In 2011, solar PV installations multiplied by nearly 3 times due to government’s increased commitment to industry development.
This already overcrowded industry is pushing weaker firms out of the frame, whilst stronger firms are suffering from overcapacity issues, troubled technological development, international slowdown, and a general struggle for survival.
Long term growth is expected to continue a rapid ascent, yet coordination and overcapacity issues need to be tackled to ensure growth can be maintained to a certain extent, in the short term.
Source: Global Wind Energy Council
Following the expansive growth of solar power in China leading up to 2011, the Chinese government is now targeting its total installed capacity to reach 21 GW by 2015 and 50 GW by 2020. This revised target demonstrates the Chinese government’s determination towards achieving their overall renewable energy targets and signals a firm belief this industry remains poised for growth, as well as being a suitable and sustainable platform for investment. Following the Fukushima disaster in Japan, China’s investment in nuclear energy has been reduced and offset by an increase in solar PV investment. The government is keen to develop the domestic solar power market swiftly through subsidies given and incentives to private manufacturers. Approximately 80% of China-manufactured PV modules and cells were exported by the end of 2011.
The domination by large SOEs in the former auction scheme which caused unintentional consequences of underbidding on large scale projects with the intent to capture market share is no longer allowed, thanks to the national Feed in Tariff (FiT), and it has stabilised the Chinese solar sector ever since – creating greater market competition and true dynamism within it. However, the FiT figures for 2012 only incentivised projects located far from demand centers where solar energy is more cheaply produced. Hence, BIPV (Building-Integrated Photovoltaics) systems which are traditionally focused near demand centers will struggle more in the near term compared to the rural-based LSPV (Large Scale PV) installations.
Current Overview
China is a multi-gigawatt solar PV market with newly installed solar PV capacity reaching over 2GW in 2011. The country is also the world’s fastest-growing solar PV market, with cumulative capacity to continuously ascend over the next few years. The majority of the new installations will be in grid-connected solar PV projects, such as BIPV and LSPV, to shift the market away from rural electrification.
Despite its impressive investment volumes and consistent growth, China’s solar PV market is currently dwarfed by Europe’s significant market control of over 75% of the globe’s total capacity in the global solar PV market. However, given the hard times that are now befalling Europe, China is positioning itself to fill a distinct niche in this particular sector as the EU shifts its attention to fixing their domestic financial crisis. The EU domestic financial crisis also means that its demand for PV is decreasing, thus paving the way for China to sustain growth in this industry.
Manufacturing market is now facing an increased competition and consolidation as the global value chain for solar PV is suffering from serious overcapacity. Components that are exceeded from the value chain are domestically reinstalled – hence increasing newly-installed capacity, yet setting up a confinement for foreign investment opportunities.
Industry Trends
Despite a high expectation towards China’s continued growth in installed solar PV capacity, the manufacturing industry has in fact been suffering from overcapacity and profit decrease. As for a result, a Solar Technology Developer of 3M stated that around half of the domestic module companies have disappeared in 2011, and what’s left and managed to survive in the battlefield were large companies with stronger technological capabilities.
Industry consolidation is rampant, but combined with the Chinese government’s push for increased solar installation, SOEs are vigorously entering the market which, historically, have been dominated by private firms. Moreover, as the price of silicon is decreasing at a consistent rate, (70% in Q3 2012 according to the Solar PV Committee of the Renewable Energy Society in China) smaller manufacturers initially focused purely on assembly functions are being squeezed out of the consolidation taking place in the market. This is believed to intensify the competitive atmosphere driving this market, however the longer term impacts remain uncertain.
Chinese companies are focusing on domestic orders to survive in response to the global financial crisis. According to a Solar Technology Developer at 3M, survival during this hard time seems to be the key goal and while the multi-national solar module manufacturers were focused on global markets which were more severely impacted by the global financial crisis, it was the local Chinese firms that made an aggressive push on developing domestic demand who are poised to come out of this phase of consolidation with a newly formed dominant position in the Chinese market.
