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China Limits Solar Manufacturing, May Drive Consolidation

China Limits Solar Manufacturing, May Drive Consolidation

China, the world’s biggest maker of solar panels, will limit construction of new photovoltaic manufacturing plants to curb excess capacity, a move that may spur consolidation within the industry.

New solar plants that “purely” expand capacity will be strictly banned, the Ministry of Industry and Information Technology said in a statement on its website yesterday. Annual spending by companies for research and development and upgrading equipment must total at least 3 percent of revenue and must exceed 10 million yuan ($1.6 million).

Chinese authorities have pledged to cut overcapacity in industries from steel to paper as policy makers seek to reduce the economy’s reliance on investments and exports. A global oversupply of solar panels led to a 20 percent plunge in prices last year, according to data compiled by Bloomberg.

The policy will slow efforts to expand production capacity in favor of mergers and acquisition as a growth strategy for the biggest companies, Angelo Zino, an analyst with S&P Capital IQ in New York, said in an interview.

“They may be able to add capacity without actually building it,” Zino said. “The Chinese government would be more than OK with companies if they joined forces or capacity gravitated toward the tier-one manufacturers.”

Taiwan Share Gains

In Taiwan, Neo Solar Power Corp., a manufacturer of solar cells, surged almost 7 percent to NT$27.65 at the close, its biggest one-day gain since June 6, 2012. Green Energy Technology Inc. also rose, gaining 4.7 percent.

Taiwan accounts for about 10 gigawatts of annual global solar cell capacity, or about 14 percent of the world’s 69.8 gigawatts, according to data compiled by Bloomberg.

“The intention of this policy is to limit the expansion of low-efficiency PV products,” Wang Minnan, a Bloomberg New Energy Finance analyst, said by e-mail. “It’s likely to ease the current serious over-capacity situation, which will indirectly benefit Taiwanese manufacturers.”

Chinese solar companies have the capacity to supply the entire industry, with plenty left over. Were they to run at full speed, China’s factories could produce 49 gigawatts of solar panels a year, 10 times more than in 2008 and 61 percent more than installed globally last year, according to data compiled by Bloomberg. A gigawatt is about as much as what a new nuclear reactor can supply.

Capacity Use

“You still have so much capacity out there that is just not being used,” he said. “It will help stabilize the whole pricing environment.”

Panel prices are about 84 cents a watt, compared with $2 at the end of 2010. The slump forced dozens of producers into bankruptcy, including the main unit of Suntech Power Holdings Co., once the industry’s biggest supplier.

The government’s support for the solar industry has resulted in at least one factory producing photovoltaic products in half of China’s 600 cities, according to the China Renewable Energy Society in Beijing.

China’s solar industry now accounts for seven out of every 10 solar panels produced worldwide, according to data compiled by Bloomberg.

Copyright 2013 Bloomberg

Read more solar energy news here.

Lead image: Solar panels via Shutterstock

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