China’s plan to add up to 35 gigawatts of new solar power capacity by 2015 may be getting off to a slow start, but the nation looks quite happy to fund new plants in other countries to help its struggling solar panel makers. That’s my initial assessment, following reports that state-run giant Aviation Industry Corp of China (AVIC) plans to build up solar power plants with up to 300 megawatts of capacity in Britain.
It’s interesting that AVIC has chosen the U.K. for its solar experiment, since Beijing is pressuring such big state-owned firms to construct new solar plants at home to boost local panel makers and reduce pollution from conventional power sources. But it’s also not a complete surprise that AVIC is making this kind of move, for reasons I’ll explain shortly. The bottom line could be good news for China’s struggling solar panel makers, though I suspect AVIC will also come under pressure to buy some of the solar panels for these new plants from western manufacturers as well.
According to the latest headlines, AVIC recently completed construction of its first solar plant in Britain, with a modest capacity of just 12 megawatts. The plant cost about $22 million and took a year to build, and has successfully linked to the UK’s power grid. Following completion of the project, AVIC has sold the plant to a local operator, Foresight Solar Fund.
With that accomplishment under its belt, AVIC is now undertaking 3 new projects with a total capacity of 25 megawatts, a company spokesman said. If those are successful, its next one will be a bit more ambitious with 50 megawatts of capacity. After that the company could keep building U.K.-based plants with a combined capacity of up to 300 megawatts, which would likely take at least three to five years.
This looks like one of the first cases of a big state-run enterprise building solar plants on a massive scale outside of China. The model isn’t new, and typically sees a third party take the risks of building and financing new solar plants. After their completion, plants are then sold to professional long-term operators. Such speculative plant building has often been funded by solar panel makers themselves, sometimes by setting up funds by themselves or with partners. We saw one such fund take shape just last month in a partnership between Yingli (NYSE: YGE) and a local Chinese financial company.
So, why would AVIC go abroad to build new plants when such construction at home is clearly a high priority for Beijing? I suspect AVIC is probably using the U.K. as a testing ground to gain some experience at plant construction, after which it could bring some of that expertise back home. That certainly seems like a prudent approach, as I’ve previously written that many of the new plants now under construction in China could ultimately end up as white elephants due to poor planning that may leave them unable to function according to their intended design.
This kind of development is typical in China, where big state-run companies often rush to help Beijing fulfill its policy objectives, only to end up creating supply gluts and poorly designed products due to lack of basic commercial considerations. By comparison, AVIC is likely to get some good experience building commercially viable plants in the U.K., and could ultimately use that experience to launch a similar program back in China. We might expect to see other major, more mature state-run firms follow a similar path, which could boost solar power generation both in China and the west, and provide a strong new pipeline of business for all solar panel makers.
Bottom line: AVIC’s new solar building program in the U.K. could be a template for other big Chinese state-run firms to follow, resulting in a new construction boom both in and outside China.
This blog was originally published on Young's China Business Blog and was republished with permission.
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