The Chinese Communist Party (CCP) has been vigorously developing the solar energy industry in China, ultimately leading to overcapacity and further driving down the prices and profits of solar energy products. Analysts believe that despite China’s huge solar energy industry, it has fallen into chaos.
According to a report by The Economist, China’s solar energy industry spans every part of the global supply chain, from polysilicon to finished products. Data from consultancy firm Wood Mackenzie shows that last year, China’s solar module production capacity reached around 1,000 gigawatts (GW), nearly five times the total capacity of other regions in the world. China now produces more than twice the total global installation of solar energy cell modules each year.
During the pandemic, due to a shortage of polysilicon supply, the price of solar energy cell modules rose. However, according to data from PVInsights, global prices have since plummeted to historical lows of less than 10 cents per watt.
The rapid growth of China’s solar energy industry production capacity has surpassed global demand and squeezed most of the industry’s profits. The selling prices of polysilicon, wafers, cells, and finished modules are currently below the average production cost. Despite soaring production volumes, the price collapse led to a 5.6% decrease in China’s solar energy export revenue last year, as stated by Wood Mackenzie. Since early 2023, the stock price of LONGi Green Energy Technology in Xi’an has dropped by around 60%. In March of this year, the company announced layoffs of 5% of its employees, citing an “increasingly complex and competitive business environment”. Stocks of other Chinese solar energy giants like Trina Solar, JinkoSolar, and JA Solar have also been severely hit.
Smaller companies have been hit even harder. Yana Hryshko, a solar industry expert at Wood Mackenzie, explained that larger companies usually have diversified businesses, which helps them withstand the price collapse of solar energy products. Smaller companies are not as lucky. Londa Solar, a smaller solar cell manufacturer, recently canceled plans to build a $1.3 billion factory. A senior executive at another Chinese solar energy company estimates that at least half of the enterprises along the entire supply chain will face bankruptcy.
However, there are almost no signs that the issue of overcapacity in China has been resolved so far. Despite the financial pressure brought on by price drops, the industry’s largest companies continue to upgrade technology and expand production to keep the unit production costs below competitors. Wood Mackenzie predicts that by 2026, China’s solar energy industry capacity will expand to nearly 17 gigawatts.
The support of the CCP’s national policies for the solar energy industry exacerbates overcapacity. For decades, city and provincial government leaders in China have been seeking to establish local solar energy industries that can employ local people, who, in turn, pay taxes. Usha Haley from Wichita State University pointed out that governmental support takes various forms, including free land, electricity, interest-free loans, and the provision of cutting-edge technology. She estimated that all these factors combined account for about 35% of solar energy company costs, but in some cases, it could go up to 65%.
However, this government support may become increasingly unsustainable. Many provinces in China are now struggling to repay ballooning debts. As the Chinese economy slows down, solar energy companies also have to compete with other industries for limited government incentives and support, while enterprises from other sectors are also grappling with the issue of overcapacity. An analysis by consultancy firm Rhodium revealed that last year, over one-fifth of industrial enterprises in China were not profitable. Exporting China’s surplus capacity overseas faces resistance as well. Last month, Ursula von der Leyen, President of the European Commission, stated that the world cannot absorb China’s excess capacity. On June 12, the EU announced temporary tariffs of 26% to 48% on Chinese electric cars.
Chinese cheap solar energy cell modules may face similar treatment. Since 2012, the US has been imposing anti-dumping duties on Chinese solar manufacturers. Although the EU abandoned similar measures in 2018, some are still concerned about Europe’s overreliance on Chinese solar energy companies. In April of this year, the EU agreed to expand subsidies and support for local solar manufacturers affected by Chinese imports.
Jenny Chase from Bloomberg New Energy Finance stated, “First, there are meager profits, then long-term low profits, and finally bankruptcies and exits. We call it the solar roller coaster.”