Home Finance China Continues Expanding Its Global Dominance in Solar Power

China Continues Expanding Its Global Dominance in Solar Power

by internationalbanker

By Hilary Schmidt, International Banker

 

As the world struggles to wean itself off of fossil fuels and shift to cleaner energy sources that can help usher in a global net-zero carbon economy, growth in the solar industry has been a source of encouragement in this endeavour. Thanks largely to China’s seismic efforts, solar is experiencing record growth in new capacity. And with the industry expected to continue expanding significantly over the coming years, the Chinese-led solar revolution could well generate successively greater peaks in clean-energy utilisation, which, in turn, is renewing hopes of achieving a decarbonised global economy in the future.  

Indeed, solar energy’s growth in 2023 provided just such reassurance. According to the International Energy Agency (IEA), solar photovoltaics (PV) alone accounted for three-quarters of renewable-capacity additions worldwide in 2023, while BloombergNEF noted in late November that the solar industry installed record volumes worldwide, which prompted the energy research service to increase its build forecast for 2023 to 413 gigawatts (GW) in its “Global PV Market Outlook” for last year’s fourth quarter. BloombergNEF also noted that PV modules had reached all-time low prices of $0.128 per watt by the third week of November.

Most of these astounding feats can be attributed to the efforts being made by China, which only continues unabated to expand its dominance over the global solar industry. Data from the country’s National Energy Administration (NEA) released in late January, for example, found that the country added a whopping 216.9 GW of solar-generation capacity in 2023, which not only blew away its previous record of 87.4 GW accomplished just a year earlier but was more than the entire solar capacity of its closest competitor—the United States—of 175.2 GW. The NEA also noted that China’s installed solar electric power-generation capacity rose by a staggering 55.2 percent in 2023.

The result of decades of strategic planning, Beijing’s significant efforts and ambitious targets for solar and renewable energies have driven much of this astonishing growth, with its unwavering desire to reach peak emissions by the end of the current decade and become carbon-neutral by 2060 still well ahead of schedule. Its aim to install 1,200 GW of renewable-energy capacity, meanwhile, is likely to be reached five years earlier than its stated target of 2030. The government has proved crucial in facilitating this exceptional performance by creating suitable political and operational environments for solar firms to thrive, including providing subsidies and tax incentives and launching specific programmes to encourage industry growth and innovation.

Such measures have created a hugely advantageous framework for Chinese solar firms to operate vis-à-vis other countries, enabling manufacturers to produce solar panels and other related goods in massive quantities that, in turn, have helped exploit numerous economies of scale and ultimately kept production costs much lower than their international competitors. Wood Mackenzie (WoodMac) recently noted that with China’s domestic solar additions in 2023 recorded at roughly twice as much as those of the US and the European Union (EU) combined, domestic solar-module production costs in the country nosedived by 42 percent during the year to $0.15 per watt, delivering to Chinese firms substantial cost advantages. Indeed, the UK-based research firm also recently estimated that modules made in China were up to 50 percent cheaper than those manufactured in Europe and up to 65 percent cheaper than those in the US.

China’s solar-manufacturing expansion has also been driven by “high margins for polysilicon, technology upgrades and for developing local manufacturing in overseas markets”, according to Huaiyan Sun, senior consultant at Wood Mackenzie. On the technology front, this is clearly visible. Chinese solar companies are now global leaders in areas such as panel efficiency, energy-storage capacity and smart-grid technology—that is, the use of digital technologies, sensors and software to match the supply of and demand for power better. Again, not only are such innovations raising the productivity and overall profile of solar energy, but also further lowering production costs.

Its high level of engagement and close cooperation with other countries and overseas markets have propelled China’s solar industry far above the rest of the competition. Beijing has exported its solar expertise to other countries through global engagement projects such as the Belt and Road Initiative (BRI), allowing Chinese firms to sell solar equipment and establish solar-power infrastructure, such as power plants and solar panels, in other BRI partner countries.

