It was another busy week in solar, and we may be a few steps closer to the much-needed consolidation of Chinese solar manufacturers. The industry has long struggled with oversupply and far too many manufacturers, so the failure of a few Chinese companies would be a help for everyone else. Here’s more on that and what else happened this week in solar.
Solar lobby in action
The Solar Energy Industries Association offered “extensive insight and comments” to the House Ways and Means Committee looking into tax reform. The group pushed for the continuation of the solar investment tax credit, Modified Accelerated Cost Recovery System depreciation (which accelerated depreciation and pushes the tax burden into later years), and, maybe most importantly, long-term certainty for the industry.
One of the great challenges of investing in solar today is the moving target governments give around the world. In Europe, feed-in tariffs have been lowered retroactively, changing the economics after an installation is complete, and in the U.S. tax subsidies are often patched together year by year.
I think the industry should push for the elimination of subsidies over the next decade, but do so in an orderly decline, as opposed to a cliff that could bring solar investments to a halt. Time will tell what Congress proposes to do.
The fall of LDK Solar?
The consolidation or bankruptcy of solar manufacturers in China is going to be complicated; we now know that for sure. Suntech Power defaulted on loans last month, Chinese banks sent a subsidiary into bankruptcy, and so far the company says it isn’t bankrupt. This week, LDK Solar Co., Ltd (ADR) (NYSE:LDK) “partially defaulted” on $23.8 million in bonds due, and the company and investors are acting as if it’s no big deal. Management even announced a 63 MW supply agreement after the default.
Then on Thursday, the company announced fourth-quarter 2012 earnings and said it lost $517.0 million and generated a negative 60.5% gross margin. How can you expect to pay back $2.8 billion of debt with that kind of income statement?
If LDK Solar Co., Ltd (ADR) (NYSE:LDK) were a U.S. company, I would be covering a bankruptcy right now. Defaulting on loans will lead other debtors to call their debt, and if there’s no money left to pay them, the company ends up in bankruptcy. China is obviously playing by different rules, and while I think LDK Solar is near the end, it may take more time than it should.
News and notes
Here are some other items of interest for investors from around the industry.