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Europe’s Biggest Solar Projects Threatened by China Deal

Photographer: Krisztian Bocsi/Bloomberg

An automated machine works on monocrystalline cells, used in the manufacture of solar panels, during the process at Solarworld AG's plant in Freiberg, Germany. Close

An automated machine works on monocrystalline cells, used in the manufacture of solar... Read More

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Photographer: Krisztian Bocsi/Bloomberg

An automated machine works on monocrystalline cells, used in the manufacture of solar panels, during the process at Solarworld AG's plant in Freiberg, Germany.

Europe’s decision to curb imports of Chinese solar panels threatens to limit the biggest projects using the technology in the 28-nation bloc while having little impact on the manufacturers accused of dumping their products.

The agreement to set a minimum price of 56 euro cents ($0.74) a watt for panels until the end of 2015, reached this weekend, will hurt developers of ground-mounted plants and reduce installations, said Bloomberg New Energy Finance, IHS Inc. (IHS) and the U.K. Solar Trade Association. Developers were already buying Chinese panels cheaper, they said.

The EU Commission set preliminary tariffs on the 11 billion euros of imports on June 4, allowing time for a deal in its largest commercial dispute of this kind. The agreement will keep higher antidumping duties from starting on Aug. 6, while preventing an escalation in the trade spat before a definitive decision on the case in December.

“The decision will clearly further reduce large ground installations,” said Stefan de Haan, a solar analyst for IHS Inc. in Munich. The floor proposed is “too high for ground projects,” which need to limit panel prices to about 50 cents a watt, he said. IHS estimates developers were buying them for 45 cents before the duties were announced.

Market Share

Chinese companies such as Yingli Green Energy Holding Co. (YGE), the biggest panel maker, have grabbed about 80 percent of the European solar panel market. The EU aims to reduce this share, protecting local makers from alleged dumping practices, by putting a floor on panel prices for as much as 7 gigawatts in imports from China.

Competition from Chinese companies drove European manufacturers such as Q-Cells SE and Conergy AG (CGYK) into bankruptcy since the beginning of 2011.

“The clear losers here are the European players and the winners will be the Chinese because they now know what they’re dealing with and potentially the Taiwanese,” Jeff Osborne, an analyst at Stifel Nicolaus & Co. in New York, said yesterday in an interview. “In Europe, the bulk of labor exposed is on the installation side, so they benefit from cheaper panels.”

Shares of Chinese solar panel makers initially rallied in New York trading yesterday. Yingli rose as much as 8.2 percent and closed up 1 percent. JinkoSolar Holding (JKS) Co. Ltd. closed up 7.4 percent. In Europe, Solarworld AG (SWV) fell 2.3 percent today after a 5.5 percent increase yesterday.

Taiwan Benefits

Taiwanese manufacturers such as Gintech Energy Corp. (3514) and Motech Industries Inc. (6244) stand to gain market share from Chinese companies, said Pavel Molchanov, analyst for Raymond James & Co. in Houston. They won’t be subject to the restrictions and will likely use the minimum price “to their new advantage to grab market share in Europe,” Molchanov said in a note.

“Chinese firms have already been bracing themselves for lower sales to Europe because the European market size is shrinking, and this deal will reduce their share as well,” Molchanov said. “The inevitable result will be to increase their dependence on sales into the lower-price, lower-margin Chinese domestic market.”

The pledged price will allow Chinese companies to continue exports to the EU and “keep reasonable market share,” according to a statement on the website of the China New Energy Chamber of Commerce, which advises both the government and companies.

European Contraction

This is because the European market for solar panels is forecast to drop significantly from the 16 gigawatts of capacity installed last year, or about 55 percent of the global market. Nations led by Germany and Italy, which once were among the biggest markets for the technology, are reining in subsidies for renewable energy.

New projects in 2013 will add about 11.6 gigawatts, according to IHS. BNEF forecasts an average of 9.5 gigawatts this year, of which only 12 percent to 16 percent will be large-scale, and less in 2014.

The 7-gigawatt limit doesn’t leave much room for higher priced imports from other countries, Jenny Chase, head of solar analysis at BNEF, said by e-mail. The deal will give “a little” benefit to a few large makers outside China, particularly Asian ones and Arizona-based First Solar Inc. (FSLR), she said. The U.S. company makes panels using thin-film technology, which is not affected by the trade case.

Stability Forecast

The chief executive of Solairedirect SA, France’s second-biggest solar developer after EDF SA (EDF), agrees that the deal will bring much-welcomed stability to the market while still allowing the generation of competitive solar power in the sunnier areas of Europe.

“Having an agreement instead of an open trade war is considerably better in terms of business stability,” Thierry Lepercq said by e-mail. “Having a reference price holding out for several years, while hurting the principle of free markets, will generate much needed stability over time.”

The commission is expected to approve the deal on Aug. 2 and make it effective by Aug. 5. Member states will vote to make the deal permanent or cancel it by early December.

The move away from punitive tariffs was welcomed by Solar Trade Association Chief Executive Paul Barwell even if he said the proposals could hurt the U.K. industry.

“The deal will ultimately achieve little,” Barwell said. “German manufacturers are unlikely to be able to compete long-term with the Asian giants,” which dominate the panel manufacturing industry once controlled by German companies.

China’s Outlook

The largest Chinese companies might actually benefit by moving away from a declining low-margin market for large projects and into the higher-margin rooftop market, according to IHS’s De Haan. This will increase competition for local manufacturers such as Solarworld, which had been focusing on those high-value segments.

Solarworld, the EU’s largest panel manufacturer, led the group of local makers that asked the commission to consider antisubsidy and antidumping duties for Chinese imports. The case, started last September, targets silicon-based photovoltaic panels and the cells and wafers used to make them.

The group, named EU ProSun, vowed to take legal action against the deal. It said a price undertaking is permitted only if the minimum price removes the injury caused by dumping, which is not the case for the proposed level.

For Chinese makers, the agreement is essentially “a guarantee to sell at dumped prices” and a guarantee for China to keep about 70 percent of the EU market, according to Milan Nitzschke, the group’s spokesman.

In contrast, a rival group known as the Alliance for Affordable Solar, which represents solar developers, said the minimum price is at least 20 percent higher than it was before the duties started and will hurt both large-scale and commercial installations.

For Vishal Shah, a Deutsche Bank AG analyst, the deal is positive for Chinese solar companies, particularly given they are unlikely to sell more than 7 gigawatts in Europe this year.

“With EU expected to become an even smaller percentage of overall global demand, we view this agreement as essentially insignificant cap on Chinese exports into the EU,” he said in a research note.

To contact the reporter on this story: Marc Roca in London at mroca6@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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