During the 2010Solar Power Finance & Investment Summit in San Diego, a large crowd learned that Chinese companies have cash and interest in the US solar energy market, yet partnerships require patience and low risk.
To explore the opportunities, R. Thomas Hoffmann, Partner with Ballard Spahr, led a panel with three experts on Chinese solar investing. They were:
- Jimmy Chuang, is with GCL Solar, the largest polysilicon producer in Asia and the largest solar developer in China. GCL has access to $4.5 billion.
- K. Scott Son, Vice President of Project Finance at Suntech, the largest producer of silicon PV in the world (nearly $2 billion in revenue in 2008).
- Sha Wang, Principal at Cybernaut Investment, a family company with US and Chinese roots and a $500 million solar investment fund.
Low Risk, Stable Returns
All three panelists agreed Chinese companies are looking for equity investments in the US, and that solar offers an attractive way to diversify their portfolios.
Sha Wang explained there is a low tolerance for risk among Chinese investors, so her company looks for fixed income-like returns of 10-20 percent. The fact that the US does not have feed-in tariff programs makes this market much more complex and difficult to predict returns compared to European investments. The speakers also stressed that they want good management teams that can execute successfully and demonstrate a good track record.
Consensus: Joint Ventures Never Work!
During the session, the panelists offered advice to potential US business partners:
- Educate investors. Chinese investors are often surprised by the complexity of the US capital markets. K. Scott Son advised that, “developers need to vet investors and provide significant education.” Jimmy Chuang added, “the complexity of the US market implies that the education process could take as long as a year.”
- Present low-risk deals. Chinese companies either do not have an appetite for tax write-offs, or are not eligible for US tax credits.
- Align with the company goals. Take time to understand how investors generate income and where they are going. For example, many investors are also module manufacturers; in the case of Suntech, it is looking for partners who can help them sell more panels. To achieve this goal, Suntech has a $20 million solar project development fund to facilitate partnerships.
- Learn about how capital can get out of China. China has currency control and complicated rules regulating how money leaves China.
- Be patient. Sha Wang stressed: “Patience is key. If you don’t have patience, I don’t suggest you partner with a Chinese company.” However, K. Scott Son provided a jovial counter to the caution by adding, “unless you want to work with Suntech.”
- Concentrate on PV. Currently, Chinese companies are interested in crystalline PV. They are less interested in — and know less about — concentrated solar power and solar thermal.
- Provide exclusivity. Pipeline exclusivity is a must. K. Scott Son reminded the audience of a photo op with President Obama highlighting a SunPower project where the President is standing in front of Suntech panels. “We must have exclusivity. It would be a PR nightmare for us to invest in your company, yet you later use Trina panels in the project.”
- Don’t do a joint venture. All three panelists shook their heads and said, “joint ventures are very hard to make work. Especially when they are 50/50.”