LG Moves into Global Solar Market with Stake in Conergy

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 |  Includes: CEYHF, LGERF
by: Greentech Media

By Jeff St. John

South Korea's LG Electronics Inc. (OTC:LGERF) took its first dive into the solar-panel manufacturing pool on Thursday, as it announced a preliminary deal to form a joint venture with troubled German solar company Conergy AG (OTC:CEYHF).

Under the deal, set to be completed by year's end, LG would acquire a 75 percent stake in Conergy's Frankfurt solar-panel plant.

The agreement would mark LG's first move into the solar-panel manufacturing business, though other subsidiaries of its parent company, LG Group, are now involved in building solar-power plants and supplying polysilicon.

The deal could also help bolster Conergy, which has seen its stock price tumble through 2008, as it undergoes major restructuring and sells off noncore business lines, said Jenny Chase, head of solar research for New Energy Finance in London.

"They've been slightly stressed by cash-flow problems," Chase said of Conergy, which in August reported that its second-quarter 2008 losses had narrowed to 7 million ($10.5 million), down from a loss of €29 million ($43.5 million) in the same quarter last year. In May, the company reported a net loss of €43 million ($66.8 million) for the first quarter, nearly triple its losses from the same quarter last year. 

Selling LG Electronics a three-quarter stake in its Frankfurt plant – initially projected to cost 250 million ($349 million) when first announced in Nov. 2006 – "will help with their cash flow problems," she said.

"I am slightly interested in seeing when Conergy stops divesting stuff," Chase added. The company sold its solar-thermal production facilities in Austria, Belgium and the Netherlands earlier this year, and on Tuesday announced it had sold its wind-turbine business to private-equity firm Warburg Pincus. Earlier this month, the company announced it was spinning off its inverter and solar-panel mounting business units to free them to work with third-party clients.

Shares of Conergy, traded on the Frankfurt Stock Exchange, were up about 5 percent to 8.8 in trading Thursday. But that's after a "massive" decline in the company's share value from nearly 69 in Oct. 2007, shortly before the resignation of former CEO Hans-Martin Rüter and the company's announcement that it would seek 100 million ($146 million) in new financing to meet a "shortfall in liquidity," Chase said.

As for LG, Thursday's deal will likely place it into more aggressive competition against fellow South Korean conglomerates Hyundai Corp. and Samsung Group as all three seek to position themselves in the solar field, said Lia Choi, a New Energy Finance senior analyst who covers Korean and Japanese solar markets.

LG Solar Energy, a subsidiary formed last year to allow LG Chem to supply polysilicon to LG Electronics for production of solar cells, is now mainly involved in solar project development, she said. The subsidiary completed a 14-megawatt solar power project in South Korea in June.

In the meantime, Hyundai Corp. subsidiary Hyundai Heavy Industries has moved ahead more rapidly in the solar panel manufacturing space, Choi said. In May it announced plans to invest 300 billion won ($270 million) in the expansion of its solar panel and solar cell production line by 2009, and last year completed a $30 million, 20-megawatt solar panel plant in Umsung, South Korea.

Hyundai Heavy Industries has also been "making moves to expand their exposure to the global markets," Choi said. In February, China's LDK Solar (NYSE:LDK) announced it had signed an eight-year deal to supply HHI with a total of 450 megawatts of solar wafers, and in June Germany's centrotherm photovoltaics AG said it would supply HHI with five solar cell manufacturing lines with a total capacity of 250 megawatts.

As for Samsung (OTC:SSDIF), Choi said that both its petrochemical and electronics divisions have expressed interest in producing polysilicon for the solar market, but "you don't really see any contracts coming out of this" as of yet.

The South Korean government's July decision to boost investment into renewable energy to reduce its reliance on foreign oil imports (see South Korea Boosts Renewable-Energy Investments by 60%) may provide a boost to all three conglomerates' solar plans.

However, as Chase noted in terms of LG's deal with Conergy, "If you're making modules in Germany, you would not necessarily expect them to be for the Korean market."

Instead, Choi said, LG's move would appear to be aimed at competing in the global solar marketplace.