China, the largest producer of solar technology and the largest user of that technology, will continue to dominate the industry over the next three years.
This is according to a new report from Wood Mackenzie that forecasts that as much as 80% of the global production capacity in polysilicon, solar wafers, cells, and modules will be concentrated in China.
“China’s solar manufacturing expansion has been driven by high margins for polysilicon, technology upgrades and for developing local manufacturing in overseas markets, China will still dominate the global solar supply chain and continue to widen the technology and cost gap with competitors,” Wood Mackenzie senior consultant Huaiyan Sun said.
This will not be welcome news in European capitals and Washington. Both the European Union and the United States, along with Australia and Canada, are seeking ways to reduce their dependence on China on various technologies related to the transition.
Solar is a priority area for the EU and the U.S., with both in a rush to develop local supply chains and production capacity. Yet, according to Wood Mackenzie’s report, this development will take a while until locally produced solar tech becomes competitive with Chinese-made wafers, cells, and modules.
Currently, the consultancy said, a solar module made in China costs 50% less than one made in Europe and 65% less than a module made in the United States. The latter two, then, would need to put a lot of effort—and time—to bring their production costs down before they can challenge China’s global solar dominance.
“Despite considerable module expansion plans, overseas markets still cannot eliminate their dependence on China for wafers and cells in the next three years,” Wood Mackenzie’s Sun said.
It might even get worse concerning cost. Competition among Chinese solar tech manufacturers has been intensifying recently, and there is a lot of surplus manufacturing capacity. This means there is a substantial potential for excess production that will bring prices even further down.
In fact, Wood Mackenzie predicts that some Chinese manufacturers would have to work at a loss, shut down factories, or reduce their production capacity. This would mean even cheaper solar cells and modules, at least for a while until the waters clear.
Even with these troubles, China’s solar module production capacity will continue to rise strongly, the consultancy said, forecasting a compound annual growth rate of 38% for the country over the period between 2021 and 2026. By next year alone, China will have one terawatt in solar wafer, cell, and module production capacity. This is enough to satisfy total global demand for these components until 2032, Wood Mackenzie said.
Meanwhile, solar manufacturing capacity in the rest of the world would be growing at a compound annual rate of 26%, based on capacity announcements. While this is much lower than China’s capacity CAGR, it is still a significant growth rate, enabled by massive investments in the development of those local solar supply chains.
Yet China is making massive investments to keep its number-one spot, too. This year alone, China has invested $130 billion in its solar power industry.
The U.S. and the EU are also investing billions in their respective solar industries, but they have a lot of catching up to do.
In the U.S., the Inflation Reduction Act has, per the Solar Energy Industries Association, prompted the announcement of 155 GW of new production capacity, including ingots and wafers, cells, and modules.
In the EU, however, solar installers are hoarding cheap Chinese panels as demand for solar installations slows down, which cannot be particularly motivating for the development of local manufacturing capacity.
It seems that, at least in the medium term, there is little either the U.S. or the EU could do to challenge China’s solar energy dominance, including in their own low-carbon energy plans.
By Irina Slav for Oilprice.com
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