China's solar plans are insane

China's bloated solar sector has been hard hit this year by plummeting prices brought on by overcapacity. Overseas demand, which absorbs most Chinese panels, is set to fall next year as tariffs are imposed and subsidies cut.

However, consolidation in solar manufacturing is not yet in the cards. Instead, the government is turning its attention to boosting domestic solar-power installations. At the same time, it is turning a blind eye to local governments' grandiose plans to ramp up production. As new-energy and high-tech activity remains a national priority, these plans are likely to come at least to partial fruition, exacerbating the problems suffered by the industry.

Most of the solar panels made in China are exported, with much of the demand coming from the US and Europe; the latter is expected to account for two-thirds of worldwide installed solar capacity this year. Global demand growth has been robust, with panel installations doubling in the US in both 2011 and 2012.

However, 2013 is likely to be different. US anti-dumping tariffs on solar-cell imports from China were finally approved in November, which will discourage purchases from Chinese companies. In early 2012 several EU countries, including Spain, cut subsidies for solar installations. To top it all, the EU began an anti-dumping investigation into Chinese solar exports in September, which may lead to further tariffs.

As the sector braces itself for the slump in external demand, officials are trying to accelerate development in the home market. China has already become the world's third-largest consumer of solar energy, up from seventh in 2010. Solar installed capacity ballooned from 537 mw in 2010 to 2.5 gw in 2011. As a result of the external slowdown, officials have brought forward the planned target of 21 gw from 2020 to 2015. In October local media reported that the State Grid, China's largest utility, plans to give local subsidiaries the power to approve plants with installed capacity of less than 10 mw. The National Energy Administration is reportedly considering a subsidy of Rmb0.4-0.6 per kwh of distributed solar power.

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The pains taken to boost domestic absorption may prove a Sisyphean task, however, as local governments still have ambitious plans to ramp up production. The industry remains favoured, and is seen by local officials as an easy way to boost new-energy and high-tech development. Moreover, it spurs upstream activities, such as the production of polysilicon, a core component in solar panels.

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