KEY TAKEAWAYS:

According to Bloomberg, seven Chinese solar power companies will provide more energy to fuel the world economy than the Seven Sisters of Western Big Oil that dominated the 20th century.

The dominance of China’s solar power giants has long been the target of scrutiny from the west. For example, on the face of fierce competition, the United States has employed protectionist policies, such as the Inflation Reduction Act, to support domestic solar manufacturing and reduce dependence on Chinese imports.  

Unprecedented Growth

However, protectionist measures like this didn’t slow down the march of Chinese photovoltaic (PV) juggernaut. The year 2023 witnessed unprecedented achievements, with the country’s newly installed PV capacity reaching a staggering 216.3 GW, marking a remarkable year-on-year growth rate of 147.5%.

Solar panels in the Ningxia Tengger Desert New Energy Base in China’s northern Ningxia region are among renewable energy facilities in northwestern China. Photo: AFP

For the 11th consecutive year, China secured the top spot in global PV installations, with the newly installed capacity surpassing any previous record. In 2023 alone, China accounted for over 55% of the global share, an unprecedented achievement in the industry’s history. By the end of the year, China’s cumulative PV installations exceeded a monumental 600 GW, solidifying its status as the world’s largest PV market, commanding nearly 40% of the global market share.

China’s PV manufacturing sector experienced a rapid expansion in scale throughout 2023. Over the past decade, the country’s production capacity and output across key segments, including polysilicon, wafers, solar cells, and modules, have grown exponentially, surpassing tenfold increases. The combined output value of these segments exceeded a staggering 1.75 trillion yuan, exhibiting a robust year-on-year growth rate of 17.1%.

China’s manufacturing capabilities in the PV sector reached unprecedented heights by the end of 2023. With production capacities exceeding 80% of the global market share, China ranked first globally in several segments. Notably, the wafer segment reached an astonishing 97% of the global market share, maintaining its leading position for multiple years. In terms of output, China accounted for 91.6%, 98.1%, 91.9%, and 84.6% of the global total in polysilicon, wafers, solar cells, and modules, respectively, in 2023.

Moreover, China’s PV product exports saw a significant surge in volume, despite a drop in prices. In the year 2023, the export volume of PV products, which include wafers, solar cells, and modules, showed impressive growth of 93.7%, 65.1%, and 37.8% respectively. The combined export value of these products reached nearly $48.48 billion, although there was a minor decrease of 5.4% compared to the prior year.

Breaking down the export figures, wafers accounted for $4.86 billion, solar cells $4.01 billion, and modules an impressive $39.61 billion. The respective shares in the export market stood at 10.0%, 8.3%, and 81.7%, showcasing China’s dominance in module exports. While there was a slight decline in export values, China continued to solidify its position as a major PV exporter.

Moving into 2024, the PV market’s growth trajectory remains encouraging. In the first quarter, China’s manufacturing sector maintained its growth trend, with preliminary estimates showing significant increases in output across various segments. The outlook suggests a promising future for China’s PV market, further reinforcing its global leadership role.

Shine in the sky

To achieve its current prominence, the Chinese PV industry has come a long way.

In 1958, China developed its first monocrystalline silicon, marking the beginning of its foray into the PV industry. As early as the 1960s, China had already entered the field of photovoltaic power generation, although at that time, its applications were not intended for use on the ground, but rather in the sky.

The launch of the “Practice I” satellite, which utilized photovoltaic power generation, marked a significant milestone for China’s PV industry. The satellite ultimately operated in orbit for an impressive 8 years, demonstrating the potential of photovoltaic power generation in space.

In the 1970s and 1980s, China’s PV industry began to shift its focus from the “sky” to the “ground,” exploring new applications for photovoltaic power generation on Earth. This marked the beginning of a new era for the Chinese PV industry, as it began to explore new applications and markets for its technology. In 1975, solar cell factories were established in Ningbo and Kaifeng, though their production scale remained small.

