China solar power firm sees 25 percent growth

By Emma Graham-Harrison

BEIJING (Reuters) - China's top maker of solar water heaters, Himin Solar Energy Group, expects earnings to grow 25 percent to around 2.5 billion yuan ($333.2 million) this year, but said raw material costs and a lack of government support are denting profits.

The solar heaters are the only form of renewable energy competitive in China without any subsidies, and have edged out gas and electric-powered heaters to take around 20 percent of the urban market, Himin's President Huang Ming, told the Reuters Global Environment Summit on Wednesday.

China already accounts for over three-quarters of world output of the systems which use the sun's energy to heat water for daily use, rather than to generate electricity as better known photovoltaic (PV) cells do.

Beijing has pledged to get 15 percent of its energy from renewable sources by 2020 and aims to more than triple the amount of installed solar water heating capacity by the same date, to reach 300 million square meters, from just 80 million in 2005.

Production this year is up 25 percent, and could continue to grow at that rate for the next five years, with more backing from Beijing, Huang said.

"The market is still growing and I think the government is going to bring out more (supportive) policies," he said.

But the company founder, who began his career as an oil engineer before deciding renewables had more future, said the government is not yet doing enough, particularly in cities.

It is expensive and challenging to install the heaters on the higher buildings now springing up in wealthier areas, and some developers are also resisting buying the systems of roof-top pipes and tanks on aesthetic grounds, he added.

So the firm is targeting bigger users like hospitals, schools and hotels, which rarely consider solar water heating -- and also expects rural buyers to account for a bigger share of earnings as their incomes rise.

At present, only 10 percent of sales are in rural areas, but in five years, that is likely to rise to around 30 percent.

"They need hot water not only for living, but also for rearing livestock. It is particularly needed with cows," he said.

LOW QUALITY RIVALS

Despite the rise in sales, profits for 2007 are expected to be stable with last year at around 200 million yuan, in part because of the rising price of stainless steel and copper.

Huang estimates his company has around 15 percent of a very fragmented market, which they aim to increase to 20 percent within five years.

There are 3,000 to 4,000 firms in the sector because entry costs are low, some using such poor quality designs that their raw material costs are up to 80 percent below Himin's.

"The government should improve standards to guarantee quality, and improve supervision" Huang said. "If people buy low quality machines they break more easily, so people are more likely to complain, start saying that solar power is no good."

The company also produces a small amount of solar-panel powered goods, mostly lights, which account for around five percent of turnover and are particularly attractive for parks and remote areas as they require no underground cabling, he said.

LISTING, EXPORT PLANS

Himin plans to list on the Chinese stock exchange within 2 to 3 years, Huang said, and is currently in talks with potential investors which it hopes to wrap up in the next six months.
Almost all their sales are currently into the Chinese market, and although Huang is interested in foreign sales, he said Himin plans to go abroad only after researching markets where a different type of system -- based on flat panels -- dominates, and preparing a sales and support system.
"Its a matter of 5 years or so...we need strong technology but also a good grasp of language and culture," he said.

"I want it to be perfect, I don't want people to say China can't even make hot water heaters," he added.

At present they are focusing research efforts on perfecting systems that can be used on the balconies or walls of high-rise buildings, although they do have some on the market already, and bringing down the cost of all their models.

"It may be over-ambitious, but we would like to try and push gas and electric powered heaters out of the market in 10 to 15 years...we invite them to produce solar heaters instead," he said with a grin.