China's Renewable Curbs a Boon to Big Players

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"China could easily supply all of the world's expected solar demand next year."

China's efforts to curtail expansion in its renewable energy sector should brighten prospects for the country's more established wind equipment and solar companies, as curbs on excess capacity squeeze out smaller competitors.

Solar firm Yingli Energy Holdings, wind gear maker China High Speed Transmission and solar components company GCL-Poly Energy Holdings are likely to survive the reforms largely unscathed thanks to their strong balance sheets and massive production capacity.

For smaller companies, the government's plan to withhold approval of new investments and shut off funding for projects is likely to deliver a crushing blow for this part of the sector that makes up nearly 50 percent of the market.

"Sadly for many, the party's over even before it began," said KK Chan, chief executive of private equity firm Nature Elements Capital. "But this is something the sector needs now and is consistent with the government's long-term goal."

Earlier this month, China launched its latest attempt to rein in industrial overcapacity targeting key sectors, chief among them steel and cement.

The move, however, also included Beijing's first moves to restrict investment in the renewables sector. It comes after more than a dozen companies piled into wind equipment and polysilicon-making projects, encouraged by state policies and cash perks launched early this year.

Despite its efforts, Beijing's hard-line stance on expansion is unlikely to end the industry's struggle with collapsing prices and massive overcapacity.

"Capacities at factories are just so huge, China could easily supply all of the world's expected solar demand next year," said Wendy Wang, analyst at Yuanta Securities (Hong Kong).

Renewable energy accounts for just a fraction of a percent of China's total electricity output. Coal-dependent China hopes to bring that up to 15% by 2020.

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