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Chinese Helped Europe Foray Into Cheap Solar Power

|Includes: Suntech Power Holdings Co., Ltd. ADR (STPFQ)

Facing climate change and pollution now the whole world is shifting its focus towards renewable energy sources. And in this direction China is expanding its feet rapidly. China not only in domestic level increasing its reliability on solar power, but also providing low cost solar solutions to the whole world, especially to the European countries.

China is the world's top energy consumer, with the vast majority of its electricity coming from domestically-mined coal. But the Asian nation is cutting its dependence on coal, oil and natural gas and replacing it with solar at a breakneck pace.

China is doubling the generation every year. That brings China's total solar power supply up to 35 gigawatts, second only to Germany's 36 GW, and China aim to have 40 GW of solar installed by end of 2015.

Earlier this month, the Chinese government announced that it would ban the use of coal in Beijing by the end of 2020--although coal power use outside the capital is expected to continue.

To increase its share in global solar power business, China ramped up its PV cell manufacturing. From 2006-07 China started providing solar panels and end-to-end solar power solutions to the world on a very competitive pricing.

While Germany and the rest of Europe have scaled back government incentives to install solar, in China, increased targets for solar power generation have been backed by programs to boost market demand. A feed-in tariff passed last year amounts to a subsidy of between 14 and 16 U.S. cents per kilowatt hour, and applies to both ground-mounted and rooftop panels. Feed-in tariffs incentive renewable energy producers by allowing them to charge a higher price for their electricity than the retail rate.

Ten years ago, solar panels were made mostly in the United States, Germany, and Japan. Chinese manufacturers made almost none. But by 2006, the Chinese company Suntech Power had the capacity to make over a million silicon-based solar panels a year and was already the world's third-largest producer. What makes this particularly impressive is that the industry elsewhere has been doubling in size every two years, and Chinese manufacturers have done even better, doubling their production roughly every year.

To expand their base in the Europe Chinese companies had to think differently, and they did so. Chinese solar power giant Suntech set up the Global Solar Fund (NYSE:GSF), which became a major building of solar power plants, mostly in Italy. Like Yingli, Suntech was the controlling shareholder in GSF, and the fund used Suntech-supplied panels for most of its projects. That arrangement allowed Suntech to post billions of dollars in sales.

Suntech helped create the vehicle in 2008 but handed management to a company controlled by one of Suntech's former business partners, Javier Romero. As global demand for solar panels declined, the fund and the projects it financed became an important source of Suntech's profits. From now on, the best way for Chinese manufacturers to lower the cost per watt of solar power may not be by lowering manufacturing costs but, instead, by increasing the number of watts each panel generates.

GSF is the second biggest producer in the Italian Renewable Energy market. The Fund owns 180 solar plants for a total power of 140 MW and Service Companies in Italy and in Spain. Suntech's point man in its southern Italy initiative, a Spaniard named Javier Ignacio Romero Ledesma, helped Suntech establish the Global Solar Fund in Luxembourg in 2008. Suntech controlled roughly 80 percent of the fund through a partnership also based in Luxembourg.

There has been lot of controversies and legal issues in teh past among Suntech, Javier Romero, GSF etc, but all that is history now. Javier Romero has now focused his energies into other investments in Italy and China through other channels. In China, he has invested into "Sungrow Inverters" through China Link Capital and Sungrow has been increasing its ranking into the world by using the fund and the expertise of experienced investors like Javier Romero.

Chinese companies like Yingli, Suntech, Trina solutions, Ningbo Solar Electric, Just solar, China Sunergy and JA Solar make their way to the world market by providing cost effective solar energy solutions.

According to solar PV research company, PV insights among top 5 companies there are 4 companies of Chinese origin and among top 5 solar cell producers, again 4 firms are from China.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.