China set up its own “OPEC of solar panels” to avoid an internal price war. It came out regular

If there is currently a power in renewables, it is China. The country installs 60% of the world’s renewable capacity and has huge projects underway like his ‘Solar Great Wall‘, he largest wind turbine in the world and ambitious plans offshore energy both wind and photovoltaic. In the solar energy segment there are so many companies competing for the same piece of the pie that even the biggest ones are drowning.

And with problems everywhere, the industry wanted to emulate the oil sector with a great self-control pact. The first attempt has gone wrong.

Saturation. The storm began in 2021. It was the year in which China presented its net zero emissions plan for 2060 with a very ambitious goal: at least 1,200 GW of solar and wind capacity installed by 2030. Energy companies got down to business , but there were also companies not endemic to the energy sector that jumped on the bandwagon of what aimed to be a very lucrative business.

The problem is that it was carried out without apparent control, with everyone fighting the war on their own. The result? Large projects throughout the country and such a beastly production of solar panels that it has stifled companies from outside Chinabut also an annual production capacity of around 1,200 GW of panels.

So we don’t all fit. This might seem good, but it is not: it represents double global demand in 2024 and is more than expected for 2030. The situation pushed many companies to deduct prices, sometimes below costs, creating a kind of ‘Ice Age’ of the photovoltaic sector with companies such as GLC Tecnology – the second solar company in China and one of the largest in the energy sector– asking the state for help.

The reason is that the prices of the entire production chain (from silicon to photovoltaic modules) had fallen below costs and companies were losing money with each sale. As we read In South China Morning Post, the China Photovoltaic Industry Association, or CPIA, estimates that prices in each segment of the panel supply chain fell between 60% and 80% in 2024 from their peak in 2023.

Following in the footsteps of OPEC. The problem is that demand also did not follow the trend. According to the energy think tank Ember, global solar installations grew by 29% in 2024 compared to 87% in 2023. In China alone, the expected growth in 2024 was 28%, far from 55% the previous year. In addition, 39 of the 121 publicly traded photovoltaic producers, reported losses in Chinaand giants like Longo Green Energy had to lay off 5% of their workforce.

It was necessary to take control of this unlimited production, and it is something that was attempted to be tackled at the CPIA meeting in December of last year. In the la, 33 of the main manufacturers signed a self-control commitment based, according to SCMP, on the agreements of the OPEC -Organization of Petroleum Exporting Countries-. The idea was to agree on production quotas based on their capacity, respect the minimum recommended price established by the Association and, with this, wait for the market to regulate itself.

First problems. It is curious that, just two weeks after the signing of that self-control pact, the CPIA issued an open letter criticizing a solar project in Xinjiang that was violating the agreement. The problem? The company, a subsidiary of the China Energy Investment Group, set a price “significantly lower” than the 0.68 yuan – about 0.09 euros – per watt stipulated by the CPIA.

It is something that has weakened the morale of an industry that considered an OPEC-style pact as one of the last realistic resources to save solar-related companies and jobs in the country before taking actions that end with closures and layoffs.

The Government puts its hand. This is something that worries government institutions and companies themselves because a negative climate in which companies are operating at a loss or without achieving financial objectives can have a disastrous consequence: compromising the quality of the panels and the industry, prevent innovation and, therefore, make China blur what has been achieved in recent years, disappearing the competitive advantage and causing the loss of talent.

And the CPIA is not the only one that has tried to control the situation. The central government also imposed some measures to curb the expansion, such as increasing minimum capital requirements for new panel manufacturing projects from 20% to 30%, lower export tax rebates, and stricter limits on water and energy consumption. . For example, the permitted electricity consumption for existing manufacturers was reduced from 80 kWh/kg to 60 kWh/kg.

It’s complicated. The problem is that the industry is, at this point, too big. With the new government measures on energy use, it is estimated that production capacity will be between 20% to 30%. But the problem is, as Jessica Jin – an analyst at S&P Global – points out, that the main obstacle will be controlling all the factories in the country to ensure that they comply with the measures.

In the end, what is happening in China is something that has been brewing for months: they lead the solar panel market (by a lot), but they have grown without control and this accelerated boom is currently being regulated based on demand both internal and external.

Images | Korea Aerospace Research Institute

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