China Brightness Program

The turning point for China’s focus on photovoltaic power generation came in 1996, when the World Solar Energy Summit was held in Zimbabwe. Unlike the developed countries in Europe and the United States, China’s initial goal in developing photovoltaic power generation was to address the power supply problem in its western regions, based on local conditions.

In the vast western regions of China, the power grid load is small and scattered, making it impossible to supply electricity by extending the grid. After extensive research and demonstration, China concluded that photovoltaic power generation could completely solve this problem. In 1996, China had 76.56 million people without electricity, with the Tibet region having the highest proportion of households without electricity at 78% due to geographical reasons. By installing solar panels in these areas without electricity, mostly in the western regions, this historical problem could be quickly and thoroughly solved.

On May 7, 1997, the state-initiated “China Brightness Program” was launched.

To address this issue, the “China Brightness Program” was launched in 1997. The Brightness Project established thousands of independent power generation systems in rural areas of the west using solar energy, wind energy, and other power generation methods, effectively solving the electricity problem in the western countryside.

Under the guidance of the “China Brightness Program,” the first generation of Chinese photovoltaic companies emerged, including Suntech, Suntec, Yingli, and Trina Solar. In 1998, the Chinese government began to focus on solar power generation and planned to build the first 3MW polycrystalline silicon battery and application system demonstration project. Miao Liansheng, the chairman of Tianwei Yingli New Energy Co., Ltd., obtained approval for this project, becoming the first to take the lead in China’s solar energy industry.

Three years later, in 2001, Suntech established a 10MWp (megawatt) solar photovoltaic cell production line and successfully put it into operation in September 2002. The production capacity was equivalent to the total solar photovoltaic cell production in China in the previous four years, shortening the gap between China and the international photovoltaic industry by 15 years.

In 2004, SINOSICO independently developed a 12-pair ingot energy-saving polycrystalline silicon reduction furnace, jointly established by the Luoyang Monocrystalline Silicon Plant and the China Nonferrous Metals Design Institute. Meanwhile, as China was striving to solve the problem of lack of electricity in the west through photovoltaics, Europe and the United States encountered a series of energy and environmental problems and began to promote the transition from traditional energy to clean energy, with photovoltaics becoming one of the most important choices.

After the “China Brightness Program,” a group of photovoltaic giants represented by Suntech emerged. In 2004, the global photovoltaic industry ushered in a year of full-scale explosion, and China’s photovoltaic companies also flourished and quickly expanded from the domestic market to the international market. Driven by the demand from Europe, Suntech’s module exports increased tenfold in 2004, and the company’s profits approached $20 million. In 2005, Suntech was listed on the New York Stock Exchange, becoming the first Chinese private enterprise to be listed on the US main board. Soon, Trina Solar, CNSUNTECH, and Yingli Green Energy followed suit and went public on the US stock market.

The first crisis

In 2004, a global polysilicon shortage crisis erupted due to a surge in downstream demand. The price of polysilicon kept hitting new highs, and enterprises were scrambling for silicon materials regardless of the cost.

Despite this, China continued to dominate the global market, becoming the world’s largest photovoltaic manufacturing country in 2007, with an annual output of 1088MW. Eleven Chinese photovoltaic companies had already gone public in the United States, and there were nearly 1,000 Chinese photovoltaic companies, accounting for more than half of the world’s photovoltaic industry market share.

In 2008, China’s solar photovoltaic cell production reached 2,600 MW, continuing to advance rapidly. However, behind this rapid expansion, 90% of China’s photovoltaic raw materials were imported, 90% of the products were exported to Europe and the United States, and 90% of the core technologies were not controlled by China, resulting in a challenging situation.

European and American upstream suppliers began to exploit China’s technological weaknesses by precisely suppressing them. They drove the price of crystalline silicon raw materials from $40 per kilogram (polysilicon) in 2005 to $500 per kilogram in 2008, a 12-fold increase. Chinese enterprises, as manufacturers, lacked bargaining power upstream and pricing power downstream. Coupled with disorderly competition within the industry, Chinese enterprises found themselves mired in a comprehensive crisis.  

