When a wave of cheap Chinese-made solar panels flooded the market a few years ago, it nearly laid waste to America’s solar manufacturing industry. But recently, one California firm, Solaria Corp., has gone in the opposite direction, rolling out its technology across China.
In China’s arid northwest, in the remote provinces of Qinghai and Inner Mongolia, acres of Solaria-made panels crank out up to 3.5 megawatts of power, enough for nearly 8,000 homes. Soon, Chinese factories will be churning out solar panels that license the Fremont firm’s technology.
“In the solar panel industry now, you have risks going into China,” said Suvi Sharma, Solaria’s president. “But your risks are greater if you are not going to China, because you are going to compete with the Chinese if you’re not working with them.”
Solaria’s success, amid an ongoing trade spat between the U.S. and Beijing, illustrates the mercurial nature of the global solar marketplace. About a decade ago, state-controlled banks in China shoveled cheap financing to local solar-panel manufacturers, who quickly stepped up capacity. Soon there was a global supply glut, and solar module prices plunged to $0.67 per watt today from $3.75 in 2008.
Some 22 U.S. firms, including 11 in California, were forced out of business in the past two years as a result of the price drop, according to Greentech Media. The Department of Commerce, alleging that Chinese firms were benefiting from unfair government subsidies, began imposing tariffs on Chinese-made panels in 2011. Beijing rejected the claims and responded with its own tariffs on U.S. solar technology.
By that time, Chinese panel makers already had a 60 percent share of the global market, according to market research firm NPD Solarbuzz.
Initially, Solaria was one of the firms caught in the crossfire. The drop in panel prices ate into the company’s margins. After competitor Solyndra, also based in Fremont, collapsed in 2011, Solaria lost out on a $30 million government-backed loan.
“The tsunami of cheap Chinese panels almost drowned us as well,” Sharma said. The company was forced to downsize its operations and cut back on its investments. But shifts in the rapidly evolving solar business offered a ray of hope. One of the first things to change was the sudden rollout of solar power inside China itself. The expansion of renewable energy is usually the result of government subsidies because it is still cheaper to generate power from conventional fuels, such as coal and natural gas, than from solar or wind. Desperate to combat its lung-clogging levels of pollution, Beijing is now investing heavily in renewable energy, making it the center of global demand for solar technology.
“This year China will become the largest market for solar in the world,” Sharma said, adding, “It used be to Europe and U.S. That’s a huge change in solar market over the past few years.”
By the end of 2013, China’s on-grid solar capacity reached 10 gigawatts, a 200 percent year-over-year increase, enough to power 2.2 million households. China’s National Energy Administration has set the ambitious goal of adding 10 gigawatts of capacity each year by reviving solar farms in remote regions such as Qinghai province.
Solaria’s resurgence has its roots in the trade spat between the U.S. and China. As cheap Chinese panels began to flood the market, Sharma was under pressure to lower his own costs. In 2010, he began to search for glass suppliers in China. A layer of flat glass, attached at either end of the panel, can improve photovoltaic efficiency and protect panels from harsh weather. At the Solar Expo in Long Beach that year, Sharma met an executive from a glass supplier from Shanghai called Sunwise.
A unit of Shanghai Mega Trust Investment, a private equity firm, Sunwise knew that Beijing wanted to build up solar capacity in its northwestern provinces but was having trouble: Many of the solar panels deployed there couldn’t handle the desertlike environment and lashing winds. The state-owned utility was looking for products that could better withstand the climate.
Sunwise thought Solaria’s low concentrated photovoltaic technology might work. Tong Chang, who heads Solaria’s Shanghai office, spent weeks visiting solar farms in Qinghai and Inner Mongolia. “The problem lies in tracking systems that orient solar panels around the sun. A strong wind could disturb the sun tracker, with panels receiving little direct sunlight,” Chang said. “Instead, Solaria’s LCPV panels convert indirect sunlight into power in less ideal conditions.”
In 2011, Sunwise pumped $30 million dollars into Solaria. By 2012, Solaria had built three solar projects in China’s Northwest, including one for CECEP Solar, China’s largest solar investor. The projects gave Solaria a toehold in the Chinese market, but only generated revenue of a few million dollars, Sharma said.
“At that time, China wasn’t much of a market for solar,” Sharma said, “but Sunwise saw it growing and saw a chance to gain market share.”
The solar farms weren’t enough to turn Solaria’s business around. For that, it was going to need to need to produce panels in China directly. Oddly, the same trade dispute that was dividing China and the U.S. provided an opening for Solaria. This past September, China began retaliating against U.S. tariffs by slapping duties on U.S.-made polysilicon imports – a key ingredient in solar panels. As a result, manufacturing costs soared for many Chinese panel makers. Solaria’s technology, however, uses significantly less silicon in making its panels. It cuts the standard silicon solar cell into thin slices and covers them with optical glass. That can slash manufacturing costs by as much as 50 percent.
With the help of Sunwise, Solaria is now licensing its technology to some of China’s largest panel manufacturers. “Our technology takes those cheap Chinese panels and makes them even cheaper,” Sharma said.
Lately, the global oversupply of panels has come back to haunt many Chinese producers. The world’s biggest panel producer, Suntech Power Holdings Co. Ltd., was forced into insolvency last year, followed by an array of factories closing in eastern China.
“What the whole industry has realized is that we (Chinese panel makers) are not going to flood the market with low-quality panels,” said Sun Hao of CECEP Solar, a Wuxi, China-based company that has done projects with Solaria. “In order to survive and strive, we are looking for technical innovation to save cost and improve efficiency.”
Sharma said Solaria’s revenue from its Chinese operations has doubled every year, a trend he expects to continue as China expands its solar power generation. Privately owned Solaria does not disclose its financials, but Sharma said the company’s total revenue tops $10 million annually.
In recent months, Beijing has also been trying to winnow the herd of its solar companies, realizing that overcapacity makes it difficult for anyone to turn a profit. The Ministry of Commerce has set forth new regulations that require Chinese factories to meet a minimum efficiency rate on solar modules. Another tentative proposal from the State Council requires large panel makers to invest at least $2 million in research and development annually.
Beijing has powerful leverage in regulating the industry. “This is a government-oriented market,” explained Andy Liu, vice president of Shanghai Mega Trust Investment.
That’s where the ties Solaria was able to establish with large, state-owned utilities have proved useful. “State-owned enterprises in China often receive a lot of benefits, including grants, loans and regulatory favors,” said Timothy Brighthill, a lawyer representing U.S companies in the solar-panel trade case. “It definitely affects the fairness of competition.”
Sharma said that working with China’s state-owned enterprises is the only way to expand, since they can access a network of dealmakers and connections. “They are very powerful in terms of getting things done quickly. Many of them are willing to look strategically at opportunities,” Sharma recalled of working with state-owned utilities. “At the same time, they are not transparent at all. They like to keep everything behind the door.”
Meng Meng is a graduate student at the University of Southern California’s Annenberg School of Journalism.