China’s solar sector, which accounts for about 80% of global production, is going through a tough phase as it is expected to witness a turnaround soon after a series of heavy losses suffered by major companies in the first half of 2024.
According to Bloomberg, six major companies, including Longi Green Energy, have recorded combined losses of $2 billion, as a result of a massive excess of production capacity that has led to prices falling to record levels.
Reasons behind the decline
The crisis the sector is going through can be traced back to three years ago, when increased demand for solar panels led to higher prices, encouraging ambitious expansion plans that eventually led to a large surplus in production.
Bloomberg notes that at the end of 2023, solar panel production capacity was 1,154 gigawatts, while the expected demand for this year was only about 593 gigawatts, according to BloombergNEF estimates.
Market balance expected to return
Despite the current challenges, there are reports that there are early signs of improvement, with Goldman Sachs predicting a wave of factory closures could help rebalance the market, while Morgan Stanley believes equipment prices have already bottomed out.
According to Bloomberg, LONGi has also raised the prices of its solar panels in an attempt to break out of the cycle of competition on low prices, in a move similar to what TCL Zhonghan Energy, the two leading companies in the field in China, did.
Global competitive pressure
This comes at a time when Chinese companies are facing additional challenges from rising trade tensions with the United States and Europe.
The US plans to double tariffs on Chinese solar equipment to 50%, while tensions are rising with the EU over support for domestic companies.
The role of the Chinese government
Under these circumstances, some Chinese corporate executives are pressing the central government to step in and support the industry.
Proposals include regulating the construction of new factories, cracking down on less efficient facilities, setting a cap on price cuts, and promoting mergers.
The market is expected to take between 6 and 12 months, according to Bloomberg, to restore price levels that enable companies to achieve financial balance.
Until then, Bloomberg believes that China’s solar sector will continue to go through a period of major adjustments that could help restructure it in a way that ensures its long-term sustainability.
