In recent months, China’s solar sector has faced severe turbulence, as an overproduction glut and intense price competition have taken a heavy toll on even the industry’s largest players. However, a recent Bloomberg interview with Li Zhenguo, founder and president of Longi Green Energy Technology Co., suggests that the worst may soon be over, with promising signs of recovery already beginning to emerge. At Forcivate, we recognize the critical role of keeping solar providers informed and proactive amid market shifts, and today's analysis highlights what these developments mean for the sector and for those invested in its growth.

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China’s Solar Glut: What Happened?

China is the world leader in solar manufacturing, a status that has often been a double-edged sword. On one hand, scale has given Chinese solar companies a formidable position in the global market, but over the past year, unchecked expansion led to a significant oversupply of solar panels. A resulting price war drove prices so low that they dipped below production costs, leading to four straight quarters of losses for Longi, once China’s biggest panel producer.

In response, many firms have gone bankrupt or undergone restructuring, and the industry has entered a period of intense self-reflection, as noted by the China Photovoltaic Industry Association (CPIA). The CPIA recently called for rationalized pricing and urged companies to exercise more caution in project bidding. They also encouraged struggling manufacturers to exit the market if needed, to stabilize the industry.

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A Slow Recovery Ahead

According to Li Zhenguo, the founder of Longi, the industry is at a pivotal point. He anticipates that within the next two to three quarters, prices will start to exceed production costs, bringing some relief to manufacturers. In fact, Longi is already observing some increases in bidding prices, a hopeful indication that demand is gradually realigning with supply.

Li emphasized the need for the sector to “limit capacity a little” to allow prices to stabilize at a more rational level. Major players are also focusing on differentiating themselves by investing in advanced solar technology, including Longi’s investment in back-contact (BC) cells, which offer efficiency advantages. In the face of a challenging market, such investments in new technologies may give Chinese solar companies an edge, helping them adapt to the evolving demands of the global energy landscape.

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External Pressures: U.S. Tariffs and the Impact of Policy Changes

China’s solar manufacturers are also facing significant headwinds in the United States. In addition to existing 25% tariffs, the Biden administration has signaled plans to increase these tariffs further. If President-elect Donald Trump follows through on his pledge for a 60% import tax on all Chinese goods, the pressure on Chinese firms could become even more pronounced.

For companies like Longi, which holds a nearly 50% stake in a solar plant in Ohio, these tariffs could impact investment plans and profitability. Longi, as well as others in the industry, are closely monitoring any potential revisions to the Inflation Reduction Act or policies affecting foreign investment. As these changes unfold, it’s crucial for solar providers to remain vigilant and consider diversifying markets to mitigate risks tied to the U.S.-China trade relationship.

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Key Takeaways for Solar Providers

While China's solar sector challenges may seem specific to that market, they illustrate broader lessons and cautionary points for solar providers everywhere. Here’s what industry stakeholders can learn from the situation:

1. Market Discipline is Essential: China’s experience shows the importance of matching supply with realistic demand forecasts. For any solar provider, maintaining discipline in expansion efforts can help avoid a similar glut, which benefits neither manufacturers nor buyers.
2. Innovation is a Competitive Edge: Longi’s investment in BC cell technology illustrates that focusing on unique technologies can help companies stand out, even in a difficult market. As solar technology advances, solar providers must stay informed about innovations that could impact efficiency and provide long-term competitive advantages.
3. Policy Awareness is Key: China’s solar companies face challenges not only from internal market dynamics but also from evolving international trade policies. For any solar provider operating globally, staying aware of policy changes and exploring new market opportunities can provide insulation from political risks.

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China’s Solar Market in 2024 and Beyond

Longi’s view that the industry is approaching a “turning point” is a hopeful sign, especially for those with investments tied to the Chinese solar market. However, recovery will likely be gradual, and the sector’s return to profitability may hinge on adherence to disciplined production and competitive innovation. For solar providers, remaining aware of both technological and policy shifts is essential to thrive in the global energy transition.

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