Tuesday, June 30, 2009

Ryan Pyle Blog: Shanghai Electric Exiting Solar Power


It was reported a while back that Shanghai Electric, China's largest power generating equipment maker, is getting out of the solar power business. Shanghai Electric seems almost desperate to sell of its 35% stake in solar equipment maker Shanghai Topsolar Green Energy. The reason for the fire sale, it's just not a profitable business at this stage in the game says the company.

Getting rid of its investment in a solar energy equipment maker made headlines around China, and the reason given by the company was that they just couldn't find a way to incorporate the solar business in to its future development plans. But I thought solar power was the future?

I'm confused.

Even though Beijing is telling everyone that solar and wind are the future, it seems very odd that a state run company, that is this large and influential, would step out of the business so publicly. Is there turmoil brewing in the energy sector?

Shanghai Electric makes its hay (70% of its business) from making coal fire power plants, a business that is said to have peaked in 2004. Since that peak, the company's revenue and market share have fallen. To counterbalance this they have, since 2004, made a strong commitment to wind power and nuclear power, which both generate next to no carbon emissions and are said to be much better business models than solar. In fact, Shanghai Electric has 50% of the nuclear power plant market in China and says that nuclear power plants will replace the coal fired power plant business in the coming years.

So is Shanghai Electric a company that's going green; but couldn't find a way to benefit from solar power? Or are they just a big state run machine that will slowly opt out of more renewable energy initiatives in the future? My guess is that Shanghai Electric is committed to renewable energy, or at least nuclear energy; but just couldn't find a way to make expensive solar panels pay for themselves in a heavily subsidized electricity markets. Maybe if all of us living in China paid the real price for electricity more clean initiatives might be viable. Even with Beijing promoting renewable energy, and dishing out massive amounts of "incentives", I am amazed that such a large player in the industry couldn't make the business work. Will others follow this similar exit strategy? What's the future for solar power in China?

China is actually the world's leading maker of solar panels, but most of this production is exported to countries like Germany that have offered massive subsidies to go green. But the business has yet to show it can be sustainable on its own. Shanghai Electric might just be too big to deal with renewable energy. Nuclear power generates a huge amount of power and costs a massive amount of money to produce. As a company, if you had to choose between making nuclear power plants and laying solar panels in the desert, most would most likely choose nuclear; if at least because it generates about 1000 times more in fee's for the equipment companies involved.

On a side note, I've actually had the chance to photograph a nuclear power plant under construction in Guangdong province, and I can tell you by talking with the people down there - nuclear is the future in China, they just haven't admitted it to everyone, the global press, yet. The nuclear power plants of today are said to be much safer than those in the past and generate massive amounts of electricity which coastal and central China is disparately thirsty for. Can anyone blame Shanghai Electric for following the money? Not really. For once a state owned enterprise is acting like a privately owned company that is responsible for shareholder value. They got out of a business that wasn't making money to focus on businesses that does make money.

But does solar have a future in China if the big players don't buy in? My guess is no. Solar seems to be on the verge of being bypassed for wind (cheaper) and nuclear (more efficient).

ps. Sorry for putting a wind turbine picture up. I don't have a compelling solar panel photo at the moment.

Ryan Pyle
Website: www.ryanpyle.com
Archive: http://archive.ryanpyle.com

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