Three Of Taiwan's Top Solar Companies Merge To Rally Against Competition From China

Before the merger of three of Taiwan’s top solar panel makers this month, the survival of all three was in question. Neo Solar Power Corp., Gintech Energy Corp. and Solartech Energy Corp. officially became one company October 1 after a year of planning. They arranged a stock swap deal, to hear analysts tell it, because they had lost money to larger-scale competitors in China without much hope of a rebound otherwise.

"It means the drastic industry environment forced companies to change their traditional business model that focus on cell manufacturing," says Wang Meng-chieh, a manager at Taiwan's Industrial Technology Research Institute.

The new firm, which will fall under New Solar Power’s corporate structure, will see one former company, Gintech, provide upstream supplies while the others make different kinds of panels. Named United Renewable Energy Co., it can vie with Chinese peers by "scaling up fabrication capacity" and speed commercialization of new products by fusing technological expertise, Wang says.

“Previously, they were jumping around here and there,” says Chiang Hao-hsien, secretary general of the 110-member Taiwan Photovoltaic Industry Association. “They hope with this merger they can become a complete puzzle.”

Separately, the three were vying in an industry that has lost money globally over the past five to six years, Chiang says. Losses in Taiwan stem from slower than expected use of solar energy in some markets -- despite a U.S. government forecast that the energy source will rise from about 50 billion kilowatt hours in 2015 to 400 billion by 2040 -- and formidable competition from China.

Producers in China pose the most obvious threat to Taiwan-based solar industry companies because their modules sell for less, due to the country's larger production scale, says John Brebeck, senior adviser at the Quantum International Corp. investment consultancy in Taiwan. China's panels also lower quality, he adds. “The production process for solar cells is similar to that of integrated circuits but much, much simpler,” Brebeck says.

China’s solar industry ranks as the world’s largest, and it’s responsible for cutting world panel prices by 80%, according to this report. Taiwan's industry is smaller, but its companies, including Gintech and Neo Solar, rank among the world's biggest panel firms, and have a complete supply chain.

Neo Solar Power, which was founded in 2005, reported NT$10.25 billion ($331 million) in net revenues last year with a NT$4.16 billion loss. It did, however, post a growth in sales income for August. Solartech Energy posted a 34% revenue loss last year, ending at NT$6.2 billion. Gintech, a former Forbes Best Under A Billion honoree, did not report full financials in 2017.

In the merger deal, one Gintech share was swapped for 1.39 Neo Solar shares, while one Solartech share was exchangeable for 1.17 Neo Solar shares. The Taiwan government’s National Development Fund says it will also contribute funding to the new company.

For the first six months, United Renewable Energy will make little or no money as three company cultures merge, Chiang predicts. Later on, he says, complementary core lines of work should help the bigger firm grow.

United Renewable Energy might eventually establish markets in India, Latin America and the Middle East to overcome restrictions in China and Taiwan's relatively small size. "Language or culture differences should be the solved by internationalized sales abilities and logistic systems," Wang says.

The three companies combined have the highest registered capital of any solar panel producer in Taiwan, according to Chiang. They had announced a goal last year of raising capital of $687 million. Neo Solar has said the new company could generate about NT$50 billion in sales in the first year and post up to NT$100 billion in annual revenue within five years.