In the current solar power cycle, the ideal resolution between local governments and photovoltaic (PV) enterprises would be a graceful separation, often described in colloquial terms as "goodbye with goodwill." However, the harsh reality is that, amidst fierce market competition, both sides seem to have lost the strength and confidence needed to pursue a promising future togetherAs the saying goes, they can neither live together nor go their separate ways; instead, they find themselves painfully attached, racking up daily losses and sinking deeper into the pit of despair.

This situation has turned the solar industry into a battleground of attritionThe pressing question is: who stands as the primary obstacle in this ongoing purge of excess capacity?

The journey upward is often easy, but descending proves challengingMany, caught in the euphoria of high potential profits, find themselves grappling with immense difficulties

The newcomers to the solar arena, often driven by dreams of rapid wealth, eagerly entered the market, only to confront an overwhelming backdrop of surplus productionThe tightening grip of various financing channels, including stock and bond markets and banks, has compounded their challenges, leaving them not just unprofitable but also deep in debtThe consequences are dire: layoffs, lawsuits, and asset freezes have become commonplace, creating a cascade of woes and complications.

Even though many want out, breaking ties is far from simpleLocal governments, previously keen on attracting solar investments, now find themselves faced with a dire transformation; the once-beloved investments have morphed into burdensome entitiesWhat’s a government to do when it invested so heavily in fostering local industries?

During a mid-year conference hosted by the solar association, a prominent figure in the industry candidly noted that some local governments have become too deeply entangled in the photovoltaic saga

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The unspoken truth was that these governments aggressively courted a plethora of subpar enterprises and projects in their bid to grow the solar industryNow, as they attempt to clean house, even the outdated capacity remains a source of contention that they labor to protect.

This outspoken entrepreneur found themselves embroiled in scrutiny, as some smaller companies took to online platforms to express their grievancesThey argued that large corporations reaped the bulk of government incentives without any repercussions, while smaller firms facing hardships were unjustly left to fend for themselvesWhy, they asked, must the painful pruning of excess capacity necessarily come at the expense of small businesses?

Balancing fairness and efficiency is keyThe marketplace, often referred to as the “invisible hand,” allocates resources to maximize efficiencyConversely, government, using its “visible hand,” manages these resources to ensure equitable outcomes

Thus, matters of commerce ought to be left to market forces, enabling companies to compete freely and fairly while issues tied to public welfare—like education and healthcare—require more direct government oversight to ensure equal treatment.

In light of the current situation, the focus should primarily be on operational efficiency rather than fairnessWhile the shutdown of companies naturally raises concerns about equity, such as the impact on job opportunities, a responsible approach must be taken to mitigate these effects, potentially necessitating government intervention.

The remarks from the solar magnate were somewhat biting for local governmentsSupporting failing solar companies is, arguably, a reasonable position to take, especially when contrasted with the alternative of inactionUnfortunately, even when support seems futile, the rationale remains; for many local governments, the stakes are too high, having invested significantly in these enterprises

They cannot afford to shut down operations or close factories without facing severe repercussions in the marketplace.

For instance, it has become standard practice for local governments to build factories for photovoltaic businesses, a trend that has developed almost unnoticeablyGenerally, local authorities vow to provide construction services for solar enterprises, which further encourages potential investors to set up shop.

Hua Min Co., a representative cross-industry player, announced on November 3, 2023, upcoming investments via its subsidiary, Hongxin New Energy, including a signed agreement for a construction and repurchaseThe entities involved jointly affirmed their commitment to a major project, specifying construction and infrastructure assignments under a specific industrial framework.

This agreement, crafted between the local government of Xiangyun County and Hua Min Co., serves as a template that reflects prevalent trends in industry-specific arrangements across the region.

In some exceptional cases, prominent enterprises like Longi Green Energy have ventured even further, negotiating terms where they only lease the space without any repurchase obligations

For example, they indicated intentions to lease facilities at a major project site without establishing any stipulations for repurchasing the property.

