Overrun by Chinese Rivals, U.S. Solar Company Falters

Overrun by Chinese Rivals, U.S. Solar Company Falters

Russell Gold.Wall Street Journal.(Eastern edition). New York, N.Y.:Aug 17, 2011. pg. B.1

Abstract (Summary)

Evergreen's share price closed at a split-adjusted $108 in January 2008, its highest level in more than seven years. [...] polysilicon prices have plummeted to about $55 a kilogram.

Evergreen Solar Inc., once a darling of the U.S. solar industry, filed for bankruptcy protection this week, saying it couldn't compete with Chinese competitors without a reorganization -- a sign of the difficulty in creating "green" U.S. manufacturing jobs amid bruising competition across the globe.

The market for solar panels is expanding world-wide. But the key thing driving demand is increasingly lower prices, which is forcing U.S. firms into a cutthroat cost-cutting war with rivals in China and elsewhere.

"When margins are getting squeezed, pennies count," says Pavel Molchanov, a solar analyst with Raymond James Financial. "Quite frankly, as a solar manufacturer, it is a lot better to pay workers $1 an hour in China than workers $15 an hour in Massachusetts."

The average price of solar modules has fallen 30% this year, after declining steeply last year, he said.

Evergreen declined repeated requests for comment.

Earlier this year, Evergreen closed its Massachusetts factory, a $450 million facility that opened in 2007 with support from state and local subsidies and employed about 800 workers. One of its largest creditors is MassDevelopment, a state agency, according to the bankruptcy filing.

Evergreen began to manufacture panels in Wuhan, China, last year. Other U.S.-based solar companies have already moved their production overseas: SunPower Corp. to the Philippines and First Solar Inc. to Malaysia.

In its Chapter 11 filing, Evergreen cited the difficulty in competing against Chinese solar companies that "receive considerable government and financial support."

It also blamed reductions in European subsidies for solar installations and what it called the U.S.'s failure to adopt supportive policies.

But while low-cost Chinese competition may have accelerated the collapse of the company's balance sheet, Evergreen also bet on the wrong technology.

Evergreen developed a technology that uses less polysilicon -- a material housing small silicon crystals -- than its competitors. When the cost of this raw material reached $400 per kilogram in 2008, Evergreen's solar panels were competitive.

Evergreen's share price closed at a split-adjusted $108 in January 2008, its highest level in more than seven years.

Since then, polysilicon prices have plummeted to about $55 a kilogram. This has stripped away Evergreen's competitive edge and left it with a higher-cost manufacturing process.

Its share price steadily fell since 2008, closing Tuesday at 16 cents on the Nasdaq Stock Market.

"As polysilicon got cheaper, this company could not compete with standard technology, which is getting cheaper weekly," says Jesse Pichel, global head of cleantech research at Jefferies & Co.

Chinese solar manufacturers enjoy extensive support from government industrial policy. They benefit from inexpensive capital, low-cost electricity and real estate, as well as less-expensive labor, says Mr. Pichel.

The global solar industry is growing quickly, in part because of government subsidies to promote clean-energy production and because of falling panel prices.

The annual production of solar photovoltaic cells reached 24 gigawatts in 2010, more than double the figure for 2009, according to Ren21, an international, government-supported institute that supports renewable-energy development.

The Obama administration has also supported "green" jobs as a future economic engine and has highlighted the solar industry.

Solyndra, a California-based solar-products maker, received a $535 million federal loan guarantee in 2009, but in late 2010 it announced plans to shutter an older plant and lay off workers.

Evergreen listed $424.5 million in assets in its filing with the bankruptcy court in Delaware, and debt of $485.6 million.

It said it intended to close its facility in Midland, Mich., in the "near future." It also plans to lay off 83 workers in Massachusetts and Michigan, retaining 50 employees to help with the bankruptcy and reorganization.

The company plans to reorganize operations with an emphasis on building up its China-based manufacturing facility.

Credit: By Russell Gold

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