China battles solar panel manufacturing overcapacity, with a third at risk of closure

China’s Ministry of Industry wants to reduce manufacturing capacity to boost the profitability and stability of the solar panel manufacturing sector. Capacity currently exceeds global demand by roughly a factor of two. Reuters reported.

China’s solar sector is struggling with excess manufacturing capacity, which is driving down solar panel prices and has already pushed a number of manufacturers into difficulties. According to Reuters, China’s largest solar panel manufacturers had to lay off nearly a third of their employees last year after reporting losses of almost $40 billion.

This was despite the fact that China connected a record 350 GW of renewable energy sources to the grid last year, nearly 280 GW of which came from solar power plants.

The Chinese government has begun addressing the difficult situation in the solar sector, holding its second meeting with industry representatives in the past two months last week. It called on them to reduce excess capacity and curb extreme competition among manufacturers.

“Industry representatives were called on to jointly support the healthy and sustainable development of the sector,” the Ministry of Industry said, adding that manufacturers needed to curb “uncontrolled price competition”.

Analysts said that a related plan by the largest polysilicon producers to buy up and then shut down around a third of existing manufacturing capacity would likely face resistance from smaller producers and local governments. The plan is nevertheless in line with analysts’ estimates that 20 to 30 % of manufacturing capacity needs to be closed to ensure profitability in China’s solar sector.