The smog that choked Beijing last month may have been bad for public health, but it could also prove to be a tonic for China's ailing solar sector.
With calls growing for the world's biggest coal consumer to reform its energy consumption structure, some photovoltaic (PV) companies, having suffered one of their most difficult years in 2012, are now finding themselves with more breathing room.
Zhu Zhiguo, senior vice president of Trina Solar, one of the country's leading solar module makers, said he has confidence in the company's performance and prospects for 2013, as demand still exists and government support is strengthening.
"We are going to move to a new level. We will start to post profits in at least one quarter in the second half of the year," Zhu said.
His remarks came after an official with the National Energy Administration said last week that China will increase its solar energy supply target from 21 gigawatts (gw) to 35 gw by 2015.
The new target, revised for the fourth time in five years, will represent massive growth from the 6.5 gw of solar power installed in 2012.
At present, solar power accounts for less than 3 percent of China's total energy consumption, according to Zhu. "Every percentage point added to that share would mean a great deal to us and even to the country's economy."
Meanwhile, the trajectory of the New York-listed company's stock is underpinning Zhu's confidence.
Shares of Trina Solar, along with those of other Chinese PV manufacturers, such as LDK and Suntech, rebounded from a historic low in November after China signaled willingness to prop up its struggling PV export industry.
Data from the Ministry of Commerce showed that more than 90 percent of Chinese solar products are exported, with 70 percent going to the eurozone and 10 percent to the U.S. market.
However, a variety of PV trade investigations were initiated against China in 2012, plaguing an industry that has seen its profit margins squeezed by significant overcapacity.
Orders for Chinese PV equipment slumped 80 percent in 2012 from a year ago, according to the China PV industry Alliance. As much as 90 percent of Chinese polysilicon makers halted production and 80 percent of solar panel producers shut down or sharply reduced output, it said.
To offset shrinking overseas demand, the Chinese government has stepped up supportive measures since last fall to reshape the oversupplied sector and reorient it towards the vastly untapped domestic market.
The incentives include encouraging mergers and restructuring in the industry, boosting distributed solar power generation and paving the way for a more market-oriented on-grid solar electricity pricing scheme.
The policies will surely be a boon for the cash-strapped solar industry, said Xu Chongqing, an energy expert at the Shandong Academy of Sciences.
"They will help compensate PV companies' lost share in the foreign market," Xu said. Big companies will have more time to adjust their business models and enhance research and development, while outdated capacity will be phased out through mergers.
"Uncompetitive players may begin to exit the market this year," said Liu Jianli, marketing director of the Shandong Linuo Power Group.
Spurred by the government's support policies, the sector is expected to register a steady growth rate of 10 percent in 2013.
Other business insiders agreed that the industry may begin to show signs of recovery in 2013. However, uncertainties related to a trade investigation in the EU may cast a shadow over the rally.
In November, the EU announced that it would probe alleged state subsidies for Chinese solar panel manufacturers. This came amid an existing investigation into allegations of Chinese dumping of such products in European markets.
Michael Barker, an analyst at the research firm Solarbuzz, said in a note that the EU case may impact the PV industry to a larger extent than the one in the United States last year.
The United States in early November issued anti-dumping and countervailing duties on imports of Chinese-made c-Si cells, while the EU investigation is targeting not only c-Si cells, but also c-Si wafers and modules, posing pressure on a much broader level, Barker wrote.
The outcome will mark a watershed moment for the industry's recovery, said Zhou Xuhui, analyst at Shenyin Wanguo Securities.
Given the boom in the domestic market, Chinese solar power companies can tolerate duties under 10 percent and start to take a turn for the better in the second half of 2013, Zhou said.
However, should the EU approve duties of more than 20 percent, Chinese firms would have almost no access to the European market. The loss would be too much and the industry's turnaround would be delayed to 2014, he added.
Although Chinese manufacturers have been bracing for unfavorable investigation results, they still hope that the EU might rescind the probe.
"I hope they will give up. Otherwise, the road for our company to become profitable will be much bumpier," Zhu said. "European countries may also be hurt, as costs will be pushed up across the industry." Endi