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China’s Solar Boom Is Big, Fast, and Unstable
China is installing a jaw-dropping amount of solar
panels, but growth in electricity generation from solar is barely
increasing. Meanwhile prices are remarkably volatile. What gives?
By Jeremy Wallace
May 26, 2023
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Heatmap Illustration/Getty Images
China’s solar revolution is immense — quite literally world-changing —
but that doesn’t mean everything is running smoothly.
Last year China installed a record-breaking amount of solar – 87.4 GW
– but that number came amidst zero COVID lockdowns and economic
turmoil. This year, things are off to a blazing start, with over 48 GW
already installed through April and BloombergNEF projections exceeding
154 GW for 2023. For comparison, total installed capacity in the
United States is only 142 GW, meaning China is deploying more solar
this year than the U.S. has put up over the past two decades. There’s
simply nothing happening that approaches the scale of what China is
doing anywhere else on the planet. Many of these panels are part of
gargantuan energy bases in China’s remote north and western deserts,
but rooftop solar is also growing rapidly.
China isn’t just deploying solar power, it’s expanding factories up
and down the supply chain. In September of last year, amid crazy
natural gas prices, spiking lithium markets, and concerns about Europe
freezing, Bloomberg’s David Fickling sounded an optimistic note by
looking closely at the solar supply chain. Polysilicon, ingots,
wafers, cells, and modules all have annual production capable of
making enough to add over 400 GW, suggesting there was a lot more room
to run.
Similar announcements continued the drumbeat of solar growth. LONGi
declared in January it intends to spend over $6.5 billion to build the
world’s biggest manufacturing site for solar. Tongwei, world-leading
polysilicon producer and cell maker, is vertically integrating to
capture more of the value from its output, expanding into modules.
The cumulative scale of these investments is something to behold. The
IEA’s 2050 Net Zero Emission report has been a benchmark for examining
the progress the world is making (or, more often not making) towards
deep decarbonization. Just a few weeks ago, Exxon denounced it as
unrealistic, saying that it’s “highly unlikely that society would
accept the degradation in global standard of living required to
permanently achieve a scenario like the IEA NZE.” But the IEA just
released a report finding that in terms of solar production, the world
is already ahead of their 2030 targets. And not just a little ahead.
The 1.1 TW (that’s terrawatts!) of manufacturing capacity is “65%
higher than the level required to satisfy deployment needs under the
NZE Scenario in 2030.”
To be sure, solar isn’t everything, and while the battery sector is
similarly ramping up, other key technologies, like wind, are
relatively stagnant. Still, we’re at the point where the question
isn’t whether we can make enough solar panels to hit climate goals,
but how much we’ll need to reconsider the energy mix in these
scenarios and just lean more into solar.
The sufficiency of the global supply chain shouldn’t paper over the
fact that the vast majority of this investment and production capacity
is taking place in China.
There have been many welcome announcements about investments in clean
tech production taking place in the United States and Europe,
especially in the wake of last year’s Inflation Reduction Act, but
nothing compares to the Chinese renewables industry. Italy’s Enel
announced it would build a “massive” solar-panel facility in Sicily —
its planned capacity: 3 GW. The new IEA report explicitly defines
“major projects” as those over 20 GW a year, all of which so far are
located in China.
This pattern of development makes clear the dangers of decoupling from
China. The EU can’t come close to hitting its goal of installing 400
GW in the next seven years without relying on Chinese panels. But if
Europe and North America boycott Chinese-made solar, then these
game-changing investments might evaporate.
Not a Dinner Party
However, to paraphrase Mao, the solar revolution is not a dinner
party.
All of this construction and production is needed to meet our climate
goals, but there remain critical questions about how neatly supply and
demand will sync up.
Venture capitalist Dipender Saluja calls the energy transition “the
biggest opportunity in the history of the world.” He’s thinking about
profits when he says this, but profits don’t arise merely from
investing in a growing sector. Cutthroat competition, material
constraints, time inconsistency, managerial capacity, logistical
difficulties, geopolitical pressures, interest rates, financial
stability, global pandemics, and more all mean profits in renewable
energy are hard won.
For example, the solar sector saw prices of polysilicon, a critical
component of solar panels, collapse from $36 per kilogram in December
to below $20 in mid-February, only to see it quickly rebound back to
$30 by the middle of February before sliding back down below $20 now.
This kind of volatility wreaks havoc on the supply chain.
![](images/images_05_31_2023/spot-price-of-polysilicon.png)
Indeed, the major manufacturers fear that price pressures and
overcapacity are going to lead to businesses shuttering. Bloomberg’s
eminent solar watcher Jenny
Chase said just this week “there will be a price crash, it will
hurt, and there will probably be bankruptcies across the industry.”
But the supply and demand issue is not only on the manufacturing side
of China’s solar boom. Deploying dozens of gigawatts of solar means
unleashing tons of cheap electrons onto a grid that can quickly fall
victim to duck/canyon curves where spot prices are essentially zero on
a sunny day but ramp up immensely when the sun sets. California was a
world leader here, and Chinese provinces like Shandong are
increasingly grappling with similar dynamics.
These kinds of difficulties can be seen in data around electricity
generation. Despite record expansion in installed solar capacity
across China, the growth displayed in generated electricity is
mediocre. Solar provided 84.6
TWh in China over the first four months of the year, only 7.5%
more than the same period in 2022. And, of course, it’s the energy generation
that matters.
Now it just might have been unusually cloudy, and the dust
storms and air
pollution surely aren’t helping. We know grid connections are
lagging as well.
But all of this potential needs to actually start generating
electricity fast because climate change isn’t waiting for us. It’s
here now. Beyond the storms and droughts and heatwaves, in the
electricity sector, climate change is demolishing
hydropower production. The past two
months have seen China produce the least
amount of electricity from hydro since 2015. And, as ever, scale
matters. Even with such low production, hydro is about three times the
generation from solar, meaning coal
makes up the gaps.
The pieces for an energy and economic revolution are assembling, but
in China and elsewhere, it’s going to require a lot of effort in designing and
planning the future.
Green Play Ammonia™, Yielder® NFuel Energy.
Spokane, Washington. 99212
www.exactrix.com
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