Solar industry grapples with oversupply and uncertainty

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The recent solar trade shows, SNEC PV Power Expo in Shanghai and Intersolar in Munich, painted a grim picture of the industry, a stark contrast to the jubilant atmosphere of previous years. The sector is now in the throes of a deepening crisis characterised by oversupply, plummeting prices, and companies teetering on the brink of profitability.

The solar industry is facing an unprecedented glut, as per Bloomberg New Energy Finance (BNEF), a premier consulting organisation. Polysilicon manufacturers are churning out enough raw material to build 1.1 terawatts of solar panels annually, while actual installations could be a mere 585 gigawatts in 2024, projects BNEF. This imbalance cascades down the production chain, with wafer and cell manufacturing capacities exceeding one terawatt each, and module production capacity reaching a staggering 1.15 terawatts. The resulting surplus has sent prices into a tailspin, forcing many firms to operate at a loss. Analysts predict the situation will worsen as the year progresses.

Faced with component costs that outweigh manufacturing expenses, many solar firms are desperately scaling back production. Industry leaders, like Gao Jifan, chairman of Trina Solar, are pleading with the Chinese government to intervene and regulate production capacity, it is learnt. While integrated manufacturers might boast better cost control, they remain vulnerable across the value chain. Even the largest firms, with seemingly substantial cash reserves from the prosperous years of 2022 and 2023, face potential financial ruin if short-term liabilities come due.

Only time will tell whether innovation is a glimmer of hope, or a fleeting distraction. Piquantly, in a bid to differentiate themselves in this cutthroat market, module makers showcased a range of innovations at the trade shows. Lightweight solar modules, utilising crystalline silicon cells and plastic encapsulants, were presented by SunMan. These modules offer significant weight reduction, making them ideal for flat roofs. Perovskite modules, a revolutionary technology promising even higher efficiencies, also garnered attention. However, these innovations face an uphill battle against established competitors and will need to justify any price premiums they command in a market obsessed with affordability.

The global market throws another layer of complexity onto the situation. The US market, with its high module prices, remains attractive for manufacturers. However, it’s a landscape riddled with regulatory hurdles. New anti-dumping duties slammed on solar cells and modules from Cambodia, Malaysia, Thailand, and Vietnam threaten to leave vast production capacities stranded without a clear market. This has led to a strategic pause or outright downsizing in these countries as manufacturers wait with bated breath for the final decisions on import duties.

To mitigate these risks, some manufacturers are contemplating a shift in operations to countries like Indonesia and Laos, currently outside the reach of US tariffs. However, these regions lack the robust infrastructure needed for large-scale solar production. Additionally, the spectre of future tariffs looms large, as these countries could become targets if their market presence grows significantly. This highlights the precarious and ever-shifting nature of global supply chains in the solar industry.

Alongside, in China, a new policy implemented in Shandong has sent shockwaves through the industry. The policy alters the power pricing structure for commercial and industrial (C&I) solar plants. Now, C&I projects must choose between full self-consumption or selling surplus generation to the grid at volatile local spot prices. This introduces significant uncertainty into investor calculations, potentially dampening investment enthusiasm in the sector.

From an Indian perspective, these global shifts present a double-edged sword. The country’s burgeoning solar industry could potentially benefit from the influx of technological innovations and surplus production emanating from China. However, India’s heavy reliance on Chinese imports also exposes it to the vulnerabilities of the Chinese market; therefore, in the long run, generating more energy without relying on oil and gas from unstable or unfriendly regions will lead to greater reliability.

Importantly, while the Chinese Communist Party cannot control the price of sunlight like OPEC does with oil, it is concerning that such a critical industry is concentrated in one country.

To navigate these turbulent waters, India must strategically leverage its own domestic manufacturing capabilities and explore new markets to ensure the continued success of its solar ambitions.

In sum, the solar industry stands at a critical juncture. Oversupply, regulatory hurdles, and technological advancements are all reshaping the landscape. Manufacturers must adapt swiftly, balancing production with demand while navigating the complexities of global trade. For India and the world, the path forward to harnessing the full potential of solar energy in these turbulent times lies in fostering innovation, implementing strategic regulations, and building resilient supply chains.

 

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