China’s largest solar equipment manufacturers, facing overcapacity, low prices, and sustained losses, are turning to an OPEC-inspired strategy to address the sector’s struggles. For over a year, these companies have been battling oversupply in the domestic market, pushing prices down and eroding profits.
OPEC, which has long managed oil supply to stabilize prices, has been a model for China’s solar industry. When oil prices fall, OPEC producers, along with non-OPEC nations like Russia, often agree to cut production to manage supply and influence market sentiment. This approach has helped shape the global oil market over decades. Now, China’s solar manufacturers are looking to adopt similar tactics to address their own supply glut.
China’s rapid expansion of solar equipment production has outpaced domestic demand, leading to a significant drop in prices for solar panels, cells, and other components. The resulting financial strain has left many companies, especially smaller ones, at risk of collapse. Despite China’s forecast for another record-breaking year in solar capacity additions, the industry’s growth has come at the expense of profits.
To address the situation, over 30 major Chinese solar companies signed an agreement to implement production quotas starting in 2025. The quotas will be based on each company’s current market share, production capacity, and projected demand for solar products. This agreement, signed at the China Photovoltaic Industry Association’s annual meeting, aims to curb the oversupply that has driven down prices and caused massive losses across the sector.
An Industry in Crisis
Xu Xiaohua, CEO of Anhui Huasun Energy, warned that many smaller solar firms will struggle to survive into next year. At the BloombergNEF Summit in Shanghai, he predicted that several companies could shut down as early as the first half of 2025.
The industry’s oversupply problem is compounded by fierce price competition, which has forced producers to sell their products below cost. This has led to significant losses. Longi Green Energy Technology, one of China’s top solar manufacturers, reported a third-quarter loss of $174 million (1.26 billion yuan) and acknowledged that the industry’s collective losses have reached their highest point since 2016.
Longi also noted that the oversupply and price wars have continued to put downward pressure on profitability. Despite this, Longi is adjusting its market strategy to navigate the downturn.
Government and Industry Push for Consolidation
In response to the mounting crisis, China’s solar industry is calling for consolidation. The China Photovoltaic Industry Association has emphasized the need to address overcapacity and prevent price wars that have hurt local firms. The Chinese government has also stepped in, tightening investment criteria for solar manufacturing.
The new regulations raise the minimum capital ratio for solar PV projects from 20% to 30%, requiring solar manufacturers to invest more of their own funds to manage risk. This move is part of a broader effort to rein in overcapacity and stabilize the sector.
Looking Ahead to 2025
The government and industry hope these self-imposed quotas, along with stricter investment requirements, will help solar manufacturers weather the current glut. However, 2025 is seen as a critical year for the industry’s recovery.
“The key word for next year is survival,” said Xing Guoqiang, CTO of Tongwei Co., at the BloombergNEF event in Shanghai. “2025 will be a pivotal year for many companies to make it through this cycle.”
With the solar equipment sector facing its toughest challenge yet, the success of these new policies and the industry’s ability to adapt will be crucial in determining whether China’s solar manufacturers can overcome the current crisis and emerge stronger in the years ahead.
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