SunEdison is embarking on an ambitious plan to enter the booming Chinese solar market. It's not the first American company to try, but it may just be doing so at the right time and with a better strategy.
The solar power project developer recently announced a joint venture with a Chinese private equity firm, JIC Capital, that plans to build 1 gigawatt of projects across China over three years. I caught up with SunEdison's CEO, Ahmad Chatila, to learn about the company's foray into a country that rose to become the largest solar energy market worldwide last year by installing over 12 gigawatts of solar panels.
China isn't new for the Missouri-based company, which has been a long-time manufacturer of silicon and wafers for making solar cells and chips and has a joint venture in China with the Huantai Group. But SunEdison's current ambition lies in becoming a major solar power project developer there, a market that so far has eluded most non-Chinese companies.
"We picked the 1 gigawatt figure because it's meaningful and worth the cause," Chatila said, adding that the company built an 18-megawatt project in China a few years back. "Now we have accelerated our position."
Building 1 gigawatt of projects could cost roughly $1.3 billion, Chatila said.
SunEdison isn't the first large American solar company that craves a piece of the Chinese market. First Solar and SunPower have tried, with varying degrees of success, to tackle it. First Solar's attempt to develop 2 gigawatts of projects in Inner Mongolia was beset by regulatory and other delays. It canceled that project earlier this year. SunPower formed a joint venture with Chinese companies to produce a system of solar panels and supporting trackers in Inner Mongolia. Although both companies are major power project developers in the United States and elsewhere, they are far from doing so in China.
SunEdison's move to China is also in the early stages, but it's strategy is quite different from that of First Solar and SunPower.
The timing is certainly better now than just a few years ago, when China was struggling to figure out a good policy and execution plan to nurture its emerging solar energy market.
The government launched the Golden Sun Initiative in 2009 to kickstart its effort to produce more clean energy and to create a market for its solar equipment manufacturers, many of whom are among the world's largest and have since become major project developers in their home market.
The Golden Sun Initiative subsidized the power plant construction costs. But the incentive program that has made China the big market quickly is similar to what led Germany to become the world's largest solar energy market: the government sets a premium pricing for solar electricity and requires its utilities to buy solar power.
"SunEdison is coming at a time when the Chinese government is keen to develop the market compared with a few years ago," said Vishal Shah, managing director of global markets research at Deutsche Bank Securities. "First Solar tried when the market was a little immature."
SunEdison's financing strategy also sets it apart. The company's joint venture with JIC Capital created a $300 million fund for project development, Chatila said. SunEdison has the majority stake, though Chatila declined to disclose that figure. The fund won't cover the expenses of developing and building 1 gigawatt of projects, however. That's where non-recourse financing comes into play.
Non-recourse financing allows borrowers to repay loans with revenues from the projects funded by the loans, and it favors the borrowers because it limits the assets that the lenders can go after should the borrowers fail to repay the loans. This type of financing is common in Europe and the U.S. but not in China. Its availability will allow SunEdison to secure the funds needed to grow its presence in China more quickly, Chatila said.
JIC Capital will play the key role for securing non-recourse financing for SunEdison's projects. JIC Capital is part of China Jinayin Investment, which is owned by Central HuiJin Investment. Central JuiJin is run by China's central government.
"JIC has a lot of contacts with banking leaders in China, and they can do things that others can't," Chatila said.
SunEdison intends to build, own and operate the projects and has filed papers with the U.S. Securities and Exchange Commission in September to create a yieldco for buying stakes in the projects that it would build in emerging markets, including China. A yieldco, which sells publicly traded shares, is a fundraising mechanism and is becoming popular with renewable energy project developers.
Although SunEdison only recently announced its joint venture with JIC Capital, it appears to have already spent a good amount of time on project development. The company expects to start building the first one in early 2015. Chatila wouldn't disclose the location of that first project.
The company is working with Huantai, its manufacturing partner, to develop solar power projects as well. The partnership will focus on site development and construction rather than financing (that role belongs to JIC), and the two companies announced in June a plan to develop 1.7 gigawatts of projects over 5 years.
Overall, SunEdison plans to build projects between 50 megawatts and 100 megawatts in size in various parts of country except the south, where there isn't as many sunny days, he said. They will be a mix of rooftop and ground-mounted installations. The rooftop projects will take place on commercial buildings, not residential.
While SunEdison has lined up Chinese partners, it will still be competing with Chinese power project developers, from Jinko Solar to Trina Solar, that understand well the politics and other dynamics of their home market. SunEdison has publicly announced a brief outline of its big plan for China. Now it has to show that it's assembled the pieces to actually build those projects.
"SunEdison is at the very beginning of this process," said Adam James, a solar analyst at GTM Research. "There's still a lot of work to do with a long check list."
