Storm brewing in China’s solar-panel sector threatens to spiral out of control
Length: • 2 mins
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China’s solar-panel manufacturing industry will erase its excess capacity over the next two years and return to equilibrium as early as 2027 following curbs on new facilities and an agreement among suppliers, according to UBS.
The Swiss investment bank forecasts supply to start shrinking by 7 per cent every year from 2024 to 2026, in contrast to 70 per cent yearly growth recorded from 2021 to 2023, analyst Yan Yishu said at a webinar on Monday. China has about 1,200 gigawatts (GW) of solar photovoltaic manufacturing capacity, or twice the market demand, she estimated.
Beijing has introduced regulations to curb new expansion facilities by raising the minimum capital requirements and limiting their energy and water consumption. The government also lowered export tax rebates on solar products to 9 per cent from 13 per cent to help speed industry consolidation and ease trade tensions.
“The government and the enterprises will lead the industry’s recovery from the supply side,” she said. “Once the leading enterprises agree to reduce their production, the overall capacity will come down very soon.”
To rectify the supply-demand imbalance, over 30 of the biggest players agreed last month to cut production during the annual meeting of the China Photovoltaic Industry Association. They pledged to adhere to future production quotas and halt aggressive price discounting to stem industry-wide losses.
China is the world’s biggest solar-panel producer, commanding 80 per cent of the global manufacturing capacity, according to the International Energy Agency. Some 39 of the nation’s 121 listed producers are losing money, hurt by overcapacity and geopolitical tensions, the association said.
The capacity-reduction efforts are expected to impact the broader supply chain in 2025, UBS said. The growth in polysilicon facilities will ease to 18 per cent from 24 per cent last year, and the growth in wafer production will decline to 3 per cent from 15 per cent. Output of solar cells and modules could stagnate or decline, it forecast.
UBS expects the world to generate 540GW of solar power this year, with 280GW or 52 per cent coming from China. Global demand will grow by 20 per cent between 2024 and 2026, versus 58 per cent seen between 2021 and 2023.
Despite higher tariffs imposed by the US government last year, China will continue to be the world’s leading exporter, according to Ronald Wu, head of ESG and sustainability research in Asia-Pacific at UBS.
“The story of China’s power equipment going overseas should continue to play out in 2025,” he said at the webinar. Emerging markets such as the Middle East, Africa, and South America will see stronger growth in demand for solar-panel products driven by their own energy transition needs, he added.
Yujie is a business reporter for the Post with a focus on energy transition, climate change and sustainability issues. She previously worked as a technology reporter in the Post’s Shenzhen bureau. Yujie graduated from Boston University with a degree in mass communication.