Thursday, October 11, 2012

China's Great Green Overbuild Catching Up With It

China’s strategy is in disarray. Though worldwide demand for solar panels and wind turbines has grown rapidly over the last five years, China’s manufacturing capacity has soared even faster, creating enormous oversupply and a ferocious price war.

The result is a looming financial disaster, not only for manufacturers but for state-owned banks that financed factories with approximately $18 billion in low-rate loans and for municipal and provincial governments that provided loan guarantees and sold manufacturers valuable land at deeply discounted prices. _NYT

China's great green overbuild is not so different from a number of other overbuilt industrial sectors in China. Most of the wind and solar products were meant to be sold overseas -- in Europe or North America -- where the great green dysfunction was hitting its peak. But European governments and the US can no longer afford to waste $billions upon $billions buying devices from China that produce types of energy that do not fit with existing power grids. And they certainly cannot afford to spend $trillions on an entirely new electrical infrastructure, with no guarantee that wind and solar will ever be able to provide more than 20% of demand -- even with brownouts and blackouts.
But banks — which were encouraged by Beijing to make the loans — are not eager to acknowledge that the loans are bad and take large write-offs, preferring to lend more money to allow the repayment of previous loans. Many local and provincial governments also are determined to keep their hometown favorites afloat to avoid job losses and to avoid making payments on loan guarantees, he said.

...The Chinese government also wants to see the country’s more than 20 wind turbine manufacturers, many of which are losing money, consolidate to five or six. “Wind does not need so many manufacturers,” said Mr. Li, who in addition to drafting renewable energy policies is the president of the Chinese Renewable Energy Industries Association.

...The modest cutbacks in production barely put a dent in China’s overcapacity problem. GTM Research, a renewable energy consulting firm in Boston, estimates that Chinese companies have the ability to manufacture 50 gigawatts of solar panels this year, while the Chinese domestic market is on track to absorb only 4 to 5 gigawatts. Exports will take another 18 or 19 gigawatts.

The enormously expensive equipment in solar panel factories needs to be run around the clock, seven days a week, to cover costs.

...The average cost of electricity from solar panels in China works out to 19 cents per kilowatt-hour, said Mr. Li. That is three times the cost of coal-fired power. _NYT
The high cost of generating solar electricity is not even half of the problem with trying to use big solar power. Fitting the intermittent low voltage DC power onto a finely balanced high voltage AC power grid, is not only costly, it is dangerous to the integrity of the overall power supply. Not quite as dangerous as big wind if sited in desert areas with few clouds, perhaps, but dangerous enough to create a significant risk.

More: Patrick Chovanec -- What's Going Wrong With China's Solar Energy?

China's entire economy is based upon massive overbuild -- from steel to high rise construction to highways to railways to automobiles etc. Why should the great green overbuild be any different?

Perhaps it isn't, but every failing industry in China risks becoming the one failure that brought down the rest of the great house of cards. Keep a close watch. Things could happen very fast, and if you were not paying attention you are unlikely to understand what just happened.

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