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Dave Zgodzinski

Dave Zgodzinski

Dave Zgodzinski is the editor of the Green Miner newsletter and thegreenminer.com web site.  The Green Miner is dedicated to searching out valuable investments in…

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The Art of Solar War

The Art of Solar War

Iran’s government may not be manufacturing apocalyptic weapons. It may have purely peaceful uses for the enriched uranium being spun in underground centrifuges. 
But it’s unlikely.

From Sun Tzu’s “Art Of War”…

“To fight and conquer in all your battles is not supreme excellence: supreme excellence consists in breaking the enemy’s resistance without fighting.”

Sun Tzu
Sun Tzu

The US would hope to break the resistance of the Iranian regime without a fight. But that doesn’t look likely either. UN imposed sanctions are squeezing Iran and there is rioting in the streets because of the deteriorating economy and the devaluing Iranian currency. 

But there are Shiite/Sunni wars raging on Iran’s borders in Syria and Iraq. Tossing a nuke on Tel Aviv would not only eliminate the Zionist State, it would establish Iran as the dominant military power in the Middle East. The clerics who run the country appear willing to have Iran’s citizens sacrifice towards that aim.

Benjamin Netanyahu showed a primitive diagram of a bomb to the UN General Assembly to demonstrate how close Iran has come to building a nuke. The message was blunt. Israel is not going to wait till the enemy is fully ready.

Sun Tzu wrote … “Attack him where he is unprepared, appear where you are not expected.”

The rest of the world is busy dealing with deflated economies and high unemployment. This new trouble brewing in the Middle East is a secondary issue for most.  But it’s likely that sooner rather than later another war will be fought close to the veins of petroleum that run from the Persian Gulf. And a higher price for energy could be collateral damage.

Related Article: Panel Up: The Top 6 Commercial Solar Users

In a different kind of conflict, in May of this year the US Department of Commerce imposed tariffs on solar panels manufactured in China.  Chinese solar panel makers are accused of dumping their product on the US market below cost in order to kill the US manufacturing competition. The tariffs of roughly 31% are retroactive to February.

Some Chinese manufacturers will challenge the tariffs.  But with American solar companies hurting and some going bankrupt, it will be a difficult fight to rescind these penalties.

A number of Chinese panel manufacturers were exhibiting at the Solar Power International conference in Orlando last month. I was told by representatives from a few of these companies that they were circumventing the tariffs by doing some of their manufacturing in Taiwan.

There is a loophole in the tariff structure. Chinese manufacturers can produce silicon wafers, ship them to Taiwan to have the wafers made into solar cells, and then ship those cells back to China to have them finished into panels. This system circumvents the tariffs as they now stand.

Sun Tsu wrote “All warfare is based on deception”

But there is a move in Congress to close these loopholes. Worse yet for the Chinese solar manufacturers is that they are now facing similar action from Europe – a much bigger market for solar modules than the US. The European Commission is considering whether to impose tariffs on solar panels imported from China. Europe could impose higher tariffs than the US with fewer loopholes.

Some Chinese companies are taking preliminary steps to partner with European companies to avoid future tariffs.

It may be that Chinese solar panel manufacturers have been predatory. Their goal may have been to annihilate the competition.  But now after price wars and trade wars these companies are just trying to hang on and survive. They can continue to produce panels for the local Chinese market and for other countries that don’t have local panel manufacturing businesses. But there is still massive overcapacity and most companies will have to cut production and it’s likely some big companies will go out of business as has already happened in Europe and the US.

The stocks of Chinese solar manufacturers that trade in the US have been battered by the tariffs on top of the cutthroat pricing competition that has every solar panel manufacturer producing at a loss.

It’s important to look at the balance sheets before buying any of these stocks. Assuming the numbers are reasonably accurate, there are some companies that aren’t too badly leveraged and are thus better able to weather this storm. The prices of these stocks are down huge. For those who are inclined to bottom fish, this is the time to toss in a line.

Trina Solar Ltd.

Solar Cells
Modules Made By Trina Solar

Trina Solar has been in business since 1997. The company is fully integrated - it produces silicone ingots, wafers, cells and modules. Trina likes to pride itself on technical innovation. The company holds almost 350 patents related to solar manufacturing. Solar panel manufacturing is a game of incremental gains. Small edges in efficiency and price can be the difference between winners and losers. Trina is determined to succeed in the technological battle.

As of June 30, Trina had about $2 billion US in current assets, and total liabilities of $2.1 billion. So the money in the bank, as it were, came close to all outstanding debts. That’s a solid position, but those numbers have certainly deteriorated in the months since because the company is losing money like all its competitors. 

