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After years of turmoil — marked by overcapacity, plunging prices and declining investor confidence — China’s solar sector is showing faint but discernible signs of recovery.
In 2010, Europe’s dominance in the global solar panel market had appeared unassailable. The region accounted for about three-quarters of global solar photovoltaic installations, with Germany leading by a wide margin. Then China decided to break into the market. Its plan worked, perhaps too well.
While the People’s Republic managed to snatch market share from Germany, the cost has been a plague of overcapacity and falling prices. Investors have avoided the sector for its unappealing outlook and bleak growth prospects. But there are now signs that the sector may be approaching a bottom.
It is hard to overstate the extent of slack in the solar industry. China’s solar cell production capacity reached about 1,000 gigawatts last year — not only exceeding current global demand but enough, at the rate of last year’s growth, to exceed total projected demand through to 2035.
As a result, in the decade through to 2020, the cost of solar panels fell about 85 per cent. Earnings have deteriorated: about a third of China’s listed solar companies reported a loss last year and several went bankrupt.
Potential policy shifts in important markets outside China, notably the US, add to the uncertainty. Subsidies offered under President Joe Biden’s Inflation Reduction Act could come up for debate under president-elect Donald Trump.
But there are some signs of recovery. Prices of polysilicon, a vital material for solar cells, rose 2.2 per cent this week compared with the previous week to its highest level since last May, continuing a trend that started in December. Production cuts and declining inventories are starting to yield results. The rapid growth of renewables in important markets such as south-east Asia and India could start to redefine the sector.
China can help itself, somewhat. As the world’s largest consumer of solar panels, it has been ramping up installation plans through new large-scale projects in the region. This includes China’s “Solar Great Wall” in Inner Mongolia, which is set to transform deserts into renewable energy hubs at an unprecedented scale, adding demand for solar panels. An over-dependence on government-driven demand is no real solution, but eases some pressure as the industry works through its glut of solar panels.
Investors adjusted to the gloom long ago. Shares of JA Solar Technology and JinkoSolar Holding, two large manufacturers, have sagged by about two-thirds since their 2022 peak. But they are up more than a fifth over the past six months. With the sector seemingly nearing a bottom, it might finally be time to lighten up.
june.yoon@ft.com
