[NEWS ANALYSIS] Korean solar focuses on U.S. market as it feels heat at home

At home, the renewable energy industry is facing headwinds due to the new government's policy shift and controversies over solar project funding.

Solar panels installed in Sinan County, South Jeolla [JOONGANG PHOTO]

Solar energy companies will likely enjoy significant tax benefits and increased demand for solar power-related products and services with the enactment of a U.S. climate law. At home, the renewable energy industry is facing headwinds due to the new government's policy shift and controversies over solar project funding.

On Aug. 16, President Biden signed the Inflation Reduction Act (IRA) into law in a bid to speed up the green transition, curb inflation and lower the country's dependency on foreign supply of key components and materials, especially from China. Whereas the IRA is expected to hit Korea's electric vehicle and battery exports to the U.S., clean energy businesses operating in the country are forecast to enjoy significant tax incentives.

Hanwha Solutions, which came out as the biggest beneficiary of the newly passed bill, said that it expects to get a $200-million tax cut a year for the next 10 years starting 2023, according to a Bloomberg report on Aug. 23.

The company is eager to ride the wave, reallocating resources from other businesses into the solar projects.

Hanwha Solutions on Friday announced a plan to streamline its business portfolio to ramp up investments in the solar power business in the U.S. As the retail nit and part of the advanced materials unit will be separated from the existing company, only three divisions will remain under Hanwha Solutions: the Q Cells solar energy unit, the chemicals unit and the local solar energy business development unit specializing in domestic projects.

Stakes in the new advanced materials subsidiary will be put up for sale to raise capital, according to Hanwha Solutions. The company hopes to invest the money into expanding the production capacity at its U.S. solar module plant.

Hanwha Q Cells, the U.S. solar energy subsidiary of Hanwha Solutions, is running a 1.7-gigawatt solar module factory in Georgia, and plans to pour 200 billion won ($142 million) next year to expand the production capacity by 1.4 gigawatts to a combined capacity of 3.1 gigawatts, which would be the biggest for a solar equipment supplier operating in the United States.

Hanwha Solutions on Sept. 7 released an electric disclosure saying that it will scrap the plan to invest 160 billion won in the chemical business, citing low profitability. Instead, a 760-billion-won investment in local solar projects was announced that day.

Even companies that do not have U.S. manufacturing facilities — such as OCI, a supplier of polysilicon for solar panels — are expecting a sales boost to some extent as well. Increasing solar panel demand in the European regions is also a favorable factor.

As Chinese solar companies are aggressively expanding their presence worldwide outside the United States, backed by strong government support and cost-competitiveness, the U.S. market is one place where Korean companies can outshine their Chinese rivals.

"While the performances of major domestic solar energy companies have improved in the first half of 2022 compared to the previous year, the gap between local and Chinese companies are growing bigger," said Kang Jung-hwa, a senior researcher at a research institute of the Export-Import Bank of Korea, in a report released on Sept. 8.

Korea sold $616 million of solar cells and modules overseas from January through July this year, a 10.6-percent decline on year, according to Korea International Trade Association. And the United States took 83.6 percent of Korea's solar cell and module export.

China's export volume of solar cells and modules in the first half reached $23.8 billion, up 96.7 percent on year, according to data compiled by BloombergNEF. Europe, facing energy crisis driven by the war in Ukraine, took $11.5 billion of China's solar cell and module exports, up 150 percent on year.

"In order for the local solar companies to survive, improving their standing in the U.S. market is the only option left," said Kang.

But in long term, that might undermine the domestic market and its solar supply chain, argued some experts.

Han Byung-hwa, an analyst at Eugene Investment & Securities, told KBS1 radio on Aug. 17 that the expansion of overseas investment "may not be a good thing in terms of national interest."

"It is because that may lead to an outflow of jobs to the United States and Europe," said Han. "Local production is bound to shrink quickly."

The local solar power industry is already losing steam at home, with Chinese companies rapidly expanding their presence and the new Yoon Suk-yeol government reducing renewable energy in Korea's energy mix.

The proportion of locally-produced solar modules dropped 5 percentage points to 68 percent, from 2017 to June this year, according to a report released by People Power Party Lawmaker Lee In-seon. During the same period, the market share of solar modules from China increased 5 percentage points from 27 percent to 32 percent.

The recent findings of irregularities in renewable energy projects are also hampering the business sentiment of the local industry.

On Sept. 12, the Office for Government Policy Coordination found that at least 261.6 billion won, or some 12.5 percent of the 2.1 trillion won reserved for renewable energy projects, had been improperly managed over five years.

The mismanaged funds related to solar power projects alone was 210.8 billion won, and included cases of fake mushroom cultivation and insect breeding facilities, built specifically to get loans reserved for solar panel farms. There were instances of fake tax invoices, poor accounting, inflated construction costs, contracts with unregistered companies and falsified documents.

"It's truly deplorable that taxpayer money coming from their blood, sweat and tears, which should be spent on supporting the welfare of those who are struggling, was used for corrupt acts by cartels with vested interests," Yoon told reporters on Sept. 15 at the Yongsan presidential office.

The Financial Supervisory Service is looking into loans and private funds put into solar sectors, in terms of investment volume, financial soundness and integrity of the approval process.

The industry is feeling the heat.

"The industry is going through a really tough time," said a solar power industry insider who wished to remain anonymous, emphasizing that financing will be near impossible from now on.

"Commercial banks will be reluctant to lend money to solar-related businesses, and even if they do grant loans, the process for funding approval will be more difficult and complex than it is now," said the insider. "Who would provide loans to new businesses in the solar sector when the government said that they will conduct investigations on the loans that were already granted?"

The Yoon government has been adamant in reversing the previous administration's energy policy, promoting nuclear energy while lowering the target for renewable energy proportion in Korea's energy mix. In a long-term, energy supply policy released in August, Yoon's renewable goal was 21.5 percent of the total, down from Moon's 30-percent target. Nuclear energy will account for 32.8 percent, up from the previous government target of 23.9 percent.

Next year's budget for financing support and installation subsidies for solar energy was cut from this year's 980 billion won to 660 billion won.

The 4.6-trillion-won Saemangeum offshore solar plant project — which had been pitched by the previous Moon Jae-in as the world's biggest offshore solar plant project — is also facing uncertainties in the wake of the policy shift.

In its original plan set in 2018, the Moon government aimed to build a 2.1-gigawatt solar plant floating on the sea, yet the schedule was delayed over the past three years due to a myriad of issues during the operator selection process.

"Renewable energy such as solar power cannot meet the massive electricity demand," said then-presidential candidate Yoon during his interview with a local press in January, addressing the Saemangeum project. Yoon promised to "supply a massive amount of energy produced by the nuclear plants to Saemangeum site to attract corporations to the region."

The Saemangeum Development and Investment Agency said that "the project is progressing as planned and no discussion was made on plan changes at this point."

As the RE100 initiative continues to gain traction in Korea, the outlook on the solar energy business is expected to get better eventually, analysts said.

"Without achieving the RE100 target, domestic companies will gradually lose their sales channel to the foreign markets," said Han in a report published Sept. 16, following an announcement by Samsung Electronics to join the RE100 initiative. "It is free to choose between a failing national economy and renewable energy expansion — but the answer is crystal clear."

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]