It is crucial to note that not just any facility will meet the tailored specifications of solar companiesAll solar assembly plants require custom design, and those aspiring to lease typically expect newly constructed sites with accompanying necessary infrastructure already in place.

The absence of a buy-back clause alters the risk and responsibility equations for both enterprises and governments drasticallyIf a government has invested in building properties for these companies, but those businesses encounter trouble, seeking to bail out or terminate their agreements, what then becomes of the local government’s investment?

In a rather striking case, a subsidiary of Bangjie Cois facing bankruptcy reorganizationReports highlight a staggering debt load amounting to approximately 346 million yuan

The figures reveal that, once collateralized debts are deducted, the company still grapples with borrowings not fully covered, jeopardizing its financial stability.

Investment costs associated with developing solar technology plants vary widely; yet, typically, the capital expenses for a gigawatt-scale facility run into the tens of millionsAccording to solar industry reports, China has seen an increase of more than 46% in silicon wafer production this year alone.

As government budgets pour into developing these facilities, survival of these enterprises hinges critically on the resilience of their operational models, with the adverse fallout for local authorities being full-blown assessments of losses should these initiatives fail to gain traction.

The manifest risks of idle assets—warehouses, abandoned projects, lost rental income—are strikingly apparent, yet the real underlying costs to local governments include subsidies already paid out in equipment, direct financial aid, and implications regarding tax income and employment.

The acquisition of materials and equipment constitutes the most substantial investment required for solar projects

Since local governments facilitate construction, many new entrants conflate equipment investment with overall project expenditure.

Equipment subsidies come in various forms, often placed in joint-controlled bank accounts accessible only upon verification of invoices from purchases made by the enterprisesGenerally, these subsidies account for around 20% of the total equipment costs—a standard, albeit complicated, agreement that also attracts scrutiny for discrepancies.

There are curious stories manifesting this situation; one tale involves a company in Wuxi that sought additional funds under dubious pretenses while overpricing machinery, claiming they utilized only the finest equipment to satisfy procurement standards despite raising immediate suspicions.

Currently, many enterprises remain caught in disputes, relevant to equipment contracts, reflecting the intricate and often opaque relationships between local governments, financial institutions, and operating companies

When local governments intervene to avert the cessation of business operations, it communicates a dual intention to protect both company viability and community investmentsShould equipment be forcibly removed from these enterprises, the repercussions could be chaotic.

Cash subsidies can be likened to direct investment channelsTake Xuhe Technology as an exemplary case, as they recently attracted significant financial support exceeding 1 billion yuan from the local government, resulting in a remarkable 25% increase in net current assets for the firm.

The parameters influencing government incentives bring spotlight queries about the level of attention given by both local authorities and business owners in ensuring sustainable operation qualityPersistent cases throughout the industry reveal disconcerting levels of capital injection relative to actual investments made by some companies.

Meanwhile, in instances where firms become wobbly on the edge of bankruptcy, the local governments are left grappling with the aftermath and figuring out how to responsibly conclude entangled agreements.

With numerous companies reevaluating their ambitions—including Huangshi Green Energy and Mibang Kaco, which are opting for a quieter retreat—the reality check has shattered formerly buoyant aspirations

Talks of bankruptcy have echoed throughout the sector, with striking examples such as Aikang reportedly attracting acquisition interest from investors abroad.

Yet amid this turbulence, smaller entities continue to struggle to maintain their footing, with countless firms either on the brink of insolvency or actively confronting various pressuresThey must confront numerous challenges:

Firstly, the 'landlord'—representing local enterprises—has exhausted nearly all viable resources for support.

Secondly, potential buyers looking to acquire solar assets are exceedingly rare, with major players like Tongwei or Longi Green Energy openly resisting further consolidation.

Such conditions raise the requisite question: would a potential acquisition ever offer meaningful value, especially since many companies still have unfinished construction projects and pending commitments with local governments?

Furthermore, the specifics of market conditions are a critical aspect of securing favorable sale terms