In early 2008, the international market for polysilicon prices surged once again. Upstream suppliers in Europe and the United States took this opportunity to propose long-term contract agreements to Chinese enterprises. Fearing that costs would continue to rise, Chinese companies signed these contracts one after another, locking in production in advance. After the photovoltaic companies committed to these long-term agreements, Europe and the United States drove international polysilicon prices down from $500 to $40 per kilogram in less than a year, a dramatic 12-fold drop. However, most Chinese photovoltaic companies were then locked into high-priced production agreements for 3-10 years. If they refused to fulfill these contracts, they faced enormous compensation penalties. In 2012, Suntech was forced to pay $212 million in compensation.

Meanwhile, the Americans transferred the financial crisis to the rest of the world. In 2008, over 300 Chinese photovoltaic companies went bankrupt, and 2009 was even more challenging, with the first wave of entrepreneurial photovoltaic companies in China nearly wiped out.

After enduring the aggressive tactics of international giants and the impact of the financial crisis, China did not choose to quietly accept its fate. In March 2009, Chinese government rushed to intervene. The Ministry of Finance, the Ministry of Science and Technology, and the National Energy Administration jointly issued the “Notice on Implementing the ‘Golden Sun’ Demonstration Project.” This initiative planned to invest 10 billion yuan to support the photovoltaic industry through fiscal subsidies, aiming to achieve grid connection. The project offered 50% subsidies for photovoltaic power generation projects and 70% subsidies for independent photovoltaic systems in remote areas. The goal was to expand the domestic market, reduce China’s dependence on the international market, preserve tens of thousands of jobs, and solve various electrification problems, all while providing crucial support to the photovoltaic industry.

A worker installs photovoltaic power panels on a roof in Tangshan, Hebei province. China makes and supplies more than 80 per cent of the world’s photovoltaic panels, according to the International Energy Agency. Photo: Xinhua

During the period from 2009 to 2010, within just two to three years of implementing the “Golden Sun Demonstration Project,” China’s photovoltaic installed capacity surged to 3,423.2 MW, surpassing the total of the previous nine years. Concurrently, Chinese companies achieved mastery of the key technologies for crystalline silicon solar cells, with the conversion efficiency of monocrystalline and polycrystalline silicon solar cells reaching 18% and 17% respectively. The leading players even broke through the 19% efficiency mark, placing China among the global leaders. The entire industrial chain, from upstream to midstream to downstream, was fully localized, with technology reaching an international advanced level, and some top products began to be re-exported.

This experience underscores the vital role of government intervention in the international competition of significant industries. Often, this governmental support serves as the ultimate ballast for industrial development.

Weather the storm

However, just as the Chinese photovoltaic industry had weathered its darkest period, another storm is on the horizon.

If we look back at the history of China’s photovoltaic (PV) industry, the most notable period was when the US and Europe launched anti-dumping and countervailing duty investigations against China’s PV industry, commonly known as the “double remedy.” In 2011, China’s PV module production capacity had reached 24.3 GW, accounting for 66% of global total production. At that time, 51% of Europe’s and 86% of the US’s PV modules were supplied by China.

In the US market, three major PV companies went bankrupt. In November 2011, the US Department of Commerce officially initiated anti-dumping and countervailing duty investigations on China’s solar cells exported to the US. The US solar equipment manufacturer SolarWorld demanded that the US government impose anti-dumping and countervailing duties of 49.88% to 249.96% on such Chinese export products. In October 2012, the US Department of Commerce made a final ruling, determining that China had engaged in dumping and imposed 23%-254% in combined duties on Chinese PV products.

Following the US, the EU formally launched a countervailing duty investigation on China’s PV products in November 2012. In June 2013, the European Commission announced that the EU would impose a provisional anti-dumping duty of 11.8% on PV products originating from China starting June 6. The direct consequence of the US-EU “double remedy” was that in 2013, China’s PV cell exports to the US fell by 48%, and exports to Europe fell by 71%. Within 2013 alone, over 350 companies in China’s PV industry chain went bankrupt.

