China Development Bank Finances LDK-SPI Solar International Expansion Plans

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Photo courtesy LDK Solar
Roseville, California-based SPI Solar, a US subsidiary of China’s LDK Solar, today announced it has secured $44 million in construction financing from China Development Bank (CDB) to carry out solar photovoltaic (PV) projects with KDC Solar in New Jersey. Separately, LDK secured $20 million in CDB financing for two projects in California for which its providing engineering, construction and procurement (EPC) services to SPI.

SPI and LDK last June announced that they would provide construction financing and “facilitate” long-term financing, supported by LDK, of up to $750 million for solar energy facility (SEF) projects as part of their preferred provider agreement with New Jersey’s KDC Solar.

CDB Financing US Solar

China Development Bank is the Chinese government’s economic development bank. As such, it’s the only Chinese bank authorized to issue corporate bonds, short-term commercial paper, super-short-term commercial paper, medium-term notes, packaged SME notes, and the underwriting of private placement bonds.

One of CDB’s strategic focal points is financing emerging industries in China, which includes solar power and other forms of clean energy. In line with China’s “Go Global” export-oriented policy directives, it’s been scaling up its international lending, with its book of outstanding domestic and foreign currency loans totaling RMB 4.51 billion (~USD 714 million) as of year-end 2010.

CDB’s been expanding credit rapidly in recent years. Total funding reached RMB 1.78 trillion (~USD 283 billion) in 2010. Issuance of RMB-denominated debt securities rose from RMB 365 billion (~USD 58 billion) in 2005 to 855 billion (~USD 135 billion) in 2010.

An increasing proportion of that has been coming from international investors and foreign currency denominated debt securities. Of the 2010 total, RMB 5 billion (~USD 794 million) was issued in Hong Kong’s international market, while foreign currency-denominated debt securities issuance amounted to USD 86.2 billion.

CDB has supported LDK’s growth into one of China’s largest integrated solar PV companies since the solar power company’s founding in 2005, and continues to do so now, when LDK is struggling to stay solvent amid the collapse in solar PV cell and panel prices and growing uncertainty regarding government support for solar power in key markets worldwide. Without that support, it’s likely that both companies would be scaling back, rather than expanding, amidst an industry shakeout and a possible drop in demand that’s put LDK on the verge of insolvency.

LDK-SPI US Solar Expansion

For its part, SPI is adding to its large-scale solar project pipeline both domestically in the US and internationally and is applying to CDB for additional financing. On Jan. 3, SPI announced it had been awarded an EPC contract by New Jersey’s Seashore Solar Development LLC for an 11.3-megawatt (MW) fixed ground mount SEF in Egg Harbor Township that will supply clean, renewable electricity to southern New Jersey’s power grid.

In addition to helping meet the clean energy targets established in the state’s Renewable Energy Portfolio Standard, the Egg Harbor SEF is expected to create some 200 local jobs during construction. Construction is due to begin in the first quarter contingent upon Seashore Solar closing project financing.

“Our successful relationship with CDB is a direct result of our close working relationship with LDK,” said Steve Kircher, CEO for SPI Solar. “As we continue to develop our pipeline of projects globally, our partnership with CDB grows stronger.”

China and the CDB are in a much better fiscal position to adopt counter-cyclical economic policies than is the case in the US or European Union (EU). Stepping up government support now, at a time of flagging demand and deflationary forces at work, is the correct Keynesian macroeconomic policy response. Having provided monetary and fiscal stimulus in both credit expansions and contractions, the US and EU are much more limited in their ability to pursue such a course now when it’s needed.

For better or worse, the US and EU aren’t able, or as prone, to employ further fiscal or monetary stimulus, nor would it be likely to work to as great effect as in China given the burden of accumulated debt and leverage that’s been accumulated in the US and EU during the past decade and more.

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