According to conclusions from the Summit of solar industry leaders held in Beijing a few days ago, the global solar energy market has nothing to worry about. Analysts are sure that 2013 is a year of recovery for the global solar industry. Their forecasts predict that by the end of this year, the total volume of the global market should reach 35 GW, which is a 15% increase compared to the previous year. The need for solar energy will increase to 42 GW, up 20% in the next year, and from 2015 to 2017 it should reach volumes between 50 and 70 GW.
“An annual rise of 10 GW is pretty realistic,” explains Lian Rui, Solarbuzz senior analyst, who believes that this continuous rise will enable the solar market to reach 100 GW by 2020. Recent market trends show that the Chinese solar industry seems to be on the same track.
After a period of rise and prosperity, the solar industry in China started to witness stagnation in 2008, which culminated two years after when solar companies started to record their first losses. After two years of various government measures, the Chinese solar industry has finally started seeing some sun again.
According to data by Wind Consulting, A-shares of 26 Chinese solar companies recorded a net profit of 1.6B RMB in the first three quarters this year, which is an increase of around 95% compared to last year.
However, despite these promising future prospects of the global solar industry, analysts warn of many unsolved issues in the Chinese market, which might threaten recovery. The most-heard phrase these days in Beijing is “merger and restructuring” as a way to solve chronic overproduction issues in China. Moreover, analysts warn that this recovery in the Chinese market actually overshadowed pending problems of overproduction.
“We not only did not complete regulation of the market, but we did not finish merger and restructuring of the market,” says Jifan Gao, CEO of Changzhou Trina Solar Limited (ADR)(NYSE:TSL), and he explains that four or five leading companies should integrate some of the smaller companies that are not competitive enough or have poor technology, and consequently hold 75% of the market, while others would deal with support systems.
“Only then we could talk about healthy development,” says Gao, who is not convinced that in the following five years, the solar energy market in China would develop smoothly.
Actually, Lian warns that this recent recovery might be due to the Chinese government’s annual price regulation, which led many producers to fight for bigger production, and consequently build new plants.
“It is due to this, that third and fourth quarters are usually peak season for solar manufacturers in China,” explains Lian.
His words are confirmed by a manager in one of the new solar energy companies who said that his company recently bought solar power plants with capacity of 400 MW.
“While I was travelling in West China to see progress in the construction of power plants, it looked like everything was in full swing,” said this manager.
Industry insiders explain that this fight for building more plants brought an increase in material and component prices, which subsequently led to increase in profits, and go on by concluding that this increase in profit actually slowed down necessary restructuring of the Chinese solar market.
Many of the companies that should have gone bankrupt and merged with bigger ones are now back on their feet. At the same time, local governments do not want to see their companies go bankrupt due to central government subsidies. So the problem does not get solved.
Another, often-raised issue that is closely related to the overproduction problem is grid connectivity. That is, China still did not really decide which grid connectivity model to use. Chinese solar energy producers and policy makers are unsure whether to follow the Western model of distributed network development, or a concentrated one.
At the moment, Eastern China uses a distributed grid, while China’s west is using a concentrated one. At the same time, distributed development takes 40% of total grid connectivity in China. In recent years, the government and some Chinese public energy producers have developed policies and made significant investments that support the distributed model. For example, in February 2012, the Chinese State Grid issued an ‘’Opinion on Servicing Distributed Solar Power Plant Network,’’ and the result was seen the next year, when the same company invested over 500 M RMB into a distributed network, building 66.5 KM of supply line with 600 GW of power installation, which made up the fastest-growing network in the world.
Despite favourable government policies and large investments into a solar grid, it remains to be seen whether China will be able to cope with current solar energy issues. After all, even the main players in the Chinese solar energy arena are aware that this is just the beginning of solution, and that there is a lot of work left before these problems are solved.
This assessment was confirmed by Yong Hejian, deputy chief of the National Energy Planning Institute, who said that when it comes to grid connectivity in China, there is a lot of work yet to be done by the government, companies and industry.
This work is related to the overall development and future of this industry in China, Yong concluded.
It seems to be clear what China has to do in order to solve their overproduction problem, but it is not yet clear how they will do it. Gao suggests that restructuring should come not only from the government, but also from the market and producers themselves.
