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 remain cautious. Many research institutions warn that although the current policy environment is favorable for the solar sector, there are concerns about potential overcapacity in the future. The situation next year still appears uncertain. As early as last year, experts have highlighted that for the photovoltaic industry to fully recover, mergers and acquisitions and industry consolidation are inevitable. It is estimated that 90% of the existing 50-60 polysilicon companies may be eliminated, eventually leading to the formation of just five or six major enterprise groups.
On the last day of 2013, this prediction was strongly validated. According to the Ministry of Industry and Information Technology’s website, on December 31st, four companies were officially recognized as meeting the "Regulations for the Photovoltaic Manufacturing Industry." These companies passed a rigorous review process involving provincial authorities, expert evaluations, online announcements, and on-site inspections.
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, with low profitability continuing into 2012. In response, the National Energy Administration and the State Grid Corporation introduced policy supports in the second half of 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 a sector 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 significant challenge. Additionally, slowing demand in Europe and the U.S. has made it difficult for Chinese manufacturers to rely on low-price competition for market expansion.
According to a recent report from CCID Research Institute, an institution under the Ministry of Industry and Information Technology, 2014 saw a gradual improvement in the industry, with falling component prices bringing photovoltaic electricity closer to grid parity. Global PV module production is expected to rise from 40GW this year to 43GW, while China’s PV module output is projected to increase from 26GW to 28GW. However, the report also warns that domestic market expansion could lead to another round of overcapacity in 2014.
Raising the Threshold
Dr. Wang Shijiang from the China Photovoltaic Industry Alliance emphasized that while supporting the industry is essential, not all companies can benefit equally. He suggested that the best approach is to focus on supporting leading enterprises first, which aligns with the broader push for industry integration and sustainable development.
Why does an emerging industry face overcapacity so quickly? The answer lies in low entry barriers. Many companies without proper technology or production capabilities have entered the market, leading to inefficiencies, policy mismanagement, and resource waste. When the market is booming, these issues can be temporarily overlooked. But when demand slows, outdated technologies and inefficiencies become apparent.
Thus, raising the industry threshold has become a necessity. On September 17, the Ministry of Industry and Information Technology officially released the "Regulations on the Standardization of Photovoltaic Manufacturing Industry," setting strict criteria for production layout, scale, technology, and R&D investment. Enterprises must now meet higher standards, including having independent R&D centers and allocating at least 3% of annual sales to R&D.
The regulations also set minimum efficiency requirements for photovoltaic cells and modules, ensuring only technologically advanced companies can compete. Additionally, the rules require a minimum annual production capacity of 200MWp for crystalline silicon cells and modules.
Companies failing to meet these standards will not qualify for export tax rebates or domestic application support. The government encourages mergers, technological upgrades, and other measures to help firms comply with the new standards.
Breaking the Tail to Survive
While the introduction of these regulations may seem like a late response, it is necessary given the industry’s current challenges. Although external factors contribute to the difficulties, the main issue remains severe overcapacity. To revitalize the sector, raising the industry threshold and promoting consolidation are essential.
However, there is a risk that local governments, encouraged by recent policy support, may once again drive excessive investment in the sector, leading to new overcapacity problems. Therefore, strict enforcement of the new regulations is crucial.
Zhang Yulin, director of energy industry research at CIC, noted that some view industry standards as administrative interference, contrary to market principles. While this is true in theory, he argued that in practice, many local governments lack market discipline, and enterprises often fail to act responsibly. In such cases, regulation is a necessary step to prevent further chaos.
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