The world’s ten biggest solar companies could soon have enough capacity to meet global demand for solar wafers and cells twice over, according to consulting firm Wood Mackenzie — and eight of those companies are from China.
Yet far from celebrating, the mood among Chinese company executives has darkened, thanks to a 40 percent slump in the price of solar modules over the past year that has made a major dent in their profits.
The current level of solar panel oversupply is a result of China’s ambitious plans for the industry. In December 2020, Chinese president Xi Jinping announced that China’s capacity for wind and solar power sources would reach more than 1,200 gigawatts by 2030. China’s solar capacity already stood at around 610 gigawatts in 2023, according to the National Energy Administration, around 43 percent of the global total.
The graphic below shows how China’s share of solar capacity in each stage of the supply chain has increased since 2010 — and is set to expand further.
The resulting slump in solar module prices has left its mark on China’s top solar companies. In March, Xi’an-based silicon wafer producer Longi Green Energy Technology announced it was laying off five percent of its 60,000-strong workforce, citing an “increasingly complex and competitive environment.”
Technological improvements and economies of scale are a big factor here. If the [solar] sector continues to consolidate, you’ll see even more economies of scale and that could be a driver of reduced costs.
Joe Webster, senior fellow at the Atlantic Council’s Global Energy Center
Smaller firms have felt the pinch even harder, with Dalian-based Lingda Group announcing during the same month that construction of a $1.3 billion factory it had planned in Anhui province would not proceed. Lingda cited changes in the industry market environment in announcing its decision.
Beijing’s past support for the solar industry is not the only reason why prices are falling.
“Technological improvements and economies of scale are a big factor here,” says Joe Webster, senior fellow at the Atlantic Council’s Global Energy Center. “If the [solar] sector continues to consolidate, you’ll see even more economies of scale and that could be a driver of reduced costs.”
China’s central government in fact announced in 2021 that it would phase out subsidies for new solar projects. Still, local governments have provided indirect subsidies that have prevented weaker producers from going bust and much-needed consolidation within the industry.
“Whether it’s through labor, such as through the lack of hukou reform in many instances, whether it’s through preferential land sales — there’s lots of different ways to subsidize industries,” says Webster, referring to China’s household registration system which in effect restricts internal migration of workers.
“Are provincial governments going to be willing to accept important local producers to go bankrupt? Maybe, maybe not,” he adds.
Chinese solar industry executives are now calling for more central government intervention to help co-ordinate the industry’s future development, according to a recent report in Bloomberg.
The graphic below shows the shrinking profits of some of China’s top solar companies:
Chinese companies are unlikely to find relief in higher prices for their products overseas. In Europe, for example, the supply of solar panels has piled up faster than they can be installed thanks largely to a boom in imports from China. In all, Europe had 7 billion euros ($7.5 billion) worth of uninstalled solar panels in storage last year, according to energy research firm Rystad Energy, which predicts the market will remain over-supplied until at least 2025.
“It’s increasingly difficult to secure large volumes of profitable exports for these producers, because the European market is already relatively saturated,” says Webster from the Atlantic Council. “Different places within Europe are using solar panels for fences because they just don’t have enough people to install them, or because of local grid constraints.”
The graphic below shows the capacity of Chinese solar panels in four export destinations and how the trends have changed since 2017.
Aaron Mc Nicholas is a staff writer at The Wire based in Washington DC. He was previously based in Hong Kong, where he worked at Bloomberg and at Storyful, a news agency dedicated to verifying newsworthy social media content. He earned a Master of Arts in Asian Studies at Georgetown University and a Bachelor of Arts in Journalism from Dublin City University in Ireland.
