SW CHINA SOLAR FIRM BUYS MAJORITY OF US COMPANY, HAS

C O N F I D E N T I A L SECTION 01 OF 02 CHENGDU 000259

SIPDIS

DEPT FOR EAP/CM

E.O. 12958: DECL: 11/17/2019
TAGS: ENRG ETRD EINV PGOV SENV KNNP CH
SUBJECT: SW CHINA SOLAR FIRM BUYS MAJORITY OF US COMPANY, HAS
MULTINATIONAL ASPIRATIONS

CHENGDU 00000259 001.2 OF 002


CLASSIFIED BY: David E. Brown, Consul General, U.S. Consulate
General Chengdu.
REASON: 1.4 (d)

1. (SBU) Summary: Officials from Tianwei New Energy, a solar
power company based in southwest China's Sichuan province, said
that the recent acquisition of a controlling share of the U.S.
firm Hoku Scientific was a sudden opportunistic move rather than
a key part of the company's long-term development strategy.
Despite having only a small share of China's rapidly expanding
solar-power market, and no unique manufacturing technology to
differentiate it from competitors, company officials expressed
confidence in Tianwei's growth potential. Tianwei's General
Manager said he hoped to build the company -- which is part of a
much larger conglomerate -- into the next Ford or Siemens. The
company sees long-term market potential for its polysilicon
photovoltaics,and dismissed claims that newer solar technology
like thin film cells will largely replace older technology.
Tianwei benefits significantly from China's policies supporting
solar energy, but company officials asserted that other,
competing countries also offer similar government backing. End
Summary.



Tianwei's U.S. Acquisition and Multi-Million Dollar Development

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2. (SBU) Tianwei General Manager and Chief Engineer, Guo Aihua,
told Consul General recently that the late-September acquisition
of a 60 percent stake in the Honolulu-based solar firm Hoku
Scientific was not originally a part of his company's strategic
growth plan. Guo said that Tianwei had formed a partnership
with Hoku, which had been an important supplier of polysilicon,
but had not planned to take a controlling interest in the
company. However, the global economic crisis brought Hoku to
the brink of collapse, according to Guo, and Tianwei faced
losing procurement pre-payments (that press reports valued at up
to $79 million). Rather than risk a total loss on this
buyer-financing, Tianwei purchased an additional 33.4 million
shares of Hoku -- worth up to $227 million according to one
press report -- and gained the right to nominate a majority of
the members of the board of directors. Guo claims the two
companies have similar technology, and that the purchase did not
boost Tianwei's technological capacity. Tianwei's cssh
jnjection to Hoku will allow the latter to expand a polysilicon
factory in Idaho to 4,000 metric tons of annual capacity.




3. (SBU) Tianwei worked together with China Construction Bank to
finance the Hoku deal, according to press reports. Tianwei's
U.S. investment comes amidst Tianwei's construction of a 440
million-dollar polysilicon manufacturing and research center in
Chengdu, China. Once completed, the facilities will cover about
119 acres in an area that Chengdu's government is promoting as a
"solar energy industrial base." During CG's visit, however,
construction had yet to begin on parts major portions of the
facility.



Aims to be the Next "Ford" or "Siemens", But Unclear How

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4. (SBU) Guo said that, while his company currently has only a
3-4 percent share of the domestic solar cell market, he aspires
to grow his company into a large multinational, and sees Ford,
Siemens, and ABB as models to emulate. Guo was vague when asked
what differentiated his company, on a technology basis, from
other solar firms, emphasizing only that Tianwei did its own
in-house research and development. (Note and Comment: Guo did
not say what share of the international market his company had
captured. Tianwei does not appear to have unique manufacturing
technology that might give the company a leg up over
competitorsIt is, however, part of a much larger conglomerate
that may give it advantages in terms of financing and thus more
of an ability to take a longer-term perspective. End Note and
Comment.)



Polyisilicon Competitiveness and Coexistence in Solar Power

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CHENGDU 00000259 002.2 OF 002





5. (SBU) Polysilicon solar panels will continue to hold a share
of the solar power industry for many years to come because of
their relatively high efficiency compared to other technology,
according to Guo. He said that polysilicon panels had a greater
power generation over a given surface area than competing
technologies like cadmium-telluride cells. In constrained-space
applications, Guo claimed that the polysilicon panels would
continue to dominate. As an example, he cited Germany, where 90
percent of solar panels are roof-mounted.




6. (SBU) At the same time, Guo acknowledged that polysilicon
cells faced some constraints and challenges in the market. He
said that cadmium-telluride cells were cheaper to produce and
could be used in a more diverse range of applications than
polysilicon. At the same time, he rejected the argument put
forth in a "South China Morning Post" article earlier this year
that more pollution is created manufacturing polysilicon cells
than is saved over the useable lifespan solar panel made from
them. He said that this argument ignores the benefits of a
"closed-loop" production cycle, where by-products of the
production cycle are recycled. He estimated that, by using a
closed-loop process, Tianwei's polysilicon cells will produce
six times more energy over their lifespan than required to
produce them.



Local-Level and National Support for Solar Power

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7. (C) Chengdu has strongly supported the solar industry, and
has vigorously sought to attract companies to relocate to the
city. Tianwei decided to open its polysilicon solar power
company, a subsidiary of Tianwei Group, in Chengdu in part
because of low land costs and tax breaks. Guo said that
adequate access to water and electricity, guaranteed by the city
government, also influenced the company's decision to move to
Chengdu. Additionally, Sichuan province is a large producer of
silicon, and proximity to raw materials reduces total production
costs. (Note: Israeli Ambassador Amos Nadai and Israel MOFA
Deputy Director for East Asia and the Pacific Ruth Kahanoff
called on Consul General on November 16 and said that Chengdu
officials were pressing Israel to establish a Consulate in
Chengdu, as well as encouraging Israeli solar power companies to
explore investments in the "Shuangliu" development zone near the
Chengdu airport. End Note.)




8. (SBU) China's national government is also highly supportive
of the solar industry, Guo added. However, Beijing's subsidies
focused on incentives to buyers, not direct subsidies to
producers, he explained. Guo defended China's aid to the solar
sector, saying its incentives were similar to those offered by
other counties, including the United States, and were also
necessary if the nascent solar power industry wss to be
competitive with energy sources based on fossil fuels. For
example, electricity produced using solar cells was roughly
three times more expensive than that produced from burning coal,
Guo said.
BROWN