The government-owned China Development Bank has just made its third massive loan to one of the country’s solar energy makers, bringing its total commitment to about $17 billion. The combined size of the loans is large enough to allow China to double the global manufacturing capacity for solar wafers and cells.  The latest recipient of the government’s largess is Yingli Green Energy Holding Co. Ltd. (NYSE:YGE), which today announced that had received an aggregate line of credit from the China Development Bank worth about $5.3 billion. In April, Suntech Power Holdings (NYSE:STP) and Trina Solar Ltd. (NYSE:TSL) received loans of $7.3 billion and $4.4 billion respectively.

Yingli is expected to reach a manufacturing capacity of 1,000 megawatts by the end of the third quarter 2010, and the new funds could enable the company to increase capacity to as much as 5,000 megawatts. The company did not disclose detailed plans on how it would use the funds, other than to say the money would go to “PV industry-related domestic and overseas investments.”

While a build-out of manufacturing capacity is almost certain, it would not be surprising to see Yingli and the others make a move toward into a more lucrative downstream strategy. Solar players MEMC Electronic Materials, Inc. (NYSE:WFR), First Solar, Inc. (NASDAQ:FSLR), and SunPower Corp. (NASDAQ:SPWR) have all recently purchased smaller companies with solid project pipelines and experienced sales, marketing, and project management teams.

The largest of those acquisitions was First Solar’s $285 million buyout of NextLight Renewable Power. Next to First Solar, NextLight had the second largest project pipeline in the industry, so that indicates how far several billion dollars could go if this is the direction the Chinese manufacturers take.

The catch, of course, is that now that MEMC and SunPower have made similar purchases the companies that are left are even smaller. The Chinese need scale to soak up more manufacturing capacity, and that doesn’t seem to exist any more. Thus, if they want to move downstream, the Chinese are going to have to build sales and marketing teams from the ground up, and spend time and money developing the projects for its solar cells and modules.

But, not all that much money and time are needed if the companies poach employees from competitors.

As solar manufacturing capacity ramps up and costs fall, margins for manufacturers are squeezed. Declining or disappearing government subsidies are also taking a chunk out of margins. The smart move for solar makers is to try to jump on the train carrying First Solar, MEMC, and SunPower. That train has not left the station just yet, but the whistle is blowing.

Paul Ausick

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