China’s bloated solar sector has been hard hit this year by plummeting prices brought on by overcapacity. Overseas demand, which absorbs most Chinese panels, is set to fall next year as tariffs are imposed and subsidies cut.
However, consolidation in solar manufacturing is not yet in the cards. Instead, the government is turning its attention to boosting domestic solar-power installations. At the same time, it is turning a blind eye to local governments’ grandiose plans to ramp up production. As new-energy and high-tech activity remains a national priority, these plans are likely to come at least to partial fruition, exacerbating the problems suffered by the industry.
Most of the solar panels made in China are exported, with much of the demand coming from the US and Europe; the latter is expected to account for two-thirds of worldwide installed solar capacity this year. Global demand growth has been robust, with panel installations doubling in the US in both 2011 and 2012.
However, 2013 is likely to be different. US anti-dumping tariffs on solar-cell imports from China were finally approved in November, which will discourage purchases from Chinese companies. In early 2012 several EU countries, including Spain, cut subsidies for solar installations. To top it all, the EU began an anti-dumping investigation into Chinese solar exports in September, which may lead to further tariffs.
As the sector braces itself for the slump in external demand, officials are trying to accelerate development in the home market. China has already become the world’s third-largest consumer of solar energy, up from seventh in 2010. Solar installed capacity ballooned from 537 mw in 2010 to 2.5 gw in 2011. As a result of the external slowdown, officials have brought forward the planned target of 21 gw from 2020 to 2015. In October local media reported that the State Grid, China’s largest utility, plans to give local subsidiaries the power to approve plants with installed capacity of less than 10 mw. The National Energy Administration is reportedly considering a subsidy of Rmb0.4-0.6 per kwh of distributed solar power.
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The pains taken to boost domestic absorption may prove a Sisyphean task, however, as local governments still have ambitious plans to ramp up production. The industry remains favoured, and is seen by local officials as an easy way to boost new-energy and high-tech development. Moreover, it spurs upstream activities, such as the production of polysilicon, a core component in solar panels.
The province of Shaanxi, which has large stores of polysilicon as well as a glitzy new solar research-and-development centre established by US-based Applied Materials, aims to raise solar industrial output to Rmb300bn (US$47.6bn) by 2015-a tenfold increase on 2011. By comparison, total Chinese exports to Europe were only worth Rmb223bn in 2011. Efforts to increase photovoltaic (PV) cell production in the north of the province, where several solar-power stations are under construction, have been substantial. The local five-year plan (2011-15) calls for expansion into equipment manufacturing.
Production in Chengdu, the provincial capital of Sichuan, is also expanding rapidly. In-November 2012 the prefecture announced that it had attracted Rmb6.45bn in planned investment for solar-manufacturing projects. Chengdu has maintained a target of Rmb100bn in industrial capacity in new energy, with a focus on solar projects. In May the western region of Xinjiang released a five-year development plan targeting annual output of Rmb10bn from PV producers, and annual income growth of more than 70% from the PV industry.
Expanding production in western China will exacerbate the problems. This year solar panels with an estimated capacity of 59 gw will be produced in China, against global demand of just 30 gw. Producers in Shaanxi, Chengdu and Xinjiang are still overwhelmingly looking to foreign markets to take up excess supply, creating more price competition for struggling established companies.
Installation costs per watt dropped by 45% between 2010 and August 2012-much of this driven by falling panel prices. In the first 10 months of 2012, Chengdu’s solar-cell exports rose by 60%, while the average value of those exports fell by 89%. Prices for polysilicon fell from US$50-55/kg in 2009 to US$20-30/kg in August 2012, forcing around 80% of the country’s polysilicon producers to shut down this year.
Although western China will see demand grow, much depends on the pace of progress in constructing supporting infrastructure. The country is still struggling to build the infrastructure needed to transfer the electricity to market. In 2011, only 70% of China’s installed solar capacity was connected to the grid.
In addition, more advanced power distribution and storage systems are needed to handle the irregular nature of power loads from solar and wind sources. The State Grid is reportedly investing more than Rmb300bn in upgrading transmission infrastructure this year. It plans to complete seven ultra-high voltage (UHV) lines by 2015, forming the backbone of a national grid system.
Several recently announced projects in Xinjiang and Qinghai are explicitly dependent on the further development of UHV lines. However, doubts remain over the success of these lines. Similar projects have been abandoned in Russia, the US and Japan, as overdependence on UHV can amplify the damage caused by isolated grid failures and blackouts. Projects often run over schedule in order to account for these issues. Many of China’s new installations will probably remain off-grid for some time after they are completed.
In the next few years the country should surpass Germany and Italy as the world’s largest consumer of solar panels. However, this will not be enough to fix the struggling sector. The central government will need to make more aggressive attempts at consolidation than it has done so far, lest its companies-which are often propped up by local governments-fall further and further into debt. LDK Solar, one of the country’s largest manufacturers, was sued in November for failing to repay its loans.
Western regions looking to expand their high-technology manufacturing may see a short-term boon, but the outlook for the overall industry is anything but sunny.
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