturers who are deeply involved, often at a loss, and even some industrial players with no prior experience in the PV sector. To them, the potential return on investment for solar power plant development is around 10%, significantly higher than the profit margins typically seen in the equipment manufacturing sector. This makes it an attractive opportunity, leading to a rush of participants entering the market.
However, when reviewing the financial statements of these companies, it becomes clear that the promised 10% return is rarely realized. Instead, high debt-to-asset ratios have become a common feature, turning solar power plant development into a game of capital. Analysts warn that despite the “12th Five-Year Plan†target of 35 GW of installed capacity, industry bottlenecks remain unresolved. Companies must reassess their strategies to avoid dragging the entire PV sector into further difficulties.
The scale of investment planning has far exceeded expectations. A representative from a mid-sized domestic PV company told a reporter from China Securities Journal that their entry into the market was late, and prime resources had already been claimed by early entrants. As a result, they were forced to build power plants in remote areas like Zhongwei City in Ningxia. In June, the company signed a 300 MW power plant agreement with the local government.
Despite this, the representative remained optimistic, stating that although they were late, they could still catch up with the growing trend. Indeed, since 2011, the National Development and Reform Commission introduced feed-in tariffs for solar power, shifting investor focus from manufacturing to power plant development. According to Solarzoom, a Chinese PV market research firm, announced projects now exceed 130 GW—more than three times 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 boom come from diverse backgrounds. The first wave includes major power groups, as well as companies like China National Nuclear Power and China Merchants New Energy. The second wave consists of PV manufacturers expanding into power plant development. Companies like Hairun Solar have signed nearly 500 MW of projects, aiming for 1 GW by 2015. Even non-PV companies, such as Zhongtian Technology and Songliao Automobile, have entered the market, signaling the broad appeal of the sector.
Yet, the expected returns are still in the "painting cake" stage. While theoretical internal rates of return can reach 8%-10%, achieving this requires optimal conditions—superior sunlight, easy grid connection, and long-term stability. These factors are difficult to meet, making the actual returns uncertain. Analysts note that many companies are more interested in quickly selling projects rather than holding them long-term, using the BT model to transfer ownership and generate revenue.
According to BOCI Securities, only about 25% of completed projects have been successfully sold. Many projects remain unsold, creating uncertainty. Even when sales occur, the process is complicated. For example, Zhongli Technology transferred over 400 MW of projects to China Merchants New Energy, while Hairun Solar faces delays in project approvals.
The current situation highlights a shift toward a "game for the rich." Building a 100 MW plant requires at least 10 billion yuan, with banks demanding high collateral. Many PV companies are struggling financially, with rising debt levels and declining profitability. Some are exiting the market or seeking partnerships to reduce risk.
As the sector evolves, asset securitization has emerged as a potential solution. By packaging power plant assets and selling them to investors, companies can lower financing costs and spread risks. However, experts caution that this model is still untested in China, with many uncertainties related to cash flow projections and operational challenges.
In conclusion, while the solar power plant boom presents opportunities, it also brings significant risks. Companies must navigate complex financial landscapes, regulatory hurdles, and market volatility. For now, selling power plants remains the priority, as the long-term success of this industry depends on sustainable growth and strategic planning.
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