Entering towards Photovoltaic Industry
Shinsung Solar Energy(formally known as Shinsung Engineering) was established at 1977 to manufacture air conditioning facilities. The company grew steadily and finally listed in the Korean Stock Market at 1996. At 2007, the company made important decision; they decided to enter photovoltaic industry. As one of the first Korean company who entered photovoltaic industry, earlier than current Korean major photovoltaic companies such as Hanhwa Q cells(2011) and OCI(2012), they expanded their business gradually from solar cell business(2007) to module business(2010) and solar energy EPC business(2012). By doing so, the company was able to establish vertically integrated business model.
Climate Change and Photovoltaic Industry
One of the major factor that has boosted growth of photovoltaic industry so far is growing concern about climate change. Until now, large portion of demand for photovoltaic industry has depended on government subsidies which were provided as an effort to reduce greenhouse gas(GHG) emission.
While average global surface temperature rose by 0.9 degrees Celsius from 1880 to 2015(1), many scientists point out that increasing emission of GHG has caused this dramatic climate change. Primary sources of GHG emission are the fossil fuel consumption for electricity and heat production which account for 25% of total GHG emission.(2) To cope with rapid climate change, reducing fossil fuel consumption became important agenda in many countries and many governments have been looking for alternative, environment friendly energy sources. Such interest boosted growth of photovoltaic industry.
Future of Shinsung Solar Energy
Economic recession after 2008 financial crisis and increased facility investment in China significantly dropped the price of photovoltaic products for several years. Because of the market recession, Shinsung Solar Energy also have gone through difficult years. However, increasing concern of climate change and continued technical innovation in photovoltaic industry are expected to open new growth opportunity for Shinsung Solar Energy by booting future demand.
First of all, increasing concern about climate change reignited governments interest in renewable energy sources including photovoltaic energy. From 2012, Japanese government restarted government subsidies polity, FIT (Feed in Tariffs) policy, and many other countries are starting to increase government aid towards renewable energy. Despite constant efforts of reducing GHG emission from many countries, installment of photovoltaic energy system have been mainly concentrated on European countries because the first attempt to regulate each country’s GHG emission, Kyoto Procotal(1997), only impose obligations towards developed countries, even excluding the United States. However, growing concern about GHG emission alarmed many countries and finally, in 2015, 195 countries agreed to reduce GHG emission at the Paris Climate Conference.
Furthermore, continued technology innovation and lowed installment price are increasing economic feasibility of photovoltaic power generation. Market experts are expecting that photovoltaic energy could reach grid parity in the near future. According to the Export and Import Bank of Korea, generation cost of electronic power of photovoltaic energy is expected to drop from 140krw/kWh(2014) to 80krw/kWh(2020), which is similar to estimated future generation cost of fossil fuel energy in European countries.(3)
It is expected that increased government subsidiaries and increased economic feasibility will lead future market demand. As market grows, Shinsung Solar energy will be able to grow accordingly.
To cope with expected increase in market demand, Shinsung Solar Energy have already executed capital investment in advance. They have constantly increased their manufacturing capacity and expected to increase overall capacity for solar cell from 350MW (2014) to 600MW until the end of 2016. (5)
However, to take full advantage of climate change in the future, Shinsung Solar Energy have to find a way to mitigate risks. First, due to several years of market recession and excessive investment, the company is exposed to financial risk. The company’s debt to equity ratio is more than 400% despite their recent issuance of new stock. Second, even though they achieved vertical integration of the solar system from solar cell manufacturing to installment of the system, the integration has not completed yet. They are still exposed to risks associated with changing price of raw materials such as ingot and wafer. Integration of preceding process of photovoltaic industry requires huge amount of investment. Therefore, addressing above mentioned risks would be difficult problem for Shinsung Solar Energy.
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(1) NASA’s Goddard Institute for Space(GISS), “Global Temperature,” NASA website, http://climate.nasa.gov/vital-signs/global-temperatrue
(2) “Climate Change 2014: Synthesis Report,” Intergovernmental Panel on Climate Change, 2014
(3) Industry review: Photovoltaic Industry, Export and Import Bank of Korea, 2015
(4) The 2016 Global PV Outlook, Renewable Energy World, issued at Jan.25, 2016
(5) 37th Annual Business Report, Shinsung Solar Energy, issued at Mar 28, 2016