A slump in solar panel prices in China, the world’s largest producer, is expected to stimulate demand globally, particularly in Europe, which is facing an unprecedented energy crisis, according to analysts.
Amid falling costs of the key material, polysilicon, due to excess supply, leading Chinese manufacturers Longi Green Energy Technology, TCL Zhonghuan and Tongwei Solar slashed prices by as much as 27 per cent, the China Silicon Industry Association said last week.
Slowing demand due to the surge in COVID-19 cases that has affected solar power installation, and excess supply at the year-end, have prompted some manufacturers to cut prices, the association said.
“The increasing cost competitiveness of solar power generation, driven by expanded production and upstream cost reduction, will help promote renewable energy across the world,” Shanghai-based brokerage firm BOCI Securities said in a recent report.
China makes and supplies more than 80 per cent of the world’s photovoltaic panels, according to the International Energy Agency. The country is set to add at least 570 gigawatts (GW) of wind and solar power in the 14th five-year plan period from 2021 to 2025, as it strives to achieve its carbon neutral goal by 2060, when non-fossil fuel sources will account for 80 per cent of its total energy mix.
Following an unprecedented energy crisis last year due to the reduction of gas supplies by Russia, the European Union is also expected to diversify away from fossil fuels at a faster pace. The region is estimated to add a record-breaking 41.4GW of solar power in 2022, 47 per cent more than the previous year, and another 53.6GW in 2023 to bring total solar capacity to 262GW, according to SolarPower Europe, which represents over 280 organisations across the entire solar sector on the continent.
The lower prices of solar components in China will further promote the expansion of renewable energy as over half of the solar panels EU imported in 2022 were from China, according to Frank Haugwitz, founder of the Asia Europe Clean Energy (Solar) Advisory.
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“Lower prices will indeed stimulate fresh demand, not only in Europe but also in other important markets across Southeast Asia, the Middle East and Africa,” he said.
The US is likely to be the exception, as Washington has imposed steep import tariffs on Chinese solar panels and banned solar energy components from China’s Xinjiang region over concerns of forced labour.
“Chinese solar panels manufacturers will continue facing import restrictions imposed by the US government in the foreseeable future,” Haugwitz said.
“In this context, if the European Commission moves ahead with its proposal to ban products made with forced labour next year, this too might have significant implications for solar panels exports destined for Europe.”
Domestically, the price war is likely to cause temporary chaos among Chinese solar wafer manufacturers due to the imbalance in supply and demand, Liu Jing, an analyst at Shanghai-based Huajin Securities wrote in a report last week, adding that the situation was likely to last until February.
The price cuts are also likely to affect the profitability of the sector to some extent.
While the windfall profits in China’s solar sector due to surging prices are not likely to repeat in 2023, continued technological advancements, greater digitalisation and automation of production, reduced material input and economy of scale impact, will ensure decent profits for Chinese solar makers, according to Haugwitz.
“Lower module prices will in particular create demand for large-scale ground-mounted projects, highly favoured by both central and local governments in a push towards a faster decarbonisation of China,” he said.