Industry Opportunities
Potential for growth in the Chinese solar PV industry maintains a relatively bullish outlook for the strong who survive its ongoing consolidation. According to Solidiance’s analysis, the 3 main opportunities in this industry lie in the domestic development, new technology R & D (research and development), and cost reduction.
An opportunity to reinvest excessive capacity into the domestic market surely exists given the fact of the change in EU subsidies for solar PV, and this causes an abundant potential that China has for solar PV installations. For instance, Qinghai province alone possesses 1GW of installations, a figure exceeding the UK’s total solar installations and more than half of France’s in 2011. Qinghai is also where the world’s largest PV plant of 200 MW capacity is located, and it is equal to 6 times that of Brazil’s cumulative installed capacity in the same period. Moreover, 50% of the world’s supply of PV originates in China, indicating the technical capability is quickly achieving globally acceptable standards, making the local producers of solar PV well positioned to supply the anticipated domestic installation demand in the very short term.
Opportunities for technological innovation in the solar sector are continuously emerging. Lu Fang, the Secretary for the Solar PV Committee of the China Renewable Energy Society remarked that Chinese firms are now developing technologies and efficiencies of their solar cells on a ‘world class scale’. For example, Suntech Power, a Chinese firm and the world’s largest producer of solar panels, is researching technology to improve their mono and poly crystalline solar cells; Trina Solar, a Chinese manufacturer of photovoltaic modules, is also increasing their solar cells’ efficiency at impressively rapid rates. A Senior Electricity Analyst of the US Energy Information Administration even mentioned that an innovation of inexpensive and cost-competitive solar cells that are comparable with other electricity generation technologies would become a game changer in the global solar industry. It seems that Chinese companies are likely to be the first to access such technological opportunities.
Manufacturers are producing solar modules in greater volumes as the price of solar module components continue to drop due to the falling cost of silicon cells. They are also putting vendors under pressure to lower costs. It is then safe to say that the lower cost and higher efficiency modules are becoming one of the main opportunities in the Chinese solar PV market.
Industry Challenges
It is almost obvious that overcapacity issues faced by the solar PV industry in China present a short-term challenge for its future development. It creates an unfriendly and difficult environment to operate in for smaller, assembly-focused plants so they’re either falling out of the market or being bought up by larger, traditionally State Owned Enterprises despite their uncertain role within the market, resulting in higher competitiveness among chief solar module manufacturers.
Solar PV technology is comparatively more costly than hydro or wind power, with many technologies depending on subsidies and FiT. In order to witness sustainable growth, this industry will likely have to consider a rapid decrease in prices and a matching to grid parity. As silicon is expected to increase its market share within the thin film technologies by 10% in the next 2 to 3 years, this cost challenge is easing, according to the National Renewable Energy Centre.
In other well developed markets, demand for solar PV solutions is on the decline as has been witnessed in the USA and Europe. The USA is now focusing their financial incentives towards end consumers instead of sustaining the volume of imported product from other countries. Similarly, Spain and Germany reduced their incentives for solar installations overall due to the EU’s financial crisis. These given conditions pose additional challenges for Chinese producers of PV solar technologies from their traditional export model requiring them to prioritize domestic installation demand and further technological advancement in their solutions. Another challenge to face is that the LSPV systems installed in western deserts with the highest solar radiation levels will continue to struggle to be connected to the grid. However, when the solar power generated is at its highest and supply is high, the electricity demand on the grid is equally high, which enables more power to be accepted by the grid in cases where connectivity is not a constraint.
Summary
Solar PV market in China clearly shows future growth potential and is targeted for government investment. But the sector is facing a short term development issue as Chinese domestic module manufacturers are struggling to survive within the increasingly tight competition and decreasing international demand. Moreover, grid capacity and transmission problems also have their own impact to solar development and installation.
However, despite the existing challenges, China’s solar PV sector will likely grow due to its increasing technological capabilities and determination to develop the domestic market, although the regulatory system and proper coordination must remain top priorities to ensure the solar PV industry does not experience any further slowdown like what is being observed in China’s wind power sector.
