China seeks feedback on tougher rules to curb solar overcapacity

China’s government has drawn up regulations to control the expansion of its solar energy industry as the sector grapples with overcapacity that has triggered a price collapse worldwide.

China’s Ministry of Industry and Information Technology (MIIT) is seeking public input on a regulation that requires minimum equity ratios for new and expansion projects to be 30 percent. Previously, that threshold was for polysilicon projects, while the minimum for other wafer, cell and module projects was 20 percent. The draft will be open for comment until July 15.

The MIIT also ordered solar companies to spend at least 10 million yuan or 3 percent of total sales, whichever is higher, on R&D and product improvement. Annual output of solar manufacturing projects should also be at least 50 percent of their annual production capacity, according to the draft regulations.

MIIT said the regulations were issued to “strengthen the governance of the photovoltaic industry, guide the industry to accelerate upgrading and structural adjustment, and promote the high-quality development of the photovoltaic industry.”

A worker conducts quality-check of a solar module product at a factory of a monocrystalline silicon solar equipment manufacturer LONGi Green Technology Co, in Xian, Shaanxi province, China December 10, 2019. Photo: Reuters — A worker checks the quality of a solar module product at the factory of monocrystalline silicon manufacturer LONGi Green Technology Co. in Xian, China’s Shaanxi province, December 10, 2019. Photo: Reuters

The ministry said domestic solar energy companies should refrain from setting up new photovoltaic (PV) production projects solely to expand production capacity, and instead focus on strengthening technological innovation, improving product quality and reducing production costs.

Chinese solar manufacturers, which control more than 80 percent of the global solar supply chain, are facing a major shakeup as production outpaces demand worldwide. That has forced smaller manufacturers in the country out of business, and even major players are struggling to break even, prompting calls from industry executives for government intervention to solve the problem of supply-demand mismatch.

The draft document aims to “curb the chaotic pricing system and ongoing losses caused by disorderly expansion and price wars” in the solar energy sector, Orient Securities analyst Lu Rixin said in a report published on Wednesday.

Shares of China’s largest solar panel makers rose on Wednesday after the draft rules were released.

China’s largest solar maker Longi saw its shares rise 6 percent to 13.74 yuan on Wednesday. The rally came despite the Shanghai-listed company’s preliminary filing on Tuesday that it expected a net loss of 4.8 billion to 5.5 billion yuan in the first half of 2024, a huge deterioration from a net profit of 9.2 billion yuan in the same period in 2023. The company blamed a “mismatch” between overall supply and demand in the solar sector for the reversal.

Another top player, TCL Zhonghuan, saw its shares rise 7 percent on Wednesday. The Shenzhen-listed company said it expected a net loss of 2.9 billion yuan to 3.2 billion yuan in the first six months of this year, compared with a net profit of 4.5 billion yuan in the same period last year.

“Policymakers have begun to actively guide the healthy development and competition of the (photovoltaic) industry, which should accelerate the industry’s progress and put it back on track,” said Lu of Orient Securities.