At this darkest moment in the development of China’s PV industry, it directly led to a loss of 350 billion RMB in industrial value, 200 billion RMB in structural risks in loans, and over 500,000 people losing their jobs overnight. Chinese PV industry’s presence in the international market was almost wiped out overnight.

In response to the “double remedy,” the Chinese Ministry of Commerce announced the initiation of equal anti-dumping investigations on polysilicon originating from the US, South Korea, and the EU. China also issued five measures to comprehensively and vigorously support the domestic PV industry’s development in terms of industrial structure adjustment, industry development order, application market, support policies, and market mechanisms. This promptly ushered in Chinese PV market’s golden age.

Guided and supported by policies, China’s PV market exploded, with wafer, cell, and module production continuously increasing at an average annual growth rate of 50%, and the entire PV industry chain’s technology rapidly iterating. By 2018, China’s PV module exports reached over 200 countries, with India, Japan, Australia, Mexico, and others replacing the previous US and EU markets as China’s main PV export destinations.

In 2019, the EU announced the termination of its double remedy measures against China, and the US also reduced China’s PV double remedy tax rate from a maximum of 238% to 4% in its fifth review that year. As of the end of 2021, China’s cumulative installed capacity reached 308.5 GW, ranking first in the world, exceeding the combined total of the EU (27 countries, 178.7 GW) and the US (123 GW).

The intertwined global supply chain

But why did the EU and US willingly terminate the double remedy tax?

The short answer is obviously protectionism didn’t work, as western economists preaching the merits of free market would predict.

Last year in November, REC Silicon, a Norwegian polysilicon manufacturer, announced the closure of two domestic factories due to high production costs. Despite being a leading global polysilicon giant since its establishment in 1996, the company failed to invest in research and development, leading to stagnation after being surpassed by Chinese companies. In contrast, Chinese companies like Xinte Energy have focused on granular silicon research and development, reducing costs to industry-leading levels.

Current data shows that over 90% of the silicon ingots and wafers used to manufacture solar panels in the European Union come from China. This means that China is becoming an upstream supplier for European photovoltaic (PV) companies, and any tariffs imposed on Chinese PV raw materials would directly increase the cost of European PV products.

Recently, some level-headed European business leaders have cautioned against excessive measures, stating that “tariffs are not an effective solution to the current challenges facing the European solar industry, and should not be used to punish the entire sector.” This sentiment can be interpreted as an acknowledgement that China already possesses the capability to retaliate against such protectionist actions.

On the other hand, the US has been arrogant and wary of China’s PV industry, with both Trump and Biden administrations implementing suppressive policies. Despite this, the US relies heavily on imports of PV components from Southeast Asia, which at one point accounted for 85% of US PV imports. However, these components are often assembled in Southeast Asia using Chinese-made parts.

The US is aware of this transshipment trade and, in 2022, imposed high punitive tariffs on PV products from Southeast Asia, causing a significant decline in US domestic PV installation volumes. As a result, the US has had to lift restrictions and resume imports of PV components from Thailand, Malaysia, and Cambodia.

In reality, the US turning a blind eye to China’s PV industry is a desperate move. While the US has its own PV research and development, and manufacturing capabilities, the cost of setting up factories for polysilicon and component production in the US and Europe is more than three times higher than in China, according to Bloomberg data.

The rebirth of China’s PV industry can be seen as a model for how developing countries can catch up with developed countries. First, they get a taste of the benefits of trade, then expand, face suppression, and focus on improving themselves, achieving technological breakthroughs, covering the entire industry, and then going global to compete for dominance.

The key to this cyclical system is improving one’s own capability, which requires not only technological breakthroughs but also a large enough domestic market to ensure that all companies in the entire industry chain have a stable source of income. Even if their technology is not yet advanced, they can see market growth and technology development reinforcing each other, with companies continuously improving and achieving qualitative leaps.