China’s Solar Industry Turns to OPEC for a Guide to Survival

Article content

(Bloomberg) — China’s solar equipment manufacturers are learning that they need to hold back to survive.

Article content

Article content

More than 30 top companies signed up to the abstinence plan at the annual meeting of the China Photovoltaic Industry Association last week, in an agreement made on how the Organization of Petroleum Exporting Countries regulates oil supplies. Firms will receive allocations for how much they can produce next year, based on their current market share and capacity and expected demand, according to local media.

Article content

CPIA declined to comment on the deal.

The deal comes as China’s solar industry faces overcrowding, geopolitical tensions and falling demand. Companies are focused on riding out the storm in the belief that it may be another year or more before profits start to recover.

The deal represents a sharp turnaround from years of fierce competition that brought the industry to its knees, while at the same time reducing prices and raising the bar to the point that solar power is the cheapest and fastest-growing form of energy.

It is too early to say whether quotas will succeed in such a diverse and competitive industry. But what’s clear from comments made by solar executives at two high-profile events last week — the BloombergNEF Summit in Shanghai and the China Photovoltaic Industry Association meeting in Yibin, Sichuan — is the cause of the pessimism.

“Next year’s keyword is still here,” said Xing Guoqiang, chief technology officer of Tongwei Co., at the Shanghai event. “2025 will be critical for many companies to survive this cycle.”

Article content

Article content

The source of the sector’s woes was the construction of a factory that started in 2021, which led to excessive capacity, especially in China, where more than 80% of the world’s production is done. There is currently enough capacity to build more than 1,100 gigawatts of panels per year. That’s not only nearly double what the world is expected to import by 2024, it’s more than it will need through 2035, according to BloombergNEF forecasts.

Solar is not alone when it comes to the fight against excess energy in China, where sustained growth in recent decades has led to excessive investment now outpacing a slowing economy. From copper smelters to steelmakers and oil refiners, industries across the country are facing a crisis with everyone agreeing that plants should be closed, and no one willing to be the first to intervene.

The saving grace of the solar industry was a huge demand for its products, but that is slowly disappearing. Global installations rose 76 percent in 2023 and are expected to rise another 34 percent this year, but growth will slow to 8 percent in 2025, according to BloombergNEF. Trade tensions are also a factor, forcing Chinese companies to set up plants in countries such as the US, India and Indonesia to try to avoid rising tariffs.

Article content

Excess capacity has forced companies to lower their prices, often below the cost of production. Longi Green Energy Technology Co., until recently the largest solar producer, is expected to post a loss of about 1 billion this year, after making a profit of more than 1.7 billion dollars in 2023. Most executives said they did not expect the situation to improve until the second half of 2025, although some were even more pessimistic.

“Considering the current level of energy, it may take at least three years for the wafer and module sectors to break even,” said Zhang Longgen, chairman of United Solar Polysilicon, in Shanghai.

These varieties were seen in Yibin, a city in southwestern China known for serving the spicy and fiery liquor of baijiu. The CPIA held a meeting with the Chinese media where it scolded journalists for focusing on bad news and urged them to help develop the industry.

Solar companies are used to excellent coverage. In addition to producing clean energy that is essential to winning the fight against climate change, they are also known for their technological prowess, which has helped reduce costs by more than 90 percent over the past decade. That leads to a really significant increase. In 2014 there were less than 200 gigawatts of solar panels installed in the world. By the end of this year, there will be more than 2,200 gigawatts, according to BloombergNEF.

Article content

Such rapid development has created multibillion-dollar product giants, but it has also left a trail of corporate failures in its wake. Suntech Power Holdings Co. and Yingli Green Energy Holding Co. they were the world’s largest panel builder in the early 2010s. No one survived.

Therefore, the lesson for Yibin was to avoid repetition. Executives spoke of the need to show restraint and avoid unfair competition, citing OPEC as an example of price management. At the same time, some did not understand whether the companies would follow the new rules.

“If you make a promise, how do you really keep it?” asked Lu Chuan, chairman of Chint New Energy Technology Co. “How do you come to a consensus and take punitive measures when there is no self-control? I think these issues will continue to be discussed in the future.”

Still, the deal should at least help tighten the bleeding in the sector and could help boost prices. Now, it’s just a question of how well the companies are implementing this plan.

“We are entering a new era for OPEC where the conventional analysis of supply needs may be ineffective if consumption is correct,” said Jefferies Financial Group Inc. analyst. Alan Lau on point.

Article content

On the phone

Chinese media said the country has room to widen its borrowing and financing deficit in 2025 as investors watch to see if Beijing will use its fiscal power to boost momentum at its key economic meeting next week.

China’s central bank expanded its gold reserves in November, ending a six-month freeze on purchases after prices of the precious metal rose to a record.

Critical details, especially on fiscal measures, are missing from China’s stimulus push. It is also a clear indication of how strong policy will be next year to encourage growth and protect the economy from high US costs. The Central Economic Work Conference, said to be scheduled for Dec. 11-12, will set the direction for policy, says Bloomberg Economics.

This week’s diary

(Always in Beijing unless otherwise noted.)

Monday, December 9:

• China inflation data for November, 09:30
• China will issue a Nov. and giving money on Dec. 15
• Intl Energy Executive Forum on energy transition, Beijing, day 1

Tuesday, December 10:

• China’s first set of trade data for Nov., including iron, steel and copper; iron, aluminum and rare earth exports; oil, gas and coal exports; imported and exported petroleum products; soybeans, edible oil, rubber and meat and offal imports ~11:00
• CASDE’s monthly plant supply demand report
• Intl Energy Executive Forum on energy transition, Beijing, day 2

Wednesday, December 11:

• Central Economic Work Conference of the Chinese Government in Beijing, day 1
• CCTD weekly online forum on Chinese coal, 15:00

Thursday, December 12:

• Central Economic Work Conference of the Chinese government in Beijing, 2nd day

Friday, December 13:

• Weekly iron ore ports in China
• Shanghai exchange weekly commodity collection, ~15:00

Article content