Without China, the global PV market would be less advanced

12. March 2012 By:  Joe Pan, Sunfaith

On the back of the U.S.-China trade dispute, Sunfaith’s senior analyst, Joe Pan takes a look at the Chinese photovoltaic industry in relation to its global position. He argues that it is actually the growth of China’s market, which has boosted global development. He additionally believes that while China has experienced teething problems in the past, the country is busily working towards expanding its domestic solar market.

Joe Pan

Apart from new energy policy incentives from the governments of a number of countries, rapid development of the global photovoltaics industry owes its thanks to the fierce market competition, which urges photovoltaic product manufacturers to continuously reduce their costs.

2011 installed photovoltaic capacity reached 27.7 gigawatts (GW), but the global solar module output was 50 GW – over twice as much as that of 2010, which saw 20.5 GW produced. The pattern that supply exceeds demand also forces manufacturers to strictly control production costs and reduce prices, which correspondingly arouses the enthusiasm of many countries to expand solar power installations. This thus brought about the solar industry boom in 2010.

However, some originally dominant international solar module manufacturers’ global market shares suffered a sharp drop. For example, while Germany enjoyed the highest photovoltaic installation volume in 2010, German solar module manufacturers significantly lost market shares: 9.8 percent in 2010 vs. 15.4 percent in 2009. Only one German enterprise, SolarWorld, still had a place among the global top ten photovoltaic module manufacturers in 2010, but none in 2011. Among the 2011’s top ten photovoltaic module manufacturers, meanwhile, five were Chinese, one was Korean (Hanwha, with its major plant in China), two were Japanese (Sharp and Kyocera) and two were from the U.S. Furthermore, two Chinese companies – JA Solar and LDK Solar – are threatening the position of Hanwha and Kyocera. In 2012, it is predicted that more Chinese companies will rank among the Top 10, while the market share of Japanese and U.S. companies is likely to shrink

It is widely believed among the German photovoltaic industry players that the low price competition from Chinese enterprises is the major cause of this decline. Since 2005, the Chinese photovoltaic industry has been developing rapidly: in 2010, solar module output and capacity reached 10.4 GW and 18.03 GW, respectively, while in 2011, capacity reached 35 GW. Overall, photovoltaic module output from mainland China and Taiwan account for 59 percent of total global production. But, the Chinese photovoltaic market fails to grow simultaneously. In 2011, the global installation volume was 27.7 GW, while the Chinese installation was two GW, holding only seven percent of global share. Thus, about 90 percent of China’s photovoltaic products were exported to foreign markets in 2011.

Low price key to success?

With a market share of 47.8 percent, there is a common belief in the international photovoltaics industry that low price is the key to the China’s photovoltaic module manufacturing success. From 2006 to 2010, Chinese solar modules had an average export price advantage over that of other countries. For example, at Solar Power International in America and Intersolar Europe in Germany, both held in 2011, Chinese exhibiting companies quoted US$0.93 per Watt (/W) and $0.86/W in succession. In contrast, during that period, the global average quotation for crystalline silicon modules was $1.175/W according to a survey from PVinsights. While the global average price is not known for 2012, a first quarter report of Chinese crystalline silicon module prices showed them to be between $0.80 and $0.90/W.

Trade dispute

The new trade dispute between China and the U.S. comes into being against this background of low Chinese module prices. At present, seven U.S. photovoltaic module manufacturers, led by SolarWorld, have launched an application to conduct an anti-dumping and countervailing investigation on the Chinese solar module industry (hereinafter referred to as "double-anti investigation"). They hold that Chinese crystalline silicon photovoltaic cells and modules are exported to the U.S. market at a price lower than the fair price, and that they are subsidized by the Chinese government, thus causing material injury to the solar industry in the U.S.

According to the information that Sunfaith has obtained, in the context of the European debt crisis and the slowing down of global economic growth, the Chinese photovoltaic industry suffers greatly from severe overcapacity. As a result, more than 50 percent of medium-sized and small photovoltaic enterprises in China have gone bankrupt, while 30 percent have slashed production greatly, and 10 to 20 percent have reduced production slightly. All of them have laid off employees to various degrees.

If the double-anti investigation votes in favor of the U.S. photovoltaic industry, the U.S. government will impose a 100 percent anti-dumping duty on all Chinese solar modules exported to the U.S., which is bound to bring a huge negative influence on the Chinese photovoltaics industry – in the process of transition itself.

