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Night Falls on China’s Solar Industry

Suntech, the world’s highest-selling producer of solar panels, has just fired its founder and chairman as it scrambles to pay a $541 million bill. The Chinese firm has been struggling to turn a profit for years due to an oversupply of solar panels in the global market. The Financial Times reports:

A top Chinese energy official said last year that the country’s panel makers were like “a patient on life support” and that production capacity needed to be cut by at least half for the sector to rebalance. […]

As the clock ticks on Suntech’s $541m convertible bond due this month, according to Chinese energy officials, the company has sought to find financing through talks with the city of Wuxi, where Suntech has its headquarters. Chinese media have reported that the Wuxi government wants Mr Shi to leave the company as a condition of any investment. Suntech declined to comment on the matter.

China’s government has heavily financed its solar companies, driving supply through the roof. But demand hasn’t kept up with the supply spike, and panel prices are plunging, ruining profit margins for panel producers. China’s only options are to continue propping up uncompetitive companies (Suntech owed $1.6 billion last March, the last time it publicly reported such figures, and is estimated to owe much more today) or to cut its losses and endure the political blowback, as the Obama administration did with Solyndra.

Policies to promote green technology have been particularly detrimental in the solar industry. The supply glut has set prices too low for producers to turn a profit, yet the prices are still too high to compete with other energy alternatives. (In China, solar panels are triple the cost of coal.)

The solar bubble has burst. US policymakers may be tempted to sigh with relief that it’s hitting China and not America hardest, but the Solyndra debacle ought to show them not to feel too at ease.

We hope American politicians and policymakers take an important lesson from the ailing solar power industry: Subsidizing uncompetitive technologies is a fool’s errand; better to spend the money on R&D until they can stand up in the marketplace on their own.

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