Trina is a big manufacturer. The company expected to ship between 450 and 480 Megawatts of solar panels in the quarter that just ended . Trina is busy developing the Chinese market – making deals with municipalities to build utility scale solar power plants.

Trina’s stock closed in New York at $4.62 on Friday. In April of last year it traded at about $30.

Related Article: What the US can Learn from China's Solar Industry

Hanwha Solar One

Hanwha Solar One is a somewhat different company – a Chinese manufacturer that is partially owned by a large Korean conglomerate – Hanwha Group.  Hanwha Solar is not one of the biggest players in the solar module market, but they are growing.  The company shipped over 230 Megawatts of solar panels in the second quarter that ended June 30. Sales were made in 25 different countries.

Hanwha Solar One 2 Year Chart
Hanwha Solar One 2 Year Chart: Source - Bigcharts.com

Hanwha Solar’s panel sales increased 12% over the same quarter last year, though it is still losing money on these sales.

Hanwha Solar One announced recently that its parent Hanwha Group has purchased the bankrupt German solar manufacturer – Q-cells. This appears to be a pre-emptive move to avoid any European tariffs by basing some manufacturing there.


It also means that solar cells manufactured in Q-cells plants can be used in solar panels manufactured by Hanwha in China and shipped to the US tariff free (assuming the tariff rules aren’t changed) .

The company is losing money like the rest, but the balance sheet is relatively strong. As of June 30, the company had about $200 million US in Working Capital versus about $390 million in long term debt. A fairly healthy picture. The stock closed at $1.06 on Friday.

Jinko Solar Holding Co Ltd

Jinko Solar is a fully integrated manufacturer. The company likes to point out that it has highly automated manufacturing facilities with an emphasis on precise quality control.

In the quarter ending June 30, Jinko Solar shipped 302 Megawatts worth of solar modules, wafers and cells. This was a 45% increase over the same quarter of 2011. However the company lost $48 million US in the process.

Jinko Solar has been a big seller to Western Europe, but has been trying to diversify away from that market. As an example, the company just announced a deal to partner with a Chinese government agency to build Kenya’s largest solar project – a 50 Megawatt solar farm.

As of June 30, Jinko Solar had a Working Capital deficit of $175 million – not a good sign. However Jinko has a relatively low level of long term debt - about$123 million. So the company could potentially find a means to work through the current malaise.

Last Thursday, Jinko’s stock had a quick move up of about 20%. The company released a statement to say only that it doesn’t comment on stock moves and the stock fell back on Friday, to close at $3.97

Sun Tsu wrote …

“It is only one who is thoroughly acquainted with the evils of war that can thoroughly understand the profitable way of carrying it on”

The solar industry is shaking out around the world. Not all Chinese solar module manufacturers will survive. But some will.  It would be best to use a shotgun approach with these stocks, buying a bit of a few different companies with the hope that one or two winners will more than make up for any losers. The winners could eventually win big. The losers may lose everything.

By. Dave Zgodzinski

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Leave a comment
  • Minwoo Kim on October 10 2012 said:
    The World Goes Solar. Japan's FiT in July is among the highest in the world. It's clear that Japan's FiT will shake the solar market. Now, US has the same options. New solutions will be showed in Japan. This is it!
    As you know, earthquake in Japan is happening frequently. Floating solar panels installation is one of the best solutions for power crisis in Japan. So you have to reduce vibration to install Floating solar panels. Because, it makes many kinds of problems! Vibrations caused by wind, waves and external forces. New Floating Body Stabilizer for Floating solar panels installation has been created in South Korea. The Floating Body Stabilizers generate drag force immediately when Floating solar panels are being rolled and pitched on the water. Recently, these Floating Body Stabilizers have been used to reduce vibration of Floating Solar Panels in South Korea. You can see New Floating Body Stabilizer videos in YouTube. http://youtu.be/O2oys_YHhCc, http://www.youtube.com/watch?v=nA_xFp5ktbU&feature=youtu.be.
  • carlos rendo on October 22 2012 said:
    Fantastic article- kudos! Only critique is on Chinese solar panel manufactoring's "cutthroat pricing competition." It's a bit of a misnomer. Cutthroat competition comes from pricing below the floor so your competition goes under and you can jack up prices though the rooof. Your competitor would rather cutt his wrists than sell prices that low- but once out of business prices rise again. It's unfair competition. The Chinese are just using their naturally low cost mfg to gain advantage but keep them there. I personally think the tariffs in this case set us back as a nation. Though US solar manufacturers are hurt, installers, consumers and our environment benefit. The Chinese manufacturers should probably get into the financing aspects as a package, there-by off-seting it's lower costs into financing breaks.
    Thanks again for an awesome artice!!

Leave a comment

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