Chinese companies dominate global production of solar PV modules

18 July 2011 by

Based on their estimated production capacity for 2011, the world’s 10 largest solar module manufacturers would have been able to cover 100% of the global demand in 2010. The solar industry includes at least another 400 module manufacturers, however, and they are all looking for a slice of the ever-growing pie. The global solar PV market might be growing fast, but the industry is growing even faster, As a result, an ‘industry oversupply’ situation is expected to take shape this year. This oversupply situation, combined with decreasing subsidies in various leading markets, is leading to a serious decline in solar module prices. During the first half of this year alone modules have already experienced a price reduction of over 25%. This is good for the customer, of course, and accelerates the process of reaching ‘grid-parity’, the moment when the cost of energy from an unsubsidized solar system equals the price of electricity from the grid.

The faster the solar industry grows the faster costs and prices decrease, and the sooner energy from solar systems will become cheaper than electricity from fossil fuel sources. At that point, it is expected that the solar energy market and industry will face infinite growth potential.

The growing pie still attracts new manufacturers
Will the manufacturers of the Top-10 crush the smaller players, or will we soon reach an infinite market which no longer depends on government subsidies? And could that situation provide room for many, if not all, existing manufacturers? Today, large, new companies enter the arena with huge ambitions. Some of these new manufacturers have developed production in the last two years, and have announced plans of reaching a Gigawatt production scale within 3 years. Their confidence is clearly based on the enormous market potential for solar energy. If international institutions like the International Energy Agency (IEA) and their market forecasts are correct, the solar energy market is only just getting started. According to their projections, solar energy will cover more than 10% of the world electricity consumption within 10 to 20 years. With current solar technologies producing less than 0.5% of all electricity consumed, , these new manufacturers believe it is not too late to enter the business of large scale module manufacturing. The pie is growing, and for now seems big enough to allow everyone to claim their piece.



Eight of the world’s top ten manufacturers are Chinese
Current market leaders show impressive growth ambitions. LDK Solar plans to increase its module production capacity by almost 100% this year, from 1.6 GW to 3 GW. Other top-10 manufacturers are growing quickly as well. Of note is the fact that eight of the top ten manufacturers are Asian companies. Even the two exceptions, Canadian solar and First Solar, can be considered partly Asian, as they have important production facilities in China and Malaysia. If we look at the situation today compared with five years ago, we can conclude that within half a decade the production of solar modules has almost entirely shifted from Europe and the US to Asia. China has become the world’s leading producer of solar modules, a dominant energy technology over the next several decades.

Capacity is not production
It is important to note that production capacity is not the same as actual production and shipments. Nevertheless, one can assume that no company will build capacity without the intention using it for production. Therefore, production capacity can serve as an indicator for industry growth ambitions and industry trends.

At present, the most important question is whether the industry has entered into a situation of oversupply, and if so, whether this will lead to consolidation and the break-down of smaller companies? This question will be answered over the next year. If prices continue to drop, new markets might emerge and create new demand. If the industry continues to grow faster than market demand, however, this will lead to oversupply. The result will be price competition, margin compression and, ultimately, the break-down of a portion of the industry.

The price of oil, and other relevant issues
There are other factors that could stimulate solar energy demand. Examples include rapidly increasing oil prices, nuclear disasters, CO2 policy agreements, energy taxes, etc. Obviously it would be very difficult to predict these factors over the next 18 months. It is a given fact, however, that modules prices will continue to decline due to growing global capacity expansion and economies of scale, as well as technology improvements and decreasing feed-in tariffs and subsidies. This development will not stop, and no matter what happens, the solar industry will continue to grow towards competitiveness. It has already grown too big to fail. After reaching a competitive state the market will become infinite, since energy consumption globally is only increasing. The solar ‘party’ will continue, and eventually it will no longer require government subsidies to survive. You can almost hear the industry singing: “Ain’t no stopping us now...”


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