For Chinese solar photovoltaic (PV) manufacturers, things are going from bad to worse. Recently published third quarter reports showed that many of the largest players are posting significant losses as they continue to compete in a vicious price war.
In its most recent earnings report, JinkoSolar, one of the titans of PV manufacturing, reported a 23% year-on-year (YoY) decline in revenue and a 37.1% YoY decline in profit. JinkoSolar is not alone, according to Bloomberg (£): Longi Green Technology, a leading panel-maker, reported its fourth straight quarterly loss, while Tongwei, Trina Solar, and JA Solar Technology also reported losses.
This dynamic is not new. Prices for every segment of the PV supply chain have been falling since early 2023 and have now reached such a low level that manufacturers are selling modules below the cost of production, meaning they lose money on each additional module sold. Western governments have also imposed steep tariffs or outright bans on Chinese panels, further cutting into their bottom line.
Chinese regulators and industry associations have been trying to stop this freefall, but have so far been unsuccessful. In a 30 July meeting, China’s Central Committee called for the strengthening of industry self-regulation and criticised anti-competitive behaviour.
The Chinese Photovoltaic Industry Association (CPIA) responded to this by proposing a price floor in mid-October. Though the CPIA is an industry group rather than a government entity and has limited influence, Chinese anti-monopoly law states that selling commodities below cost can be illegal. The price floor followed a May 2024 meeting with solar industry heads and government officials, during which the CPIA raised the possibility of more direct government intervention. “It would be better to use the market to resolve current industry difficulties, but government measures can also play an important role,” it said.
For the time being, manufacturers are looking abroad for new sources of revenue. Chinese manufacturers are building capacity in Southeast Asia, where they can benefit from cheap labour costs and continue exporting to the west where profit margins are higher. Inevitably, though, the western tariffs that forced them to relocate catch up, and force manufacturers to look elsewhere. For China’s PV manufacturing supply chain to find a sustainable path to profitability, deeper coordination may be necessary.
The genesis of PV manufacturing woes
Just a few years ago, it would have been hard to imagine the sector facing such challenges. “Decarbonisation announcements from governments and companies turbocharged manufacturer expectation. It felt like demand for modules would be infinite, and that created a huge boost in confidence,” says Cosimo Reis, a renewable energy analyst at the consultancy firm Trivium China.
This positive outlook, mixed with high prices due to supply chain bottlenecks induced by the coronavirus pandemic, spurred huge investment in production capacity. “We started seeing capacity expansion announcements that seemed surreal at the time,” Reis says. In 2024 alone, two manufacturers, Trina and JinkoSolar, expect to collectively add 40 GW, 50 GW and 45 GW of manufacturing capacity for wafers, cells, and modules respectively. For context, the entire United States has just over 30 GW of module manufacturing capacity.
There has also been a lack of coordination across the industry, Reis adds. Historically, different manufacturers specialised in distinct parts of the manufacturing supply chain. But the price war has incentivised organisations at all levels of the supply chain to vertically integrate, leading to redundant manufacturing capacity, he notes.
Their goal was to absorb short-term losses in an effort to capture market share and push competitors out, but it hasn’t worked out that way. Today, many factories in the PV supply chain are only producing at around 50% of their total capacity, a result of sluggish demand for modules. According to the International Energy Agency’s 2024 World Energy Outlook, while global PV manufacturing capacity stands at 1,100 GW, aggregate demand is less than half of that, at 425 GW. This is despite the fact that, to reach net-zero emissions, the world needs to rapidly expand the use of solar and other renewable energy technologies.
The most direct fix would be for manufacturers to raise their manufacturing rates and sell modules to Global South countries at rock-bottom prices. But this solution has its own issues.
Why the Global South can’t relieve pressures in China’s PV supply chain
The dynamics of Chinese PV manufacturers in the Global South, coupled with structural obstacles facing the energy transition in those countries, mean that their capacity to absorb cheap Chinese production is limited.
