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The solar energy industry in China is facing a crisis: overproduction, falling prices and intense competition. How will this affect manufacturers and the global solar energy market?
Chinese solar panels are already 60% cheaper than those made in Europe or the United States. As is logical, exports continue to increase, but this apparent bonanza hides a deep demand crisis.
Falling prices and demand crisis in solar energy
Prices continue to fall. Eight out of every ten solar panels sold worldwide are manufactured in China. The components to manufacture them — such as the silicon in photovoltaic cells — are also Chinese. The entire supply chain is dominated by China. Despite new tariffs imposed by the United States and its allies, exports from the Chinese solar industry continue to rise: they increased by 10% compared to last year. And wholesale prices continue to fall: nearly halving in 2023 and another 25% this year.
Fierce competition between manufacturers
Chaos. Chinese solar industry's apparent bonanza hides deep demand crisis, says a New York Times analysis. There are too many manufacturers and they are immersed in fierce competition. Despite the brutal expansion of Chinese renewables, many driven by the government, there are not enough installations to cover their supply.
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At least seven major manufacturers in the Chinese solar industry have announced significant losses for the first half of this year. Half are already selling below cost, and the market value of many of them is starting to plummet. Despite these losses, many continue to build new factories.
The effects of state subsidies
From these rains, these muds. Generous loans from state banks and subsidies from local governments are largely responsible for the current overproduction. Chinese banks, following Beijing's guidelines, lent so much money to the sector that solar energy companies were able to reduce costs until they eliminated many competitors. Now, the capacity of China's solar factories is almost double the world's demand.
Turning off the tap and the future challenges of solar energy
Closing the tap. The Chinese solar industry's problems are compounded by the disappearance of local subsidies: Local governments are running out of money due to an unprecedented housing crisis that makes it difficult to sell long-term leases, until now their main source of revenue.
In turn, the Ministry of Industry and Information Technology issued a draft regulation so that solar energy companies can only borrow 70% of the money needed to build or expand factories, instead of 80%.
Despite these obstacles, some companies claim that the layoffs are just a way to prepare for future expansions and continue to build new factories, with the hope that the sector will revive thanks to the rise of artificial intelligence and electric cars.
