Solar Industry’s Bloody Nightmare: Is the Bottom Finally in Sight?
The solar industry is on the brink of collapse, with Chinese manufacturers bleeding billions of dollars in losses. The once-promising sector has been ravaged by a massive glut of supply, driving prices to record lows and forcing companies to the brink of bankruptcy.
Longi Green Energy Technology, one of the largest solar firms in China, has seen its net losses balloon to a staggering C¥5.2-billion (R13.2-billion) in the first half of the year. Other top firms, including Tongwei, TCL Zhonghuan Renewable Energy Technology, and GCL Technology Holdings, have also posted significant losses.
But is the worst finally behind us? Some analysts believe that the industry is entering the final stages of a downcycle, with a cyclical bottom likely in 2025. Goldman Sachs Group predicts that a wave of factory closures will soon rebalance the market, while Morgan Stanley reckons equipment prices have already bottomed out.
The Consequences of Overproduction
The solar industry’s woes can be traced back to a surge in demand for panels three years ago, which triggered a frenzy of factory building and resulted in a massive oversupply of solar modules. Today, the sector is producing over 1,154GW of solar modules, more than double the capacity from two years earlier. But projected demand this year is just 593GW, leaving a gaping hole in the market.
The Global Impact
The Chinese solar industry’s struggles have far-reaching implications for the global energy transition. With the industry accounting for around 80% of global production, a collapse of the sector would deal a significant blow to efforts to combat climate change.
But the industry’s woes are not just a domestic issue. The growing US-China rivalry is also making life more difficult for Chinese manufacturers, with Washington planning to double import tariffs on the country’s solar equipment to 50%. The EU, another major market for Chinese solar equipment, is also experiencing trade tensions with Beijing, which could further exacerbate the industry’s problems.
Consolidation and Intervention
In response to the crisis, some executives at top Chinese firms are calling for government intervention to help the industry get back on its feet. The Chinese government has already taken steps to regulate the industry, including capping price cuts and promoting consolidation.
Several companies have already resorted to consolidation, with Tongwei buying Jiangsu Runergy New Energy Technology in the industry’s first major consolidation move during this downcycle. But it will likely take another six to 12 months for prices to rise back to break-even levels for solar firms.
The Road to Recovery
The solar industry’s recovery will require a combination of cost-cutting, capacity consolidation, and government support. But with the industry on the brink of collapse, the road to recovery will be long and arduous.
As one analyst noted, "I don’t know if prices can fall beyond this point, it’s just too much for even the biggest players." The solar industry’s bloody nightmare may finally be coming to an end, but the road to recovery will be fraught with challenges.
