China's Green Bubble: Just One of Many

This article is cross-posted and adapted from Al Fin Energy

China has achieved a great success in building up a gigantic productive capacity of wind turbines and photovoltaic panels. But what will China do now, with that success?

[China] now has the capacity to generate 6.2 gigawatts of solar power and 68.3 gigawatts of wind... the U.S. has 5.7 gigawatts of installed solar capacity and 51.6 gigawatts of wind power... _BW

One-quarter of China’s wind farms are not connected to a power grid—a reflection of poor planning, insufficient transmission lines, and technical concerns by regional utilities that the intermittency of wind power can be disruptive to normal operations. Wind-related power failures have caused blackouts in three provinces, while exploding equipment has been blamed in the deaths of several workers, according to local press accounts. _BW

Responding to a perceived market for green energy in Europe and North America, China engaged in a massive production build-up of wind turbines and photovoltaic panels. China was successful in building a vast production capacity of green energy generation. And now, China must face the consequences of its great success.

China’s $30 billion solar power industry is overbuilt and heavily in debt. Analysts say even billions of dollars in new government loans may not be able to pull it out of the hole.... Suntech Power Holdings (STP), the world’s largest solar panel maker, announced in September it would cut or reassign 1,500 workers at its photovoltaic cell factory in Wuxi. Suntech is counting on a $32 million loan from local authorities to avoid more job losses. To stay solvent, LDK Solar (LDK), China’s second-largest maker of solar wafers, was forced to sell a 20 percent stake to a renewable energy investor part-owned by the city of Xinyu, where LDK is headquartered. The support comes as the companies prepare to report combined 2012 losses of $987 million... Regional governments are loath to let their local solar panel makers fail.

... Help from local governments may be the biggest hurdle to making China’s solar industry competitive, says Shyam Mehta, solar analyst at the Boston consulting company GTM Research: “Until they stop supporting the uncompetitive manufacturers, this won’t go away.”

...LDK and Suntech both have balance sheets “so egregious” they would be “imminent bankruptcy candidates if they were American or European,” says Pavel Molchanov, an analyst at Raymond James & Associates. The companies didn’t respond to requests for comment. Molchanov believes infusions of government money won’t stop the losses until China grapples with its massive overcapacity—the same glut of panels that cut global prices by half in the last two years and drove U.S. solar panel makers such as Solyndra out of business. “Every province, every city, every bank is going to try to protect their vested interest as best they can,” he says. “That’s why kicking the can down the road has been the dynamic so far.” Aaron Chew, an analyst at Maxim Group in New York, concurs: “The government’s subsidy plan is better than nothing, but I don’t think it will save the industry as it’s still not profitable.”

The nation’s investments in wind power are faring no better. One-quarter of China’s wind farms are not connected to a power grid—a reflection of poor planning, insufficient transmission lines, and technical concerns by regional utilities that the intermittency of wind power can be disruptive to normal operations. Wind-related power failures have caused blackouts in three provinces, while exploding equipment has been blamed in the deaths of several workers, according to local press accounts....

China’s wind turbine manufacturers, responsible for 40 percent of the world’s output, are suffering a double squeeze, as demand has stalled both at home and abroad. Sinovel Wind Group, the world’s largest wind turbine maker by market value, posted a $45 million third-quarter loss this year on an 82 percent drop in sales—its largest loss since its initial public offering in January 2011. _Businessweek

China's green energy woes should have been expected, given the experience of other nations that followed a similar slippery downhill path.

Epic Failure of Spain's Grand Green Energy Gesture

Obama's Legacy of Corrupt Green Failures

Germany pays the price for its green foolishness

Modern industrial power grids cannot tolerate the huge moment-to-moment energy fluctuations of intermittent unreliable energy sources such as big wind and big solar. Whenever attempting a large scale conversion to "green power," initial economic costs are exorbitant. The cost of the power plants themselves, the cost of new power grid infrastructure, and the huge cost of maintaining spinning backup power sources. And then there is the cost to society as lower and middle income customers strain to pay skyrocketing power bills.

But the real costs of such an ideologically driven, top-down attempt to transform a national power grid and power supply, begin to emerge as the unreliables approach 20% or more of total power capacity to the grid. The violent and unpredictable intermittency of big wind power in particular, leads to power failures -- blackouts, brownouts, selective shutdowns of power customers, etc.

Industries begin to bail out of countries that are unable to provide reliable electrical power. A trickle becomes a flood, and before you know it a former continental powerhouse such as Germany begins to resemble a national ruin such as Greece. A world powerhouse such as the US -- if not for its shale fracking, coal, and remaining old-style nuclear power generation -- gradually decays to become an international ruin like Zimbabwe.

Russia and Saudi Arabia would love nothing better than to see the US and Germany bet their futures on intermittent unreliable green energy. Dictators love the fools who guarantee their job security into the indefinite future.