In some cases, firms have provided comprehensive end-to-end solutions, from projection conception to financing and construction, thus helping other countries to reduce the complexities of transitioning to clean energy dramatically. “In terms of investments, Chinese enterprises have extended their reach across major countries and regions, investing in wind power, photovoltaic generation and hydropower, leveraging their expertise and know-how,” Pan Huimin, deputy head of the NEA’s international cooperation department, recently stated. “So far, Chinese wind and solar products worth over $33.4 billion and $245.3 billion, respectively, have been exported to more than 200 countries and regions.”

Nonetheless, key shortcomings in China’s clean-energy strategy remain. A January 31 report from the country’s power trade association, the China Electricity Council (CEC), for example, revealed that coal still accounted for nearly 60 percent of the country’s electricity supply in 2023. As such, solar-capacity growth has not yet made significant inroads in the country’s overall sourcing for its total electricity demand. And with the world’s second-most populated country being the largest emitter of greenhouse gases—much of which originates from its power-generation industry—expanding the share of clean-energy sources within its total installed power-generation capacity has become crucial for Beijing.

Again, however, this trend is rapidly changing in favour of clean energy, with the CEC also noting that installed capacity for wind and solar energy will surpass that of coal for the first time by the end of 2024. The CEC even suggested that China’s grid-connected wind and solar power-generation capacity could hit 1,300 GW by the end of this year, 780 GW of which would come from solar, bolstering the share of solar and wind power within China’s total installed power-generation capacity to around 40 percent, from 36 percent at the end of 2023. As such, China remains on course to reach its 80-percent target of energy requirements being sourced from non-fossils by 2060. “Judging from the investments, [the] growth rate of power-generation capacity and changes in power structures, the power industry continues to advance the trend of green and low-carbon transformation,” said Hao Yingjie, CEC’s secretary general.

The US, meanwhile, saw 6.5 gigawatts-direct current (GWdc) of solar capacity installed during last year’s third quarter, which was 35 percent more than the same period a year earlier. According to the quarterly “Power & Renewables U.S. Solar Market Insight” report from the Solar Energy Industries Association (SEIA) and Wood Mackenzie, published on December 7, this stellar growth means that the US will be expected to have added a record 33 GW of solar capacity throughout 2023. Solar also represented 48 percent of all new electricity-generating capacity during the three quarters of 2023, the report added.

A considerable slowdown in growth may transpire this year, however, largely due to changes to the net-energy metering policy in California as well as the persistence of restrictively high interest rates. “The U.S. solar industry is on a strong growth trajectory, with expectations of 55% growth this year and 10% growth in 2024,” said Michelle Davis, head of solar research at Wood Mackenzie, which forecasted the US solar industry’s growth to average 14 percent annually over the next five years. By 2028, US solar capacity is expected to reach 377 GW, compared with 161 GW at present. And by 2050, solar is forecast to be the largest source of generating capacity on the US grid.

As for global prospects, the “Global Market Outlook for Solar Power 2023-2027” by SolarPower Europe, a member-led association for the European solar photovoltaic sector, predicted strong growth for solar deployment across the world during the following four years, with 401 GW added in 2024 and 617 GW in 2027. The report thus expected total operating capacities above 2 TW (terawatts) by early 2025 and 3.5 TW by the end of 2027. Unsurprisingly, China will account for the overwhelming bulk of this additional capacity, as its dominance of the global solar supply chain continues to widen its production, technology and cost gaps with competitors such as the US and the EU.

Wood Mackenzie stated that, having invested more than $130 billion into the solar industry last year, China will hold more than 80 percent of the world’s solar-manufacturing capacity from 2023 to 2026. “China’s solar sector is set to break records in the coming years,” energy-intelligence firm Rystad Energy asserted last September. “When installed capacity crosses the 500 GW mark by the end of 2023, it will have taken 13 years to reach that milestone. That total, however, will be doubled to 1 terawatt (TW) in just three additional years.”

 

Related Articles

Leave a Comment

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.