- By Kedar PavgiKedar Pavgi is an editorial researcher at Foreign Policy.
Money for clean energy is creating political messes all over. Of course, there are the Obama administration’s ongoing troubles over loans to now-bankrupt solar manufacturer Solyndra. Now comes a report from Reuters saying that green energy loans to bolster China’s businesses may be in danger of defaulting, due to falling demand from Europeans, their biggest customers.
From the report:
State banks provide easy loans to the sector amid the Chinese government’s push to develop clean energy. Provincial governments that have helped build solar companies are also pressuring banks to continue lending, which may add to the woes of the struggling industry.
The glut of production and swelling inventories of the panels that turn sunlight into electricity have already driven down prices by about 40 percent so far this year. Analysts expect prices to slide by another 10 percent by early next year.
"Over the next six months, there won’t be profits to be made," said CLSA’s solar analyst Charles Yonts. He expects some companies to start defaulting on loans and put themselves up for sale.
"Balance sheets across the solar sector are already stretched to breaking."
This comes on top of other setbacks for China’s green energy aspirations this year. In September, the Chinese had to shut down a solar panel plant following protests against the its pollution. Other economic concerns including the rising number of "ghost cities" amidst the Chinese property bubble, are rattling the markets and prospects for growth.
The Guardian reported in September that in 2010, the China Development Bank gave out nearly $30 billion in loans to the top 5 manufacturers of solar panels. Several weeks ago, industry groups representing the U.S solar industry raised concerns to the U.S Commerce Department about possible dumping by Chinese manufacturers.
Despite the concerns, Chinese Vice-Premier Wang Qishan announced a $1.7 trillion "strategic investment" today, which included money to be directed towards the alternative energy fields. Questions on how the banks will manage more green energy loans on their balance sheets still remain unanswered.
After all, as the in the U.S. case, a certain number of failures are inevitable in an alternative energy investment this big. And it’s not as if Wang has to go in front of Congress to explain himself every time one of these deals doesn’t work out.