Ever since the Obama administration mandated the first tariffs on Chinese solar panels in 2012, Chinese manufacturers have been building production bases in Southeast Asia to circumvent those restrictions. Once tariffs on Chinese products kicked in, imports from Taiwan and Malaysia increased, and once tariffs on Taiwan and Malaysia increased, imports from Thailand, Vietnam, and Cambodia increased. When the sanctions regimes catch up, manufacturers move to the next unsanctioned country.
Though this is enormously inefficient, Chinese firms deem it a necessary sacrifice to protect their access to high profit margins in Western markets. For the Southeast Asian nations who host the factories, this could serve as the catalyst for their own energy transitions.
One recent example is Indonesia, where ambitious decarbonisation plans have thus far been stymied by lethargic renewable energy installations. In May, the US Commerce Department opened an investigation into solar cells and panels made in Vietnam, Thailand, Malaysia, and Cambodia over allegations of state subsidies from China. Chinese manufacturers responded by announcing new manufacturing capacity in Indonesia. Thornova Solar, Trina, and New East Solar, all Chinese-linked manufacturers, have recently announced capacity expansions in the country.
However, these factory expansions may have the effect of making Southeast Asian markets less reliant on panels imported from China. Putra Adhiguna, managing director of the Energy Shift Institute, says that while cheap imports are desirable, “the goal of establishing a domestic supply chain also remains strong. It is unavoidable that some countries, including Indonesia, will start to raise trade barriers [like import tariffs] to incentivise domestic production”.
Even without such restrictions, Adhiguna highlights several structural issues preventing the widespread uptake of renewables which are not associated with the price of imported panels. In the case of Indonesia, he cites excess installed coal capacity, financial challenges for state utilities, and restrictions that require developers to source a certain percentage of their product locally as limiting factors.
Reis also notes: “Fundamentally, demand for panels is directly related to their price. But you reach a point where modules are so cheap that further drops are not going to do anything to boost demand anymore.”
Reis suggests that in the future, Chinese manufacturers might be able to offer a holistic product package of grid upgrades, storage, cheap capital, and technical support to facilitate a wholesale energy sector upgrade in some countries, but that this is still some distance away. In the short term, Chinese manufacturers will need to find another avenue to boost profitability.
Moulding a healthier PV supply chain
It remains to be seen if the CPIA price floor will be enough to curb unhealthy competitive dynamics in the PV market. But if the government needs to step in, there are several levers it could pull. Bloomberg reports that the Ministry of Industry and Information Technology (MIIT) may publish rules to limit the energy consumption of polysilicon manufacturers, a key component of solar panels, which would significantly reduce supply in all segments of the supply chain. In November, the (MIIT) also published updated PV manufacturing guidance aiming to limit redundant capacity expansions and instead focus on quality developments.
It may take a more fundamental change to restore market equilibrium, however. According to Alex Zhang, a PhD student at Nanjing University with over 15 years of experience in China’s PV industry, these supply chains are still “quite immature”. He says that there should be fewer companies involved in the upstream segments of the supply chains, “and they should better coordinate with one another to avoid redundant production and to protect their intellectual property”.
Reis echoes Zhang’s concerns over the lack of IP protection, noting that competitors can hire former employees and buy supplies from the same factories, “and that is part of what is driving these huge capacity expansions”.
Both Reis and Zhang offer an Organization of the Petroleum Exporting Countries (OPEC)-style alliance as an example for what a more lasting solution would be: “An industry alliance would better protect the industry’s sustainable development and encourage R&D,” Zhang says. An example of what this might look like came in late November when 22 manufacturers agreed to limit unfair competition in overseas markets.
Though an alliance of PV producers would benefit manufacturers, it’s harder to assess how it would impact the global energy transition. Redundant production and factories operating at half capacity benefits no one, but the thought of Chinese producers working as a bloc and potentially exerting political pressure on countries around the world through their monopoly on PV technologies could set alarm bells ringing amongst policymakers in Washington and the EU.
