"If something cannot go on forever, it will stop,"From the WSJ's Venture Capital Dispatch:
(Ben's infinitely smarter dad)
Unmanageable debt, liquidity concerns and a very poor pricing-and-demand environment–does this remind anyone of Solyndra’s predicament?
In fact, these are descriptions from recent analyst reports pertaining to Chinese solar companies, many struggling under heavy debt burdens that two years ago seemed like a godsend.
Even now, as the U.S. reevaluates its federal loan and other subsidy programs for renewable energy, some lawmakers invoke the strong support the Chinese government offers to its own renewable energy industry as a call for the U.S. to match up with its own support.
Indeed, easy access to low-interest loans over the past three years helped Chinese solar makers build up capacity, and quickly take over market share from European and U.S. manufacturers. In 2010 alone, the China Development Bank made $35 billion in low-interest credit available to Chinese renewable energy companies, according to Bloomberg New Energy Finance, a figure cited by Energy Secretary Steven Chu in his testimony to the House Energy and Commerce Committee in mid-November.
But, perhaps an unintended consequence of this easy access to capital was that the cheap, plentiful production of solar panels resulted in a cutthroat pricing competition, which, in turn is now starting to suffocate the very same large, leading Chinese manufacturers.
“We remain concerned about debt levels across the solar manufacturing complex given the compression of profit margins,” wrote Think Equity analysts in a recent report. “With increasing net debt and reduced module prices, it is hard to imagine absolute gross margin dollars growing enough to offset existing OpEx and interest payments.”...MORE