The China Development Bank (CDB), largely considered to be the main engine behind the Chinese government's economic development policies, has issued solar project developer Sky Solar Holdings a loan for 10 billion RMB (US$1.6 billion). The agreement, which runs until 2016, is being seen as a way for China to solve its problem of PV solar panel overcapacity while simultaneously ushering downstream development of its solar interests.

In a press release issued by Sky Solar, CEO Amy Zhang expressed gratitude for the CDB’s decision in light of “complex feelings regarding the PV industry.” Zhang added, “Signing this agreement symbolizes the beginning of China’s state-owned financial institutions offering credit facilities to downstream independent PV developers, investors and IPPs.”

In addition to providing Sky Solar with financial support for project development and construction, CDB will also make available “a full array of financial products and services” including bonds, securities, equity, debts, loans, and leasing. It is thought that the CDB’s bankrolling of downstream efforts will be a viable solution to the present overcapacity glut threatening China’s solar market.

“Investing in the upstream only creates production, whilst investing in the downstream increases demand for production,” Zhang said. She added that supporting downstream developers and operators will help establish “new international and domestic markets for PV manufacturers currently facing huge pressure due to the current oversupply situation.”

Raj Prabhu, Managing Partner with Mercom Capital Group, calls the action “a positive sign for the Chinese solar industry” and indicates it could have a beneficial impact on its solar overcapacity problem.

“We’ve been seeing a lot of announcements about CDB and other Chinese state-owned banks providing loans and credit facilities to solar manufacturers,” Prabhu said. “At Mercom, we’ve tracked almost US$49 billion between 2010 and last quarter, almost all of it purely toward manufacturing. Now for the first time, we’re seeing credit being advanced to solar project developers, for the creation of demand. I’m interested in seeing if this is the beginning of a trend.”

According to Prabhu, increased support of solar project developments is one of two viable solutions the Chinese government faces with respect to the challenge of oversupply. Fostering increased consumption is one. The other is rationalization of oversupply, which could come with a decidedly undesirable outcome. “Overcapacity is a big problem,” says Prabhu, “but an even bigger problem for the Chinese government are mass layoffs and labor unrest. I think this might be a better way for them to go, by creating demand, because they can only shut down so many manufacturing plants.”

Prabhu also adds that the success of China’s bid to channel money into downstream development will be reliant on partnering with viable project developers capable of delivering solar power generation in the long term. “If they can do that, and if they can back quality companies, then it’s a positive thing.”

In June, it was announced that Sky Solar would be undertaking a three-year construction plan to build numerous PV power plants throughout Chile, with the aim of reaching a sum total of 300 megawatts of capacity. Funded by the CDB, the Chilean project is predicted to cost US$900 million. Earlier this month, Sky Solar officially broke ground on the first phase of a planned 800 megawatt PV project in China’s Xinjiang Province. In the Qinghai Province, construction of a 50 megawatt PV power plant was also launched, which will cost an estimated US$93 million and will see completion in early 2013. Cost and a completion timeframe for the Xinjiang Province project was not disclosed.

Lead image: China money via Shutterstock