Summary This year, despite the National Energy Administration and the State Grid Corporation issuing multiple documents to support grid-connected photovoltaic power generation, industry analysts still warn that the current policy-driven boom may lead to a future crisis of overcapacity in the solar sector. The outlook for next year remains uncertain. As early as last year, experts had already highlighted that for the photovoltaic industry to recover fully, mergers and acquisitions, along with industry consolidation, are inevitable. It is expected that 90% of the existing 50 or 60 polysilicon companies will be eliminated, leaving only five or six major groups by the end of the decade.
On December 31st, 2013, this prediction was strongly validated. According to the website of the Ministry of Industry and Information Technology, on the 31st, based on the “Regulations on the Standardization of Photovoltaic Manufacturing Industry†and the “Interim Measures for the Administration of Specification Regulations for Photovoltaic Manufacturing Industry,†the Ministry announced the first batch of four companies that met the new standards.
Excess Capacity
After a period of rapid growth, China’s photovoltaic industry entered a downturn starting in 2008. By 2010, the entire sector was suffering losses, and the low point continued through 2012. In response, the National Energy Administration and the State Grid Corporation introduced policies in 2012 and 2013, including 18 distributed photovoltaic demonstration zones, tariff subsidies, and financial incentives. These measures helped revive the industry, bringing much-needed relief to an industry struggling with overcapacity and limited export opportunities.
However, China currently accounts for 60% of global PV module production and 40% of polysilicon output, making overcapacity a serious issue. Meanwhile, slowing demand from Europe and the U.S. has made it difficult for Chinese manufacturers to sustain their low-price competitive model.
According to a recent report by the CCID Research Institute, part of the Ministry of Industry and Information Technology, global PV module production is expected to rise from 40GW this year to 43GW in 2014, with China’s output increasing from 26GW to 28GW. Despite this growth, the report warns that domestic market expansion could trigger another round of overcapacity in 2014.
Raising the Bar
Dr. Wang Shijiang from the China Photovoltaic Industry Alliance emphasized that while supporting the industry is necessary, not all companies should benefit equally. He suggested focusing support on leading enterprises to drive recovery, which is essential for healthy industry development.
Why does an emerging industry face overcapacity so quickly? The answer lies in low entry barriers. Many firms without proper technology or resources have flooded into the sector, causing inefficiency and misallocation of capital. When the market is booming, these issues can be masked, but when conditions change, outdated technologies and poor management become exposed.
This is why raising the industry threshold is now a necessity. On September 17th, the Ministry of Industry and Information Technology officially released the “Regulations on the Standardization of Photovoltaic Manufacturing Industry.†The rules set strict requirements for production scale, energy efficiency, and R&D investment. For instance, companies must invest at least 3% of annual sales or 10 million yuan in R&D.
The regulations also set minimum performance benchmarks, such as a 18% conversion rate for polycrystalline silicon cells and 20% for monocrystalline ones. Additionally, production capacity thresholds were established, requiring at least 200MWp of annual output for crystalline silicon cells and modules.
Companies that fail to meet these standards will lose access to export tax rebates and domestic support. Through mergers, technological upgrades, and policy guidance, the industry must adapt to these new requirements.
Survival Through Restructuring
While some critics argue that setting industry standards is an administrative intervention against market principles, others see it as a necessary step. Zhang Yulin from CIC noted that although it may seem contradictory to free-market ideals, in regions where market mechanisms are still underdeveloped, such regulations help prevent further overcapacity.
With local governments once again showing strong interest in the photovoltaic sector due to supportive policies, there is a risk of repeating past mistakes. Therefore, strict enforcement of the new regulations is crucial for long-term stability. The challenge now is to balance growth with sustainability, ensuring that the industry moves forward in a more efficient and structured way.
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