China’s clean energy industry is struggling to survive

Visitors to the world’s largest solar energy exhibition could be forgiven for not realizing just how dire conditions are in China’s flagship clean energy industry.

Last week, hundreds of thousands of people flocked to Shanghai’s largest convention center for the city’s annual solar gathering in a carnival mood. But behind the scenes, executives were worried about the crisis that was gripping the industry.

In China, solar prices fell after a breakneck expansion created far too much capacity, forcing many companies to sell at a loss. Abroad, China’s dominance in global supply chains is being tested by an explosion of protectionism.

Photo: Bloomberg

“We are entering a deep decline cycle,” Amy Song (宋贇波), vice president of photovoltaic materials maker GCL Technology Holdings Ltd (協鑫科技控股), said in an interview on Bloomberg TV on Friday.

“Almost no one is making any money these days,” Song added.

The growth of solar energy over the last two decades has been meteoric. The industry has grown from a niche environmentalist sector to the dominant source of new energy on the planet. Last year, the world installed 445 gigawatts (GW) of solar panels, more than all other energy sources combined in any year in human history. Most of them were made in China.

This is fueling the growth of multi-billion dollar companies that are now comparable to the giants of the oil and gas industry. However, it also created conditions that have plagued commodity markets for centuries. Chinese solar companies have been booming and are now headed for a crash that could overshadow the industry’s earlier downturn.

Rapid development is a typical tragedy of the commons.

Companies are pursuing their own interests without considering the overall impact if all their rivals behaved the same way, said Gao Jifan (高紀凡), president of Trina Solar Co (天合光能), the world’s third-largest panel maker. .

They were helped by local governments wanting to achieve their development goals and banks eager for loans, he added.

Gao was one of several executives who last week called on the Chinese government to intervene to help the industry get back on its feet. The list of options presented included regulating which new factories could be built, cracking down on less efficient facilities, limiting price cuts and promoting consolidation.

Meanwhile, too many factories are bidding to deliver too few designs, driving prices down to record lows and industry executives warning that bankruptcy is imminent.

Solar’s biggest sponsor is Beijing. The industry is one of the Chinese government’s “new productive forces” that it hopes will enable the Chinese economy to emerge from decades of growth driven by real estate, low-end manufacturing and state-led investment. Other clean energy sectors such as batteries and electric vehicles are in the same stable situation.

Beijing’s support, which has included generous subsidies in recent years, has helped create a global winning industry. Chinese companies control more than 80 percent of production capacity at every stage of the supply chain. This worries foreign governments that do not want to rely on a geopolitical rival for energy and want a share of the industry’s jobs for their citizens.

Last month, U.S. President Joe Biden tightened trade measures on solar equipment from China, and his administration is now focusing on operations in Southeast Asia that are seen as fronts for Chinese companies to bypass tariffs. India has also imposed import tariffs, and there have been calls in Europe to follow suit.

However, the problems facing the industry are both technical and commercial in nature.

Last year, China installed a record 217 GW of panel capacity – more than ever built in the US – and solar power now accounts for 22 percent of the country’s total generating capacity. However, intermittent sunlight puts a strain on the electrical grid.

Hundreds of small cities have halted permitting for new rooftop solar projects, and panel operating hours across the country are being cut as the grid rejects electricity because there isn’t enough room for it during the day.

The broader solution is for grids around the world to build more power lines that can transport excess clean energy to where it is needed. More storage is also required, mainly via batteries. However, adding these costs means that solar power will have to get cheaper and cheaper.

For now, the industry is focused on tightening its belt. Longi Green Energy Technology Co (隆基綠能), once the world’s most valuable solar energy producer, announced earlier this year that it would lay off thousands of workers. Others stopped production. Smaller producers are forced to withdraw their shares from stock exchanges.

Wuxi Suntech Power Co (無錫尚德電力) CEO Wu Fei (武飛) compared China’s solar sector to home appliance makers 15 years ago, when about 300 companies competed to sell washing machines, refrigerators and air conditioners across the country. The industry has consolidated with just a handful of players, and solar will likely follow suit, he said.

“Today’s changes in photovoltaics have just begun,” he said. “The second half of the year will be even worse.”