The Meteoric Rise of Chinese Solar

In the global race to halt climbing temperatures and adopt greener environmental practices, demand for large-scale conversion of Earth’s abundant sunlight into electricity has come to the fore.

By most measures, one country now leads this burgeoning industry.

According to a July report by the International Energy Agency (IEA), China’s share of the solar panels market across all stages of production now exceeds 80%.

The development of solar power in China has been hurtling along at a rapid pace throughout the past decade, rising from just 4.2 gigawatts (GW) in nationwide installed solar capacity in 2012 to an estimated 306 GW by the end of 2022. While China has not been alone in achieving such progress, the scale of its growth in this sector is the most drastic. Installed solar capacity in the United States, for example, swelled from just over 7 GW in 2012 to 130.9 GW in the second quarter of this year.

As the IEA report notes, the surge in Chinese solar strength and the economies of scale it has enabled is a double-edged sword. On one hand, it has served to drive down production costs for solar panels around the world. However, the country’s dominance in the industry now poses potential vulnerabilities to international supply chains, with lopsided supply and demand.

“The world will almost completely rely on China for the supply of key building blocks for solar panel production through 2025,” the report states. “China’s share of global polysilicon, ingot and wafer production will soon reach almost 95%.”

Producing solar panels is a complex process depending on a diverse set of actors to procure raw materials and apply their technological acumen. It all starts with polysilicon, a refined chemical element that can be sliced into narrow strips to make solar panels.

Rankings released by Bernreuter Research, an institution that focuses on the global polysilicon market, show that the top three firms in 2021 with the highest actual output of the material were all Chinese, led by Chengdu-based Tongwei Co., Ltd. Among the top 10 firms named, seven were Chinese.

As demand for polysilicon has been on the rise for many years now around the world, the proportion of Chinese firms in the sector has gained significant ground. The country’s share of global production has grown from 30% one decade ago to roughly 80% today.

China’s performance has also been impressive at the other end of the manufacturing chain. According to a recent study by EnergySage, eight of the top 10 producers of solar panels by shipment capacity in GW are based in China. The pack is led by LONGi Solar, a Xi’an-based company founded in 2000 that trades on the Shanghai Stock Exchange and holds a current market capitalization of 366 billion yuan ($52.5 billion).

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Underpinning this seismic shift has been a strategic push by authorities in Beijing to ramp up the country’s green energy production, doling out generous subsidies to domestic firms seeking to build operations in the field. As early as 2009, the country’s state-owned banks began issuing low-interest loans to solar companies, leading to the rise of a new generation of global leaders in the industry.

One such firm is Suntech Power Holdings. As one of China’s first solar panel manufacturers to make it big, the firm was previously listed on the New York Stock Exchange before a major bond payment default in 2013 brought about a reversal in fortunes. The firm now sits in ninth place in the global market, according to EnergySage.

More recently, Beijing has been shifting attention to the country’s vast desert landscapes, where abundant sunlight could provide a path to achieve official national goals for carbon peaking by 2030 and full carbon neutrality by 2060.

Last week, state media lauded the commencement of construction on a $2.2 billion project in the arid northern province of Ningxia. This Tengger Desert base, which will add a total installed capacity of three GW, is set to become China’s largest desert-based solar energy facility.

From a global perspective, China’s strides in the field of solar energy are helpful in driving down costs in the short term, but experts say more balanced expansion is still desirable. “The diversification of highly concentrated polysilicon, ingot and wafer manufacturing would provide security-of-supply benefits,” reads the previously mentioned IEA report.

The risks of such concentrated supply chains have already become evident. When an unprecedented heat wave struck a blow to electricity supply in the province of Sichuan last month, mandated restrictions on industrial production adversely affected the operations of the industry’s leading firms, including GCL-Poly and Tongwei.

For the time being, China’s domination of the global solar energy sector is unlikely to waver. Nonetheless, lagging efforts in other countries – such as various provisions in the Inflation Reduction Act passed recently in Washington – may soon begin to bear fruit, leading to a more even layout of production capacity for the solar energy future.