A few years ago, China decided to be the biggest producer of photovoltaic cells and panels. They gave out billions of RMB in loans to local manufacturers (located mostly in Jiangsu and Zhejiang provinces, close to Shanghai).
What happened? As usual in China, excessive competition and oversupply. My Friend Gaetan from Eyo Green helps foreign buyers of solar panels, and he tells me prices keep going down. In what other Chinese industry do you see prices (in USD) going down over a 6-months or a 1-year period??
Manufacturers are forced to sell at a price that does not cover the amortization of their initial investments (in buildings and machines). It means they are in the red, and they might be incapable of paying the loans back.
It seems like the Chinese authorities decided to reduce competition, and to allow prices to go up again… By wiping out small suppliers. They make it look like they are setting a new quality standard, but a collateral effect is the death of the little guys (like so often in China).
Below is a more in-depth look at this new standard and its impact on the industry.
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PV panel industry may consolidate due to new quality standard
By: James Jakoplic
About two-thirds of China’s 400 small and midsize solar panel exporters could close down if and when the government introduces a nationwide quality standard, according to Shen Fuxin, secretary-general of Zhejiang’s Solar Energy Industry Association.
The standard, now being prepared by the General Administration of Quality Supervision, Inspection and Quarantine, is expected to cover all companies and all types of PV panels made in China. It is likely to be rolled out in 2012.
Although no specifics are available, analysts agree that a large number of SMEs will not be able to pass given the substandard quality of their products and their limited investments in R&D and production.
With the new regulation, the government hopes to improve the quality of solar panel exports. Since most suppliers target overseas markets, the government has so far lacked motivation to set up a national standard. Products bound for the USA or EU must be compliant with UL (Underwriters Laboratories Inc.) or RoHs (Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment).
The new regulation is also seen as an attempt by the authorities to organize the industry, which saw a growth spurt in 2009 and 2010. At that time, roughly 200 manufactures jumped into the line as a result of stimulus measures by the China government and higher EU demand. Most of these makers are in Zhejiang province, the country’s second largest production base for solar panels.
After a consolidation, according to Meng Xiangan, vice chairman of the China Renewable Energy Society, only about 15 large suppliers with core technology and vertically integrated production processes will remain.
Currently, only a handful of the more than 400 PV panel suppliers in China are big companies. The top names include Suntech in Wuxi, Jiangsu province, Yingli Solar in Baoding, Hebei province, Trina Solar in Changzhou, Jiangsu province, and LDK in Jiangxi province.
The big players are welcoming the new regulation for a number of reasons, including the fact that price competition will be less intense if many SMEs exit the line.
Currently, the average price for PV panels is between US$1.40/W and US$1.50/W, while upscale products may go to US$1.60/W. Some small companies, however, quote as little as US$1.20, which makes it difficult for companies offering high quality products to justify their higher prices.
In addition, larger companies will have access to talented personnel that become available if smaller suppliers close down. Also, some SMEs may merge or cooperate with their large counterparts, which could strengthen the latter’s business.
More challenges for SMEs
SMEs are facing a number of other difficulties as well. Demand from the EU, the top export market, has been shrinking since early 2011. In May, Italy slashed subsidies for PV panels by 18% to 20%. Similarly, Spain, Germany and France have already or are planning to cut their subsidies.
SMEs are the companies most affected by these changes. Exports of midsize company Zhejiang Aurora PV Solar Co. Ltd, for example, have dropped 50% year-on-year.
Competition from overseas producers is also adding to the pressure, as more nations are encouraging local R&D and production of PV panels.
Quality problems
Most SMEs focus on assembling PV glass and cells. Instead of thin-film panels, they mainly turn out crystalline silicon modules (including polycrystalline and monocrystalline PV panels) for both household and commercial appliances.
Typically, production processes are done manually at smaller factories. Many of these makers also have inadequate QC processes and few testing machines.
Products from such suppliers often suffer from uneven performance and low power output. The first problem results from low-quality components and fittings. The second issue is the result by inferior cells. For example, an 185W polycrystalline panel may in fact only work on 180W or less.
Although most companies offer a 25-year warranty, problems like these usually do not surface until after six to eight years of use.
James Jakoplic is a writer for Global Sources, a leading business-to-business media company and facilitator of trade with China. They have experience in all industries, from Electronics to Garments & Textiles.