The photovoltaic industry, long plagued by a prolonged slump, saw a glimmer of hope on December 19 when Premier Wen Jiabao chaired a State Council executive meeting to unveil five key measures aimed at promoting the sustainable development of the sector. These included accelerating industrial restructuring and technological innovation, standardizing market order, expanding domestic demand for solar applications, improving supportive policies, and leveraging market mechanisms to reduce government intervention.
This "package deal" has sparked high expectations among investors. However, many experts caution that without timely follow-up regulations, the positive impact of this top-level policy may not last. As one scholar noted, just as the photovoltaic sector soared quickly, it could also fall rapidly if the necessary regulatory framework is not established soon.
Excess capacity remains a major challenge in the industry. According to data from the China Solar Energy Society, solar cell output surged from 10.67 GW in 2010 to 21.17 GW in 2011. Yet, the domestic market can only absorb up to 10 GW annually. With exports added, China's production should be capped at 2010 levels. More than half of current PV capacity is considered surplus.
By October 2012, China’s PV inventory had reached an alarming 7.47 GW—enough to keep the global industry idle for three months. The operating rate of Chinese PV companies was reported to be between 60% and 70%, dropping as low as 50% in the second quarter. Polysilicon firms were hit hardest, with some operating at less than 2% capacity.
Lin Boqiang, director of the Energy Economics Research Center at Xiamen University, warned that next year could bring even greater challenges, especially if the EU imposes anti-dumping duties. He emphasized that overcapacity, over-reliance on foreign markets, and widespread financial difficulties are the main issues facing the industry.
To address these problems, the State Council urged companies to merge, eliminate outdated production lines, and improve technology. Industry consolidation has already begun. Many smaller firms have struggled or shut down, while larger players like Wuxi Suntech have taken the lead.
Looking ahead, the focus is shifting toward distributed photovoltaic power generation. This model emphasizes local consumption and self-sufficiency. In Germany, more than 50% of solar installations are distributed, with households selling excess energy back to the grid. In China, however, residential solar systems remain expensive, with installation costs still around ¥10,000 per kilowatt.
Government subsidies will play a crucial role in making distributed systems viable. While the State Council has approved a benchmark pricing system and subsidy mechanism, details remain unclear. Analysts warn that subsidy levels must be carefully balanced to avoid either stifling growth or placing too heavy a burden on public finances.
The new policy also calls for reducing government interference and ending local protectionism. Experts fear that without proper oversight, local governments may continue to support inefficient firms, leading to nationalization of struggling companies. Lin Boqiang stressed the need for exit strategies to prevent long-term economic and social damage.
Despite the challenges, there is optimism. If the right policies are implemented, the industry could see a significant recovery, with a better balance between domestic and international markets. The coming years will test whether the photovoltaic sector can truly transform and thrive in a more sustainable way.
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