Chinese PV firms lead the world, but overcapacity, price weakness loom

China's solar industry climbed to new heights in 2023, with manufacturing, installed capacity and exports experiencing robust growth and reshaping the global landscape with continuous technological breakthroughs.

According to the China Photovoltaic Industry Association, China saw 163.88 gigawatts of new photovoltaic installations in the first 11 months, marking a remarkable 149.4 percent year-on-year growth. Most months saw triple-digit percentage surges, with March topping 400 percent.

Currently, over half of the nation's new installations of power generators are photovoltaic facilities.

The surge prompted the CPIA to revise its projections for China's new PV installations this year, raising the forecast from an initial range of 120-140 GW to 160-180 GW.

"China's solar power global market share has exceeded 80 percent. Technological prowess is evident in continuous breakthroughs, such as achieving a 33.9 percent conversion efficiency in crystalline silicon-perovskite tandem solar cells, setting yet another world record," said Wang Shijiang, secretary-general of the CPIA.

This rapid growth in PV installations had a significant effect on overall renewable energy capacity, which reached 1.45 billion kilowatts last year. Impressively, this capacity marked a new high and constituted over 50 percent of national power generation installed capacity, said the National Energy Administration.

Solar power alone reached 557.6 million kW as of the end of November, significantly exceeding the NEA's year-end target of approximately 490 million kW set in 2022.

Surges in output, exports

Data from the association further revealed a substantial year-on-year increase of over 70 percent in PV manufacturing output — which encompasses silicon materials, wafers, cells and modules — from January to October. The manufacturing output, including approximately 1.14 million metric tons of polysilicon, around 460 GW of wafers, 404 GW of cells and 367 GW of PV modules, contributed to an output value exceeding 1.3 trillion yuan ($182 billion).

"China holds a dominant position in the global PV supply chain. Benefiting from a complete life-cycle supply chain and rapid advancements in PV power generation technology, China has emerged as a leader, achieving significant cost reductions and shaping the landscape of solar energy on a global scale," said Jiang Yali, a solar sector analyst at BloombergNEF.

Such strong production capacity spurred a remarkable surge in PV exports, with a 90 percent increase in wafers, a 72 percent jump in cells and a 34 percent rise in modules, from January to October, supported by resilient global demand. Because of rapid price declines, PV product exports totaled approximately $43 billion during this period, reflecting a marginal 2.4 percent year-on-year decrease.

Li Shuo, a Ministry of Commerce official, said PV products had become new drivers for exports in 2023. Li said PV exports to economies involved in the Belt and Road Initiative, ASEAN and nations in Africa saw significant growth.

Wang Bohua, honorary chairman of the CPIA, also highlighted the increasing diversification of the PV export markets, with Europe still holding the largest share at 52.9 percent, albeit slightly down from the previous year.

Breakthroughs in efficiency

According to the global solar cell laboratory's highest efficiency chart published by the National Renewable Energy Laboratory, as of Dec 15, Chinese entities broke records five times, and maintained seven current records.

Notably, the highest efficiency record for silicon-based solar cells was again broken by Longi Green Energy, standing at 27.09 percent on Dec 19, certified by the Institute for Solar Energy Research in Hamelin, Germany. The previous record was also set by Longi at 26.81 percent.

The company broke another world record of 33.9 percent conversion efficiency for crystalline silicon-perovskite tandem solar cells in late November.

Cao Renxian, chairman of the CPIA, said: "China saw accelerated technological iterations in PV components, with cutting-edge battery technologies gaining industrial traction. The efficiency of novel cells has repeatedly set world records, positioning China at the forefront of such global technology."

Expansion of applications

The robust PV manufacturing industry has facilitated the continuous expansion of application scenarios.

The development of residential PV has progressed rapidly, with China's cumulative installed capacity surpassing 100 million kW by the end of September. Rural areas in China have witnessed over 5 million households installing residential PV systems, driving investment exceeding 500 billion yuan, said the NEA.

Looking at regional distribution, provinces including Shandong, Henan and Hebei led in cumulative installed residential PV capacity as of September, accounting for 60 percent of the country's total, the NEA said.

According to the administration, rural areas in China that have the potential to install PV panels on roofs cover approximately 27.3 billion square meters, and there's huge potential for further development.

Although distributed PV slightly surpassed centralized large-area PV in capacity, the latter's growth was faster, the CPIA said. In the first three quarters of 2023, centralized PV saw installations of 61.79 GW, a year-on-year growth of 257.8 percent.

