In the midst of a long slump in the photovoltaic (PV) industry, on December 19, Premier Wen Jiabao presided over a State Council executive meeting to unveil five key measures aimed at promoting the healthy and sustainable development of the sector. These included accelerating industrial restructuring, enhancing technological innovation, standardizing the development order, expanding the domestic market for PV applications, and improving supporting policies. The government also emphasized reducing its direct intervention and relying more on market mechanisms to drive growth.
This "comprehensive package" was met with high expectations from the market, as it came at a time when the industry was facing severe challenges. However, many experts believe that without timely follow-up regulations, the positive impact of this top-level policy may not last long. As one scholar noted, just as the PV sector once soared rapidly, it could also fall quickly if the right framework isn't put in place soon.
The problem of overcapacity has been a major issue in the industry. According to data from the China Solar Energy Society, solar cell output rose sharply from 10.67 GW in 2010 to 21.17 GW in 2011. However, the domestic market can only absorb about 10 GW annually, even with exports. This has led to a significant surplus. A report by the Secretary-General of the China Solar Energy Society, Meng Xianyi, revealed that more than half of the current PV capacity is considered excess.
By October 2012, China’s PV inventory had reached an astonishing 7.47 GW—enough to last the global industry three months of production. Many companies are operating at less than 70% capacity, with some struggling to reach 50% during the worst quarters. Polysilicon firms, in particular, are in dire straits, with some operating at less than 2% capacity.
Lin Boqiang, director of the Energy Economics Research Center at Xiamen University, warned that 2013 could be even more challenging, especially if the EU imposes anti-dumping measures. Without access to foreign markets, the situation might worsen significantly.
At the State Council meeting, three major issues were highlighted: overcapacity, excessive reliance on external demand, and widespread business difficulties. The government urged companies to merge, eliminate outdated production lines, and improve technology and equipment. Industry consolidation has already begun, with many smaller firms either shutting down or being acquired.
One sales representative, Lin Dashi, described how his company had to halt operations partially due to low demand. He recalled that some companies couldn’t survive, with leaders like Suntech’s Shi Zhengrong moving on while others fell behind.
Looking ahead, Solarbuzz predicts that the number of Chinese solar cell manufacturers will drop from around 400 in 2011 to fewer than 100 within five years, with the top 20 companies accounting for over 60% of total output.
To address overcapacity, the government is pushing for the expansion of distributed PV systems. Unlike large-scale projects, distributed generation focuses on local use, such as rooftop installations for homes and businesses. In Germany, for example, over 50% of PV installations are distributed, with many households selling excess power back to the grid.
In China, Zhao Chunjiang, a pioneer in residential PV, installed a 3 kW system on his roof in 2006. Despite initial enthusiasm, his “solar supermarket†closed due to high costs. At the time, the cost of a 1 kW system was around 50,000 yuan, which has since dropped but still remains relatively high.
According to Han Qiming, the current cost of PV power in eastern China is about 7 cents per kWh, compared to industrial electricity prices of over 1 yuan. While there's a gap, government subsidies remain crucial to make residential and community-based systems viable.
The State Council has outlined plans to set regional benchmark prices for PV plants and introduce subsidies for distributed generation. However, the details are still pending, and industry players are anxious about the scale and timing of financial support.
Han Qiming estimates that a 10–20 billion yuan fund would be needed to effectively implement the policy. He also pointed out that shifting funds from the Golden Sun project to distributed generation could help, though political and stakeholder interests complicate the process.
With the VAT rate for PV power reduced from 17% to 8.5%, the return on investment for PV plant projects is expected to improve. Lin Boqiang believes that while overcapacity exists in equipment manufacturing, the end-user market still has room for growth.
Finally, the New Deal also emphasizes reducing government intervention and banning local protectionism. Experts warn that without proper oversight, local governments may continue to prop up inefficient firms, leading to nationalization risks.
Overall, the success of this new policy depends heavily on follow-up regulations and adequate financial support. If implemented effectively, it could revitalize the industry and help resolve the overcapacity crisis.
Wenzhou Shenghong Metal Products Co.,Ltd , https://www.shenghonglock.com