
Additions of new solar plants in China, like this one in the northwestern Ningxia Hui autonomous region, will slow this year, according to analysts. Source: Associated Press |
The global solar industry is facing renewed turbulence after China announced a raft of policy changes to slow the pace of construction in the world's biggest market. Those moves could sink equipment prices by unleashing a wave of excess capacity as Beijing tries to rein in untrammeled growth and create a "healthy and sustainable" national solar industry.
A trio of government agencies on May 31 said China is putting the brakes on solar power plant development, capping the market for distributed generation projects and reducing incentives. The goal, according to the agencies, is to "improve the quality of development, and accelerate the subsidy retreat."
Under the new policies, China is likely to install between 32,000 MW and 42,000 MW of new solar projects in 2018 compared to 53,000 MW in 2017, according to Yvonne Liu, an analyst with Bloomberg New Energy Finance. Analysts previously said they expected new installations in China to be flat or down slightly this year.
The last time China's solar market contracted, in the second half of 2016, the rest of the world was inundated with equipment and solar module prices fell sharply. That put pressure on the balance sheets of manufacturers including SunPower Corp., First Solar Inc., Canadian Solar Inc., Hanwha Q CELLS Co. Ltd. and JinkoSolar Holding Co. Ltd., and helped lead to the Trump administration's decision to place steep tariffs on imported solar equipment.
"The market will slow — perhaps even drastically," Paula Mints, chief research analyst at SPV Market Research, said of China's policy shift. "This could make 2016 look like a margin picnic."
In a recent securities filing, China-based JinkoSolar said "any reduction in the price of solar modules will have a negative impact on our business and results of operations, including our margins."
Shares tumble
The stock prices of solar panel manufacturers tumbled after the announcement. Shares in JinkoSolar were down 8.59% at $13.84 in afternoon trading June 4; Canadian Solar shares were down 13.13% at $13.63; Hanwha Q CELLS shares were down 3.98% at $6.75; First Solar shares were down 5.52% at $62.29; and SunPower shares were down 1.9% at $8.28.
The latest policy changes came on top of warnings that rising interest rates could drag down solar demand in China, where the government is trying to reduce leverage throughout the economy. Companies that are not state-owned face higher interest rates, and some are having trouble getting money from banks, Liu said.
A slowdown in solar project development could also hamper plans to expand production of polysilicon, a critical raw material, Mints said. Shares in China-based polysilicon producer Daqo New Energy Corp. were down 20.47% at $41.93 in afternoon trading June 4. In the past, tight supplies have driven up polysilicon prices, weighing on the gross margins of solar cell and panel manufacturers.
Despite the moves from Beijing, momentum in China's solar market "will be hard to stop," said Mints, due in part to lending from the country's shadow banking industry and support from local government officials worried about job creation.
While policymakers in China had signaled their desire to slow solar project development, quotas the government set on rooftop installations were a surprise, said Liu. A decline in solar panel prices would push bids by project developers to new lows, Mints said, a move that would "further trap us in a margin death spiral."
