A major study of China's tangled solar market concludes that although consolidation and near-term chaos are inevitable, so is continued growth and a return to profitability. Module price/cost ratios are in the process of switching back to healthy values that can support at least some profit margin, and that trend will be beneficial for the entire global market.
For several years, even during huge growth that's gained almost 60 percent of world photovoltaic (PV) solar module production, the Chinese solar industry's health was undercut by a focus on huge volumes. This did help drive prices down. But it also created an enormous oversupply, said Zhun Ma, Lux Research analyst and lead author of the study, "The Great Shakeout: China's Path to a Rational Solar Industry," in an interview.
The solar market in China is entering a period of consolidation and shakeout. The annual average photovoltaic (PV) solar module cost and price trends of Chinese Tier-1 players in the past three years shows the price declines during 2012 that resulted in top suppliers selling at prices below their own production costs to compete with low-tier, low-price supplers.
(Source: Lux Research)
The focus on low costs above all else by Chinese solar module firms helped slash prices by 75 percent in the last five years, which also boosted demand and reshaped the entire industry. But the resulting loss of profit has caused turmoil in both Chinese companies and others around the world. Some of that turmoil included several Chinese solar companies going out of business, but others are still to follow, Ma told us.
Some of that turmoil also included trade disputes, such as the European Commission (EC)'s dumping accusations against Chinese companies producing solar wafers, cells, and modules sold in Europe. The EC's investigation found that dumping margins of up to 112.6 percent and production of 150 percent of global capacity led to unfair competition in Europe, as well as some companies becoming insolvent and others being forced to halt production. Consequently, on June 4 the EC decided to impose anti-dumping tariffs on Chinese-imported solar goods.
Much of the problem was caused by second- and third-tier suppliers selling low-quality goods at very low prices, said Ma. Last year, this forced most Chinese suppliers to sell at prices below their own production costs. Also, prices were changing so often that it was difficult for suppliers to predict capacity needs. This, plus the oversupply, forced the remaining companies to look at markets outside China, but that made them vulnerable to foreign policy changes.
Yingli China will purchase materials from DuPont including its Solamet photovoltaic (PV) metallization pastes that help boost the efficiency of thin film PV modules.
(Source: Ascent Solar)
Prices will stabilize for two reasons, said Ma. Last month, China and the EC reached an agreement setting minimum prices and market caps through 2015. A price floor of $0.74 per watt forces Chinese module makers to sell at somewhat higher prices and partially protects European manufacturers against uncertainty. This has also pushed the Chinese government to restructure its solar manufacturing industry, Ma told us. "The government has launched several serious policies to avoid the random, poorly organized market situation. It is tightening regulations to curb excessive capacity, by requiring minimum efficiency standards, as well as promoting more efficient technology and product differentiation."
Many of the lower-tier Chinese firms will leave the market now that they can't use low price to get business. Other companies have already closed their doors due to insolvency, or have suffered at least production cuts and layoffs. Picking up the slack will be the top-tier firms such as Yingli, Trina, Hanwha SolarOne, and Canadian Solar. Nine out of the top 10 solar module suppliers in the world are already Chinese, excepting only US-based First Solar.
Consumption is also growing in China, and it's on the verge of becoming the largest consumer market for solar energy, said Ma. Another move by the country's government has been to increase its domestic targets for installed capacity to 35 gigawatts by 2015.
Other changes will be more non-Chinese companies partnering with Chinese solar companies, such as First Solar's first commercial demonstration project of its thin-film modules with Zhenfa. DuPont has signed collaboration agreements with Yingli and GD Solar involving materials purchasing and materials R&D. In addition, DuPont and Yingli will install a solar power plant in China and work together on co-marketing initiatives that will help accelerate a wider and faster rate of adoption of solar energy.