"The first batch of wind and solar power installations in the Gobi Desert and other arid areas was required to be connected to the grid by the end of 2023, which contributed to the sector's rapid growth," said Wang.

Overcapacity, price concerns

While PV development has yielded impressive results, concerns about fiercer competition and overcapacity loomed over 2023.

Wang highlighted a continuous decline in PV module prices since February, with several companies' bidding prices per watt falling below 1 yuan beginning in October.

"While the new energy industry saw continued high growth in 2023, it faced a series of challenges. Prices in the PV and energy storage industry chains were consistently decreasing, indicating periods of temporary overcapacity," said Zhu Gongshan, chairman of Golden Concord Holdings Ltd, a major solar power firm.

Experts said the primary reason for the price decline is the imbalance in supply and demand, together with market expectations of a reduction in silicon material prices. In addition, large global inventory stockpiles make it challenging for module prices to rise.

Under the low-price scenario, PV enterprises face considerable challenges. In the secondary market, the PV sector experienced a decline throughout the year. As of Dec 18, the total market value of the PV sector shrunk by nearly 1.2 trillion yuan. The largest PV exchange traded fund, Huatai-PineBridge CSI Photovoltaic Industry ETF, plummeted by over 40 percent, and nearly 30 stocks in the sector had seen declines exceeding 40 percent.

Longi's third-quarter report indicated that, despite year-on-year growth in production capacity and sales supporting revenue and net profit for the first nine months, the performance in the third quarter fell significantly below market expectations. The main reasons cited were reduced investment income, foreign exchange losses, increased inventory write-downs, and heightened research and development expenses, among other factors.

Liu Yuxi, the China region president of Longi, said last year's decline in module prices exceeded the company's earliest expectations, almost reaching a "panic drop". Liu emphasized that prices below 1 yuan/watt for modules would truly mean falling below production costs, indicating it may be difficult for some companies to make ends meet.

Industry insiders said the overall operating capacity of silicon wafer plants may be less than 80 percent at present, making destocking increasingly pivotal. Many manufacturers are eager to offload inventory at low prices, and the current price of silicon wafers has touched some companies' breakeven points. Although top-tier companies like Longi are less affected by declining operating capacity, the sustained low prices have squeezed bottom lines.

Experts said the industry has entered a restructuring phase, with old product inventories facing destocking campaigns, and sustained low prices testing companies' cash reserves.

Intensified efforts

Against this backdrop, PV companies are actively seeking innovative ways to reduce costs and improve efficiency. Liu of Longi said that the company is willing to focus more on exploring cutting-edge technologies in industrial development.

In its third-quarter financial report, Longi reiterated its strong commitment to developing back-contact structure crystalline silicon solar cell technology, aiming to enhance the production yields and conversion efficiency of hybrid passivated back contact products. With the in-depth R&D of efficient BC technology and advancing production capacity, higher-level performance HPBC Pro cells are expected to begin production by the end of 2024.

BC cells, promoted by Longi, are a general term for various back-contact structure crystalline silicon solar cells. They can be combined with various technologies such as TOPCon, HJT and tandem cells.

However, in the current competition for technological dominance among third-generation N-type cells, the TOPCon camp has shown a better performance.

According to recent financial reports released by major PV companies, the "flagship" of the TOPCon camp, Jinko Solar, saw an income of 85 billion yuan in the first three quarters, a year-on-year increase of 61.25 percent, and a net profit of 6.35 billion yuan, up 279.14 percent.

The company said that the increase in the proportion of N-type solar cell delivery is one of the main reasons for the net profit growth. TOPCon solar cells can be manufactured as N-type or P-type solar cells.

Another PV giant, Trina Solar, whose major products are TOPCon solar cells, also achieved a doubling of profit in the first three quarters to over 5 billion yuan.

It seems that although overcapacity is dragging down prices, profits for leading companies are still on the ascent.

Qian Jing, vice-president of Jinko Solar, said: "For any industry, the right amount of overcapacity and moderate competition are necessary to drive technological progress. Otherwise, there will always be a supply-demand mismatch, leading to corporate complacency. Efficient products are never sufficient, and inefficient overcapacity persists. This is the essence of the market."

Zhu of Golden Concord said: "Overcapacity is a natural phase in market economies. Facing competition while being prepared for potential elimination is an integral aspect of industry evolution."

Zhu said that as the renewable energy industry gears up for a shakeout, those hinged on specialized products and high-quality development driven by technological innovation will stand out, and enterprises hoping to survive, let alone thrive, should intensify research efforts.