The price drop was good news for solar-cell and panel makers, but their customers expected lower prices for their products, too. This has caught more than 450 Chinese solar power companies in a quandary. If they stop construction that is already underway or shutter production lines, they will have to shoulder huge losses for their investors; if not, they can hardly make money now with heavy inventories purchased at much higher prices.

The turning point

Still, there are signs that Chinese solar companies could emerge faster and stronger than many of their competitors worldwide, thanks to the Chinese and U.S. governments' recent solar energy incentives.

The Ministry of Finance released a solar PV roof scheme, aimed to boost domestic demand for solar energy in March. The plan would offer 20 yuan ($2.93) per watt-peak for solar PV installations greater than 50 kw.

The subsidy will help cut solar electricity costs from its current 1.5 to 2 yuan ($0.22 to $0.29) per kwh down to 0.28 to 0.42 yuan ($0.04 to $0.06) per kwh, making it competitive with other sources of electricity. National market prices for electricity now range from 0.28 to 0.6 yuan ($0.04 to $0.09) per kwh.

Since then, local governments have been competing with one another to offer solar companies ever more generous subsidies, including free land and cash for research and development. State-owned banks are offering solar energy companies loans at considerably lower interest rates than available in Europe or the United States.

Furthermore, China's top economic planner, the NDRC, is expected to fix a benchmark on-grid price for solar power generation soon that is expected to be a little higher than 1.09 yuan ($0.16) per kwh.

The secret of survival

Reaping the benefits from favorable government policies in China and the United States, Suntech Power signed non-binding agreements with four Chinese provinces and cities to develop solar projects of up to 1,800 megawatts over the next few years. The company has also been selected as the supplier for a 50-megawatt project in California, with products scheduled for delivery in the last three months of the year.

Shi said Suntech Power's ability to profit in the second quarter was due to efficient cost cuts. The company's polysilicon cost decreased 13 percent in the second quarter from the first quarter, and is close to its current market price, as its high-priced inventory will soon run out.

The company also plans to cut non-silicon costs from a current $0.61 per watt to below $0.60 per watt by the end of the year and to $0.5 per watt by 2010.

Looking ahead, Suntech Power said it expects third-quarter shipments of PV solar panels to increase more than 50 percent above the second quarter. But shipments will slow in the fourth quarter, leading the company to lower its forecast for 2009 shipments to 600 megawatts, compared to its earlier projection of 600 to 700 megawatts.

More significantly, Suntech Power's patented Pluto technology enabled the company to cut production costs by avoiding the use of expensive materials like semiconductor-grade silicon wafers. The Pluto technology breaks a 15-year-old conversion efficiency record for polysilicon modules. Suntech Power achieved 15.6 percent efficiency—a new record, compared with the previous record of 15.5 percent, which was recognized by the science journal Progress.

Suntech began mass production of Pluto-powered modules this March and expects to ship Pluto products with a 10- to 15-megawatt capacity this year.