Shunfeng signals new strategy as acquisition spree ends

Shunfeng International Clean Energy, the Changzhou-based owner of Suntech, has finished its flurry of acquisitions, and hopes to begin spinning off some of its myriad businesses in early 2017, its chief executive tells Recharge.

The IPOs will come as part of a strategic shift that will see Shunfeng largely abandoning its current model focused on manufacturing solar panels and feeding them into its own large PV projects in China.

Instead, the company will adopt a two-pronged approach, offering EPC and O&M services to other owners of large renewables assets, while also providing clean-energy services to clients like schools and hospitals – profiting as they reduce their power bills and carbon emissions.

Shunfeng will also continue manufacturing solar cells and panels, though largely for sale to external customers.

Shunfeng's changing strategy comes amid a steep decline in its share price. The company's market valuation has fallen 66% this year to HK$7.1bn ($920m), and its share price recently dipped below HK$2 – its lowest level since its acquisition of Suntech.

Shunfeng – backed by Chinese billionaire Zheng Jianming – has over the past few years engaged in one of the biggest shopping sprees in the history of the renewables industry, acquiring a sprawling portfolio of businesses and technologies, often with seemingly little rhyme or reason to outside observers.

While its most high-profile acquisition remains Wuxi Suntech, the company has also invested in or partnered with suppliers of batteries, ground-source heat pumps, electric vehicles, light-emitting diodes, and other technologies.

But the company is finished making acquisitions, says chief executive Eric Luo.

"Our priority is to solidify our business model," Luo said in an interview on the sidelines of the Solar Power International conference.

Shunfeng's strategic pivot – moving to an "asset-light" model – will strike many in the solar industry as abrupt. The company raised eyebrows early last year when it set a goal of installing 10GW of PV capacity in China by the end of 2016.

But those ambitions have changed significantly.

As of mid-2015, Shunfeng had about 2.3GW of operating PV capacity in China, with another 1.9GW under construction.

It's "maybe not true" that Shunfeng will own 10GW of operating capacity by the end of next year, Luo says, but it hopes to get there "in aggregate" – or taking into account all of its capacity in development, under construction and in operation.

In July, Shunfeng unexpectedly scrapped a deal to buy its first-ever wind projects in China "because of some issues we found during due diligence", Luo says.

Owning and operating big renewables projects – an "extremely capital-intensive business" – has become less of a priority for Shunfeng, Luo says. Some solar assets the company currently owns will likely be sold soon.

The company's focus will instead shift to two other central business models, Luo says.

First, Shunfeng will offer EPC and O&M services to other renewables owners, allowing it to maximize the value of acquisitions like Meteocontrol, a highly successful asset-monitoring company within Germany's S.A.G. Solarstrom, which Shunfeng acquired last year.

Second, it will rapidly swell its portfolio of energy-management contracts (EMCs), wherein Shunfeng will design holistic ways for building owners to cut their electricity costs and carbon emissions, and then build and manage those systems for them.

Luo highlights one recent example – the Hongqiao International School in Shanghai – where Shunfeng married its rooftop PV, ground-source heat pump, energy-management, and LED lighting offerings, cutting the building's energy bill and carbon emissions by two-thirds.

Shunfeng will look to sign 20-25 year EMCs with building owners and even cities, taking a cut based on their overall energy and carbon savings. Luo cites China's pressing need to reduce its greenhouse gas emissions as a major opportunity for the company.

While such contracts could harness the many companies Shunfeng has acquired, they represent a  nascent business for the company – which is profitable today – and a largely unproven business model.

One business Shunfeng does not intend to give up is PV manufacturing. Last month it spent nearly $60m acquiring a majority stake in US-based PV manufacturer Suniva, in what may prove one of its last acquisitions.

As Shunfeng has suggested previously, the company intends to eventually spin off some of its recently acquired businesses, with Luo pointing to early 2017 as a likely target date. 

New York or mainland China would be the location for the IPOs, he says, contrasting with Shunfeng's own Hong Kong listing. ​