However, will such an influence under the current global economic situation be beneficial to the global photovoltaics market and new energy development? In the short term, the interests of a number of U.S. photovoltaic enterprises will be protected. But, meanwhile, the U.S. will lose the market, which imports at least $2 billion worth of raw materials, such as polycrystalline silicon, EVA, pastes, etc., and equipment exportation and relevant technology transfer fees.

What is more, in the long term, if trade sanctions are imposed, other countries will have to use more expensive photovoltaic products. The increase in budget may not only serve to suspend or downsize photovoltaic projects under planning, but may also cast a new shadow over the grand blueprint of renewable energy development of many governments. Practically speaking, the rapid growth of Chinese photovoltaic enterprises in the last ten years has actually pushed forward the development of the global photovoltaic supply chain. The output of polycrystalline silicon – a critical material in the production of photovoltaic modules – increased from less than 20,000 tons in 2004, to 201,000 tons in 2011. This directly resulted in a 14 percent decrease in the average factory price of crystalline silicon modules in 2010, and a 50 percent decrease in 2011, compared with that of 2010.

Favorable policy and cheap labor

Based on the understanding of China’s photovoltaic product manufacturing industry, Sunfaith analysts are convinced that there are two reasons for the expansion of the Chinese solar industry and "cheap" products: one is the favorable policy from the government; the other is abundant cheap labor and resources.

However, with the raw material prices rising again and labor costs increasing, the low final product price will not last long into the future. At the same time, it is necessary to notice that such "low prices" are related to the development characteristics of the Chinese photovoltaic industry. First of all, it started from scratch as late as the year 2000. The short history, weak basic research and incomplete policies and regulations led to low entry barriers in China, uneven product quality, and disorderly competition among many medium-sized and small enterprises.

Secondly, the overall Chinese photovoltaic technology still lies at a low level and most enterprises lag behind the world advanced level in the conversion efficiency of solar cells and modules. In terms of research on the new and efficient solar modules and high pure silicon, thin film and high concentrated photovoltaic battery technologies, China also falls behind other leading countries. At present, domestic manufacturers mostly import their major equipment from Europe, the U.S. or Japan, which determines that Chinese photovoltaic products cannot compete with those of developed countries, such as the U.S., Germany and Japan in the middle and high-end market at all in the near future.

Although China is witnessing a boom in the export of photovoltaic products, 60 percent of exports belong to the processing trade. In addition, the insufficient demand from foreign markets and the slowing down of global economic growth in 2011 caused overcapacity and massive stock. Lowering product price is the only choice. For example, from October 8 to 14, 2011, the price in domestic market fell again, due to the reasons mentioned above.

Therefore, in the context of the European debt crisis and the slowing down of global economic growth, the Chinese photovoltaic industry is prone to encounter the danger of anti-dumping. Obviously, the Chinese government has been aware of the risk in this industry. The national energy work conference, held in January 2011, for the first time, defined the photovoltaic industry as China’s advanced equipment manufacturing industry and new energy pillar industry, and decided to take various measures to change the excessive dependence of photovoltaic products on overseas markets, and to try and enlarge the domestic market.

The 12th Five-Year Plan, which is in contemplation, increases China’s photovoltaic installation target from 10 to 15 GW by 2015, and to 50 GW by 2020. Meanwhile, the National Development and Reform Commission has adjusted the on-grid price to 1.15 Yuan in 2011, and 1 Yuan in 2012. It also has planned to lower the cost of photovoltaic systems to 15,000 Yuan/kW and generation costs to 0.8 Yuan/kWh, to realize grid parity in power distribution by 2015, and to lower the cost of photovoltaic systems to 10,000 Yuan/kW and generation costs to 0.6 Yuan/kWh by 2020.

Moreover, the Chinese government will continue to implement interim measures on the management of financial subsidies for solar PV building applications and notice on the implementation of the Golden Sun demonstration project. The government will additionally implement some encouragement policies, such as for on-grid price and support of the application of photovoltaic generation systems, small-scale photovoltaic systems, and off-grid photovoltaic systems, etc. in buildings.

With reasonable electricity price standards, moderate financial subsidy policies, and active finance and banking support, the government is making efforts to expand its domestic photovoltaic market.

Joe Pan is a senior analyst at Sunfaith China Ltd. Having achieved a Master of Economics, he has an extensive background in B2B market studies, particularly in the field of renewable energy.

Disclaimer: The views and opinions expressed in this article are the authors own, and do not necessarily reflect those held by pv magazine.

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