China's solar panel manufacturers must be wondering where the next glimpse of sunshine is going to come from.
As recently as a couple of years ago, the industry was earmarked as a shining example of China's move up the value chain in technology that would help underpin Beijing's commitment under the Paris climate accord.
China is the world's largest manufacturer of solar panels, with a 1.4 million strong workforce in 2017 accounting for 37% of global installation, according to the International Renewable Energy Agency.
But in recent months, regulatory manoeuvres at home and abroad have put the industry in sharp decline.
Of particular concern was India's announcement on July 30 that it would slap a 25% tariff on imports of Chinese solar modules in an attempt to protect its domestic industry. That followed hot on the heels of a June 4 decision by the Chinese government to cap the total size of all new solar projects this year at 10 gigawatts (GW) – compared to the total of 19GW of solar capacity installed nationwide last year.
At the same time, Beijing scrapped its feed-in tariffs – the rate developers are paid for solar power sent to the grid – putting immediate pressure on companies' top line.
Most major stocks in the solar industry experienced double digit drops on June 4, with the largest solar player by global shipments, Jinkosolae, falling by around 34%, according to data from Bloomberg.
And stock prices in the sector have struggled to recover.
“The name of the game for them is to stay afloat," one industry insider told FinanceAsia. "That’s why we’ll see (Chinese) panel manufacturers continue to do what it takes to keep their foothold in the all-important Indian market.”
India's tariff, in particular, is a bitter blow to Chinese manufacturers – at least in the short term. New Delhi has set an ambitious target of installing 100GW of solar power capacity by 2022 and Chinese companies, which make 90% of India's solar panels according to India’s Directorate General of Trade Remedies, seemed ideally placed to cash in.
However, with India keen to build a domestic solar industry, a 25% duty will be levied in the year until June 29 next year, 20% for the six months after that, and 15% for the final six months.
As well as the Chinese manufacturers, the prospect of a sudden increase in costs had developers of solar farms in India up in arms. Indeed, Gurugram-based Acme Solar took the issue to the Orissa High Court and won a temporary stay of implementation of the tariff ... which the Finance Ministry studiously ignored.
SILVER LINING
But all may not be lost for China’s solar manufacturers – and their troubles could also end up benefitting developers of solar power plants across Asia.
The tariffs will add at least 12% to the cost of solar power projects in India, according to a July research note from ICBC. And even with this extra cost, imported solar modules will be priced at a similar level to the very domestically produced modules the tariff was supposed to boost.
"India will auction close to 25 GW a year. Domestic manufacturers are not in a position to manufacture over 3 or 4 GW, so going forward at least 80% will be imported," said Ankur Agarwal an analyst from India Ratings and Research.
All of this makes the imposition of the tariff even more baffling.
Even the ministry in charge of the sector, the Ministry of New and Renewable Energy, expressed doubts over India’s domestic manufacturing capabilities.
In a December report, it said the domestic sector was “not being fully exploited because of obsolete technology".
The “price of solar equipment produced in the country is not competitive as compared to that of foreign manufacturers, especially Chinese manufacturers,” it added.
And ICBC concurs that the tariff should have little, if any effect, on exports of solar modules to India.
“We think India will continue to heavily rely on imports from China in the coming one-two years”, it said in the July note.
WHO ARE THE WINNERS?
Ironically, it may well be India’s solar plant developers who benefit most from the misfortune of China’s solar manufacturers.
The near-term fall in demand in China and over-production globally has lead to a glut in supply, forcing prices down.
With prices at historic lows, this will hurt the margins of Chinese manufacturers, but help the uptake of solar technology, especially in Asia, where electricity demand is rising fast.
And it may well help India reach its 2022 target of 100GW.
