Solar Firms Pledge to End Price War But Analysts Remain Skeptical

22 Oct 2024

China’s solar industry, encouraged by government subsidies and policies limiting carbon emissions, embarked on rapid expansion to grab nearly 95% of global production capacity

Solar companies in China have agreed to reduce vicious competition and strengthen self-regulation after over-production and a fierce price war have hit their bottom line.

The China Photovoltaic Industry Association (CPIA) convened a meeting at which company representatives reached a consensus on preventing “involution-style” competition. Measures to improve market mechanisms to reward stronger performers and ease the closure of outdated production capacities were also agreed, the association said on its social media account Monday.

Executives from solar companies, including Longi Green Energy Technology Co. Ltd., GCL Technology Holdings Ltd., JinkoSolar Holding Co. Ltd., and Shanghai Aiko Solar Energy Co. Ltd., were at the talks.

Solar panel prices continued falling, with mainstream products now priced significantly below production costs, leading to a vicious cycle of irrational competition, according to the CPIA. The seminar aimed to discuss strategies to address the supply-demand imbalance and reduce excess capacity.

China’s solar industry, encouraged by government subsidies and policies limiting carbon emissions, embarked on rapid expansion to grab nearly 95% of global production capacity but that strategy is now backfiring.

Overcapacity has driven down prices across key manufacturing stages since late 2023. In the first half of the year, prices for polysilicon, silicon wafers, solar cells and modules dropped by 40%, 48%, 36%, and 15%, respectively, falling below production costs and resulting in widespread losses.

With manufacturers’ margins squeezed, many posted significant losses, with five leading companies reporting a combined impairment loss of more than 10 billion yuan ($1.4 billion).

Following Monday’s announcement, shares of solar industry companies broadly surged.

However, many industry insiders are doubtful the meeting will have a significant impact, citing a reluctance by companies to be the first to cut production. Caixin learned that many at the meeting were against production cuts, fearing it would give orders to competitors.

Analysts said a single meeting would not improve market conditions substantially, with market forces having to ultimately weed out weaker players. While there is talk of coordinating production cuts, they are difficult to implement.

Business registration data show the number of newly registered PV companies grew at an average annual rate of 21.7% between 2021 and 2023, driven by capital market support and local government backing.

Eliminating outdated capacity and promoting mergers and acquisitions are inevitable trends in getting rid of excess capacity in the PV industry, said Zhang Sen, secretary general of the PV branch at the China Chamber of Commerce for Import and Export of Machinery and Electronic Products in Beijing.

However, a PV executive said mergers and buyouts are difficult in the current market. Companies are struggling to survive, leaving little room for acquisitions, and rapid technological changes make outdated capacity less valuable in the long term.

Businesses are losing money both at home and in overseas markets, but they must keep selling to maintain cash flow, according to Zhang. “Everyone is holding on, but it will take a long time for the industry to shed its inefficient capacity.”