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Why Suntech Is Expanding Into Uzbekistan

By: Trefis
Posted: 2/12/2013 1:07:00 PM
Referenced Stocks: SPWR;STP;TSL;YGE

Suntech Power ( STP ), one of China's largest solar firms, plans to expand its operations to Uzbekistan. The firm is expected to invest around $10 million in a joint venture with Uzbekistan's state energy company, Uzbenergo, to construct a solar panel manufacturing facility in the country. Like most Chinese solar firms, Suntech has been hit by rising trade barriers, subsidy cutbacks in key markets and a chronic global oversupply of solar panels. We believe the expansion allows the firm a head-start in a largely under-tapped market and also provides the firm opportunities to diversify its revenue stream.

Solar Sector In Uzbekistan

Uzbekistan's electricity sector is still heavily reliant on fossil fuels such as natural gas and solar capacity in the country is presently negligible. However, interest in renewable energy has been picking up as the country looks to diversify its energy mix. The country's climatic conditions are also quite conducive to solar power with around 2,000 hours of sunshine received annually in the northern part of the country and over 3000 hours in the south. The country will also be extending tax breaks for foreign direct investment in the renewable power sector. State energy firm, Uzbenergo, intends to build a total of around 2 GW of solar power plants over the next few years with a portion of the financing for the projects coming from the Asian Development Bank. Other foreign investors such as Russia's Lukoil have also shown interest in solar sector in the country.

Does The Move Make Sense For Suntech?

While Chinese solar firms have been expanding internationally, most of their acquisitions have been aimed at circumventing tariffs in the U.S. and European markets, or acquiring technical capabilities. Suntech's move is quite unique since it involves building manufacturing capacity in an emerging solar market.

Building panel manufacturing capacity in the country should help the firm cut down on costs and make it more competitive in the market. Despite the firm's already high debt load (debt net of cash was around $1.6 billion) the firm should be able to raise funding for this project, given that lenders such as China Development Bank have been financing solar companies for strategic expansions overseas.

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