Will China’s Massive 500 GW Solar Manufacturing Expansion Happen?

One of the toughest tasks for any journalist covering the solar manufacturing sector is sorting reality from mere announcements in the hub of the industry, China. From being an outlier till early 2000’s, China has emerged as the engine of growth for the sector, in more ways than one. For unlike some other sectors, in the solar sector, China has also provided a large market for its manufacturers to target, topping 50 GW in installations in 2017 even. That ensured a massive manufacturing base in the country, estimated to account for between 67 to 75 percent of global manufacturing in the sector in 2019.

In January this year, just before the Chinese lunar year holidays , traditionally the time when large firms announce their expansion and growth plans, the country’s major players surprised even hardened industry watchers with  the sheer scale and width of expansion plans. Industry media site PV Tech in fact reports tracking almost 500 GW of plans for capacity expansion plans in January 2020. These plans, announced just before the full extent of the Coronavirus on China, and later, the world became evident, cover the full supply chain of ingot/wafer, solar cell and module assembly segments.

So will these plans survive the Coronavirus pandemic, and its huge impact on the global economy? Consider for instance that as compared to January 1, it’s being taken as a given that the broader global economy will end the year in recession, from a starting growth rate of over 3.5 percent at year’s beginning.

While China seems to have made a quick of shaky recovery from the Covid-19 impact, actual 2020 capacity additions in solar plants is still likely to be at under 35 GW, by consensus estimates. Worse, the biggest global markets, from the US, India to Europe, are likely to shrink by between 20 to 35% as on date. And even this in a very fluid situation as we write.

Among the plans being taken seriously are those of Tongwei Solar, which has announced a 30 GW manufacturing hub. Firms like Longi Solar, and GSL-SI, which have a strong pedigree, also have the credentials to convince, though many firms might have to scale down those announcements very quickly.

A China based market analyst opines that “many announcements made by firms are also done for prestige. To show intent. In the new market reality, some of these will definitely get postponed”. Of course, with manufacturing time itself offering some flexibility, firms will have every option, from slower construction, to more phased our build ups, to make it easier for the market to absorb fresh capacities.

An Industry based solar developer which buys heavily in China also reminds us that while fresh capacities come up, a lot of older capacity is also being shuttered, making some of the new capacity replacement capacity, not additional capacity. “We have seen many top Chinese manufacturers with a global presense phase out polycrystalline production, for instance, and these could easily cross a cumulative 30 GW by the end of this year”.

The cost of manufacturing plants has also dropped, which is one reason incrementalism of 500MW to 2 GW has given way to breakout capacity additions of 5 GW and multiples now. As we saw in JA Solar’s announcement earlier. Or an inverter major like Sungrow, which made big plans public after hitting its 100GW  cumulative  sales target last year.

Interestingly, while the Chinese manufacturers are leading the charge, not everyone has confirmed if the manufacturing will all be China based.

We have argued earlier on how India’s own manufacturing ambitions in solar could work only if China-based firms take a stronger interest in the market here. This could happen both due to issues like safeguard duty or tariffs on imports, or a more straight case built on closeness to market and manufacturing ease of doing business in India.

Either way, with the global solar requirement placed at 500GW to 600GW by 2026 to meet zero emission norms by 2050, it is clear that the Chinese manufacturing juggernaut will not take a single step backward in its current stranglehold on global manufacturing in this sector.  Any gains for regions outside China, especially markets like India and the US, will require a potentially high cost (tariffs led) approach, or rolling out the red carpet to Chinese manufacturers to convince them to step outside for manufacturing. Pre-coronavirus, this would have been considered close to impossible. But now, nothing is off the table really.