“China Moves to Support Its National Champions as the Bottom Drops Out of the Solar Market” should be the title. As an FT article points out, the price of photovoltaic solar panels has fallen by around a fifth this year and by nearly two-thirds since 2008. Overcapacity in polysilicon and finished panels — and low-cost Chinese production — are responsible for the decline, but the fall in growth rates is exacerbating the situation this year.
Western manufacturers are closing factories and slashing workforces as subsidies in cash-strapped European markets are withdrawn or scaled back. Feed-in tariffs have been dramatically reduced in Spain and Italy, and even prosperous Germany is reducing rates. The reduction in subsidies is expected to slow the volume growth rate of solar panel sales from 65 percent annually over the past five years to about 15 percent through 2016, according to Lux Research quoted in the article. The good news from Lux is the fall in costs and rise in wider power generation costs may make photovoltaic cell electricity production economically viable by 2016 – now wouldn’t that be a development for renewable power!
High profits and phenomenal growth rates have not helped the industry, which remains far too fragmented to consolidate even while the going was good. Now that growth rates are tumbling and additional new lower cost capacity is coming on-stream, excess capacity is a major problem. According to another FT article, spot market prices of solar cells and wafers have fallen by about 40 percent since the beginning of the year and are now below cash cost for many manufacturers.
Even if the industry doesn’t opt for consolidation, rationalization will result as weaker players exit the stage. Overcapacity will get worse this year and next, favoring the larger manufacturers – mostly Chinese vertically integrated companies. A doubling of production output has historically translated to costs falling by a fifth, according to a joint report by the European Photovoltaic Industry Association and Greenpeace, cited by the FT. Nor is there anything really to choose between the manufacturers in terms of technology, so where brand plays a role, no producers have clear technological advantages.
Whether Beijing recognizes this as an opportunity or sees it as a threat that needs countering, the fact remains they have moved swiftly to support the major domestic players. Even though firms like Yingli derived only about 5 percent of their sales from the domestic China market in the past, they are rapidly refocusing efforts at home following Beijing’s announcement of the first national feed-in tariff for solar projects that aims to raise solar power supply tenfold in just five years, as this article reports. Just as a similar tariff for wind projects in place since 2009 has propelled China to become the world’s largest wind farm operator, the solar feed-in tariff will, it is widely expected, have the same impact for solar.
In the same way that state support and protection for steel, shipbuilding and electronics propelled Japan and then South Korea to become today’s No. 1 or 2 in those industries, so China’s support for key industries — a bewildering array of industries — will result in them becoming the unassailable No. 1 in many of the new renewable energy industries evolving today.
By. Stuart Burns
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