China’s PV Industry Expected to Enter into Long-term Price War

The sector is beginning to see a decline in sales and product prices after several years of fast growth.

An Excess of Foreign Capital

Over the past few years, the huge potential for growth in China’s solar energy sector attracted numerous investors from around the world. Lazard Capital expects the size of the industry to reach 2 GW by 2012 and 20 GW by 2020. Moreover, the solar PV industry in China is expected to attract more than $10 billion in private investment, helping the country become one of the world’s major solar equipment markets during the next three years.

Europe has been the main end market for the solar energy sector, however China is expected to replace Spain and Germany to become a main growth point. After the recent financial crisis, some European countries have changed their industry policies to reduce their support of the sector, according to industry analyst Jiang Qian.

To cite an example, a host of foreign companies invested in China’s solar industry during just a few short days in June 2009, taking advantage of preferential policies offered by the Chinese government. On June 24, 2009, Saudi Arabia’s Ahmed Salem Bugshan Group (ASB) signed an agreement with Wenzhou Dazhan International Trading. The two firms jointly invested RMB 530 million (approx. US$82 million) to build a PV industrial base in Wenzhou, Zhejiang province. On June 16 of that year, Spain’s Villar Mir entered into an agreement with the government of Ganzi, Sichuan province, to build a EUR820 million (approx. US$1.18 billion) silicon production facility in the region.

However, there is no way the development of the sector could continue on such a fast track without hitting some hard road bumps. The rapid growth of any industry depends on concurrent development of both its upstream and downstream sectors as well as increased competitiveness in the global arena based on core technologies, rather than a simple expansion of production capacity.

Overcapacity Leads to Price Reduction

After years of fast expansion, the industry began to see a decline in both shipments and price during the first half of 2011.

During 2010, China’s PV industry grew at a breakneck pace based on strong demand. Production of PV cells reached 13 GW, surging 173 percent over 2009, according to statistics from PhotonInternational. However, in 2011 several main end markets including Germany, Spain and Italy reduced their subsidies to the sector, which, in turn, led to a decrease in market demand followed by a drop in price. 

Prices for PV modules held steady at EUR1.50-2.00 (US$2.00-2.70) per watt last year, but then plunged in the beginning of 2011. The average price has now fallen below US$0.90 per watt, and downstream manufacturers are still pushing for further decreases, according to a survey by Energy Trend. 

Industry players are expected to see fiercer competition this year, which will mainly be demonstrated by price cutting, said industry insiders. The trough in the pricing has given small- and mid-sized PV firms a fatal blow, and the latest data shows gross margins for those firms have recently dropped to less than 10 percent from nearly 20 percent. The reshuffle of the players in China’s PV sector is seen as inevitable.

Players Seek Industry Chain Extension

For several years, Chinese firms in the sector have already been seeking to extend the industry chain as a way of protecting themselves. In 2009, LDK Solar acquired a controlling interest in Italy’s Solar Green Technology S.p.A., an expert system integrator in the Italian photovoltaic market. ReneSola Ltd, a leading global manufacturer of solar wafers and provider of solar modules, acquired a solar module producer in a move to build itself into a vertically integrated organization. More firms are expected to follow suit.

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Nanjing Shanglong Communications Liu Yuanyuan is Director of Operations and Co-Founder of Nanjing Shanglong Communications. Liu Yuanyuan previously held the position of office manager at the London Financial Times' China translation and editorial bureau in Nanjing overseeing 33 translators, editors and IT support personnel. Ms. Liu brought her many years experience of delivering, under deadline, more than 200 English-language news summaries of articles selected from Chinese-language newspapers and newswires daily as well as supervising the timely completion of 500,000+ word English-to-Chinese translation and localization projects to her role as co-founder and general manager at Shanglong. Ms. Liu joined Shanglong in 2002. In 2006, she added China Business News Service to the product suite – the service provides a continuous flow of well-researched and documented news articles to trade publishers and industry-specific websites looking to supplement their content with the latest news from China in their sector. She manages Shanglong's staff of translators, editors, desktop publishing specialists and support staff, selected from the top universities across China and well versed in the art of translation and in the technology of DTP. Ms. Liu graduated from the People’s Liberation Army Institute of International Relations - China’s elite military academy responsible for the training of the country’s foreign language specialists.

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