Why China threw First Solar a 2 GW Bone

The memorandum of understanding between First Solar and some high-level Chinese officials to construct a 2 GW solar facility in Inner Mongolia may at first make little sense, given the fact there are several very large Chinese firms in China quite capable of creating such a facility. In fact, the last couple of months have seen numerous deals between Chinese provinces and cities and these local Chinese companies.

However, a close analysis of the current world situation with regards to the solar manufacturing industry may point to the real motivation behind the Chinese decision to go with First Solar.

Firstly, there has been a fast growing sentiment in Europe (and in the USA) against the rapidly encroaching Chinese solar PV manufacturers, who have managed in a year or so to threaten the dominance of the European companies and have entered these foreign markets en mass while dropping the per watt cost of panels by alarming amounts. This sentiment has manifested itself in calls for tariff protection against the Chinese, and cries against what foreign companies have termed a closed protected market in the Chinese mainland.

By throwing this bone to First Solar, the Chinese are hoping to deflect such criticisms before they become too large to control.

Secondly, the Chinese have always been interested in thin film solar, and although there are a few Chinese companies that are ramping into this field, the technology is dominated by First Solar. By developing a tight relationship with the technology leader in thin film development, China ensures that it will get access to the technology. Indeed, there are some reports that First Solar will move some of the manufacturing close to the location of the power plant as part of the agreement.

Make no mistake about it though. In the short term, this is a huge plus for First Solar, and its stock rose 10% due to the news.

It should be noted that this news again points to the growing importance and dominance of the Chinese market in this industry. No company with global aspirations can hope to ignore China and prosper in the lean years ahead.

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