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Suntech: Factory Closure and a Train Wreck in the Making

Suntech Power, feeling the sting of the tariff the U.S. government imposed on silicon solar cells from China, said Tuesday it will shutter its Arizona factory on April 3 and let go of 43 employees.

High production costs, along with the tariffs and an imbalance of supply and demand in the global solar market, are to blame, the company said.                                                  

The company opened a panel assembly plant in Arizona in 2010 during a time of optimism about bringing solar manufacturing back to the country and the emergence of the United States as the next big market.   

The decision is not surprising considering that the company has been dealing with internal drama and external market forces that have caused dozens of solar companies around the world to declare bankruptcy over the past two years. Still, the factory closure symbolizes a dashed hope for luring investments from abroad to complement domestic efforts to build a booming solar manufacturing industry.

The Chinese company only opened the factory in October 2010 that had a production capacity to produce 30 megawatts of solar panels per year. Its original plan was to expand to 120 megawatts at some point. Suntech did scale up to 45 megawatts before cutting it back to 15 megawatts. Last November, it announced it would cut two of the three production shifts and cut the workforce there by about 50.

Suntech is one of the largest solar cell and panel makers in the world, and it has risen to the top by building large factories in China to gain scale and reduce costs. Along with other Chinese manufacturers, Suntech has benefited from strong support from the Chinese government and state-run banks. The U.S. doesn't offer nearly the same type of backing. But through the 2009 stimulus package, the U.S. government was doling out billions in grants, loans and tax benefits to help finance solar technology manufacturing and installation in order to create jobs. Many state governments offered their own incentive packages to attract solar manufacturers looking for new factory sites.

Product costs were higher, naturally, at the Arizona factory from the start. The difference was 10-15 cents per watt between the factory and Suntech's manufacturing home base in Wuxi, China, a company executive said in December 2010. The company was identifying ways to narrow that gap.

Starting in early 2011, however, signs that the global solar market was facing a glut of solar panels began to show. First Solar, an industry bellwether, reported flat sales and lower earnings for the first quarter of 2011. Other manufacturers followed with poor earnings or escalating losses. Long-time solar companies such as Q-Cells in Germany filed for bankruptcy. The U.S. government's efforts to promote solar manufacturing produced a high-profile failure in Solyndra­, which was trying to scale up its manufacturing at a time when solar panel prices were falling quickly. Companies with ambitious plans to enter or expand its reach in the solar market, such as GE, shelved their plans.

Competition intensified and grumblings about the political and financial support the Chinese companies were receiving from their government grew louder and led to trade complaints filed in the United States and later Europe. Last year, the U.S. government imposed tariffs on silicon solar cells made in China after a yearlong investigation. Suntech faces a 35.97 percent tariff for bringing solar cells from China and assembling them into panels in Arizona. Suntech could use cells made elsewhere to circumvent the tariff, but Suntech has maintained that the tariff makes it difficult for it to compete because it wants to use the more technologically advanced cells from its factories in China.

But the tariff is only part of its troubles that have caused the company to crumble like a train wreck. Last year, its own investigation revealed that a fund it controlled to finance solar power generation projects in Europe, called Global Solar Fund, used faked German bonds to guarantee some of its project funding. Around the same time, the fund and its management came under legal scrutiny in Italy when a criminal investigation found evidence that the fund was building projects illegally to take advantage of a government subsidy for producing solar electricity.

Suntech last week announced a settlement with Global Solar Fund.

Suntech faced the delisting of its shares on the New York Stock Exchange last year when the price fell below the required minimum of $1 per share. It later regained compliance when the price rose above $1. The company has a $541 million debt payment due on March 15, but it recently managed to get most of its note holders to agree to give the company more time.

Last year, the company brought in a new CEO to replace its founder, Zhengrong Shi, who recently lost his post as chairman.

The company announced preliminary financial results last December that showed declining shipment and revenues for the third quarter of 2012. It has yet to post its earnings for that quarter. 

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