China to remain on top despite looming shakeout

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After years of impressive growth, China’s solar industry is poised for a big shakeout, with consolidation and firms going under. However, the changes will not change the country’s global dominance over the resurgent sector anytime soon, according to a new report from Lux Research.

China’s solar industry has been flying high since 2005, when Suntech became the first Chinese company to complete an initial public offering on the New York Stock Exchange. It now accounts for nearly 60% of global production, including nine of the top ten global solar module manufacturers.

The low-cost focus of Chinese firms has re-shaped the industry, helping to drive solar module prices down 75% since 2007 and boosting demand growth while also slashing profit margins and leading to huge losses both in China and abroad, according to the report.

"Enormous oversupply and heavy debt have set Chinese solar manufacturers up for consolidation," says Lux Research analyst Zhun Ma, the lead author of the report, "The Great Shakeout: China’s Path to a Rational Solar Industry."

"The road ahead will be strewn with chaos and uncertainties, but the consolidation will draw a new solar landscape in China that still dominates the global solar industry."

According to Lux Research’s findings, the firms that can survive the ongoing shakeout include tier one companies like Yingli and Trina, which are certain to benefit from consolidation.

"With the likely disappearance of numerous low-tier companies, Chinese tier ones such as Yingli, Trina, Hanwha SolarOne and Canadian Solar can grab domestic market share as China becomes the world’s largest solar energy consumer market," Lux Research says.

In addition, local partnerships remain key to global companies. Non-Chinese players can target the large Chinese market by partnering with local companies, as First Solar has done with Zhenfa, or take stakes in domestic leading players as SMA has done. Top materials suppliers will also vie for supply deals with the few high-volume manufacturers that survive, as DuPont has with Yingli.

Lux Research also found that Chinese firms are set to become technology leaders. "While China’s solar success is often seen as driven by cheap labor, in fact top Chinese solar manufacturers increasingly boast world-class technology. Non-Chinese players like SunPower and SolarWorld now need to innovate in areas including metallization, cell architectures and kerfless wafering to keep up."