China installed a gargantuan 20 GW of Solar Energy capacity in just 6 months causing the solar market to crash (once again!!!!)

Industry watchers have been surprised by the sudden and sharp falling solar panel prices by around 10% in the last couple of months. Even the dramatic declines in solar panel prices in the last 5-7 years had not prepared the industry for this sudden precipitous decline in solar panel prices. The main reason for the crash has been the huge build up in Chinese demand in the first half of the year, which led to 20 GW of solar power capacity being installed in just 6 months. To give these figures some context, please note that only 200 GW of solar power capacity has been installed in the world over the whole course of history. China installed 10% of the world’s capacity in just 6 months!!!!!!!!!

Also read Solar Panel Prices in 2016 from now on depends mainly on Chinese demand trajectory.

This sharp surge was due to a planned reduction in feed in tariffs for solar power in July, which led to a huge build up in solar capacities. The demand soaked up solar panel supplies from all over the world keeping the prices firm and the oversupplied capacity from China in check. However, now that the feed in tariffs have come down, there is no hurry for the Chinese developers to put up the projects leading to a sharp decline in demand. The huge Chinese overcapacity has no place to go to fill up this huge demand leading to a sudden sharp crash in solar panel prices to just 45 cents/watt from around 55 cents/watt a year ago. Chinese panel prices which were quite high are now finding no buyers.

Just like steel, glass and other industries, Chinese manufacturers of solar modules are now exporting their products to wherever they can. After a 10 GW of solar development in July, August my not seem even 1 GW of capacity coming up. This huge build up has also meant that the Chinese authorities may also seriously cut their future solar power targets for the next 5 years from 150 GW over the the next 5 years to just 110-120 GW. China is facing the problems of connecting the solar power plants to the main power grid as solar capacity comes up much faster than the transmission capacity. It may make sense for the country to wait for more transmission capacity to be developed, before putting up more capital to build solar panel farms. Much of the capacity is developed in the western and northern regions, while the main consumption centre is in the eastern part of the country.

Solar panel prices in general have never gone up after going down the main reason is that major solar panel producers have managed to decrease their costs by 10% or more each year with large scaler and improved manufacturing processes. Panel prices may easily touch 40 cents/watt by the end of the year given that many of the solar panel makers should be reaching 35 cents/watt costs.

Also read Falling Chinese Solar Panel prices a boon for Indian Solar Developers bidding aggressively.

Solar industry generally does not afford more than 15% gross margin. While the demand should increase in the rest of the world due to a decline in solar panel prices, it will take some time for the transmission to take place. Solar power is already competitive with fossil fuel prices and this crash will make it even more so. Solar panel makers are already trying to cut costs by firing workers and deferring expansion plans. The strong will survive while many of the weaker players will get bankrupted.

The China Photovoltaic Industry Association claims just over 20 giga-watts (GW) of solar output was built in mainland China in the first-half, up from 7.73GW in the same period last year. The official industry figure will be confirmed by the National Energy Administration later in the year.

If true, the association’s figure would be higher than the full-year installation for the past two years, but its secretary general Wang Bohua puts the rush in business squarely down to developers hurrying to finish projects before July 1, when newly completed projects were subject to tariff cuts of between 2 and 11 per cent.

Wang is projecting full-year project volume to reach 25 to 30GW, he told Xinhua at an industry seminar in Beijing late last month. That would imply 5 to 10GW is likely to be added in the second-half.

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