GCL Solar deal with Wells-Fargo

GCL Solar Energy signed a deal in November with Wells Fargo, which will provide more than $100 million of tax equity to GCL-sponsored projects by the end of 2011 – which Lux Research estimates is equivalent to roughly 40 to 50MW of new installations. The following is Lux Research’s analysis of this deal.

(December 14, 2010) — In a major coup, GCL Solar Energy signed a deal in November with Wells Fargo, which will provide more than $100 million of tax equity to GCL-sponsored projects by the end of 2011 – which Lux Research estimates is equivalent to roughly 40 to 50MW of new installations. The following is Lux Research’s analysis of this deal.

A quickly emerging Chinese solar company, GCL Solar Energy is a subsidiary of GCL Poly Energy Holdings, which produces polysilicon ingots and wafers. The firm’s latest development is important in a number of respects. First, the transaction breaks the mold cast by Yingli, Trina, and other integrated Chinese manufacturers by putting GCL into the project-development space. These other companies are integrated from ingot to module, and they hesitate to enter the U.S. project space for fear of competing with their customers. Further, one firm that took the leap — Suntech Power through its subsidiary Gemini Solar — failed dramatically due to its poor understanding of the U.S. regulatory environment.

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Secondly, GCL’s move effectively duplicates the value chain model established by MEMC’s acquisition of SunEdison, giving GCL presence in the two parts of the value chain with the most pricing leverage, poly to wafer and project development. This enables the company to subjugate device manufacturers, especially those without access to their own polysilicon or end markets, into low-margin tolling arrangements.

Lastly, it puts Chinese project developers directly in competition with U.S.-owned project developers for limited tax equity financing. This is especially critical at this juncture, given the possibility that the U.S. ITC grant will expire at the end of 2010 — and the market is moving into “zero sum game” territory, where any tax equity agreement subtracts from the appetitive available to keep other project developers active.

Those watching the U.S. solar market closely should prepare for protectionist cries against Chinese companies, magnified by the fact that GCL Solar is partially (and explicitly) owned by the China Investment Corporation, China’s sovereign wealth fund (see the December 10, 2009 LRSJ). Though this move solidifies GCL as a leader in the solar space — and it could do quite well for itself in the U.S. in 2011 — Lux Research is concerned about the potential for political fallout as the strength of China’s energy policies take advantage of the paucity of similar policies in the U.S.

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