The battle between Europe and China over the solar industry has been going on for two decades. And Chinese solar panel manufacturers are winning with an indisputable advantage: they now represent 80% of global production capacity. However, the cost of maintaining this victory may be a bit high.

China dominates the entire solar panel industry supply chain. Prices, which are almost two-thirds lower than US competitors, have helped it gain market share.

The price difference between the two countries increases every year. There was an additional 40% price cut in 2023. Chinese domination is the result of years of state investment. More than US$130 billion was invested in the solar industry last year alone, expanding production capacity. Chinese manufacturers can build more than 860 gigawatts of solar modules annually.

The biggest advantage of Chinese companies is scale. Thanks to the size of the domestic market – which added a record 217 gigawatts of solar power last year – companies have invested heavily in larger-scale production and automation. This is currently yielding good results.

An additional 600 gigawatts of annual capacity are expected to come online this year. That would be enough to meet total global demand until 2032, according to energy research group Wood Mackenzie.

Clearly, the fact that there is now more than enough supply of affordable solar products is good news for the environment and for global efforts to transition to cleaner forms of energy production. China was the main driving force behind the 50% increase in global renewable electricity generation capacity last year.

However, the problem, for some Western mainstream media analysts, is that the pace of growth has been too fast. Even the vast domestic market cannot absorb this excess capacity. The underperformance of shares of Chinese solar cell manufacturers reflects this discrepancy somewhat. Longi Green Energy Technology, JA Solar Technology and Trina Solar are down more than 50% in the last year. Longi, the largest Chinese company in the sector, which has become the second most valuable solar energy group in the world, trades at 18 times future earnings. That’s less than half the valuation of smaller U.S. companies. Operating margins have halved in the last four years. All data confirmed by the Financial Times.

The European Commission has started investigations into offers from Chinese companies for projects in the region. The European Union’s solar industry has blamed a flood of Chinese imports for losses and plant closures at several European manufacturers. With that market looking less and less conducive to the growth that Chinese manufacturers need, the outlook looks bleak indeed for the European market.

The biggest European focus for the century was renewable and sustainable energy sources. Given the strong external dependence on gas, coal and oil, investing in new technologies is essential for European sovereignty, but more than that, Europeans were right to see green technology as the great trend of the century, but they made a mistake in calculating that only they , and at most its North American transatlantic partner, would be the major developers and producers of these new technologies, and intended to dominate global markets once again and continue to maintain their privileged position in the global economic balance.

But they did not count on Chinese capacity. Chinese advances in this technology will have a huge impact on Western markets. We can expect an increasingly protectionist discourse not only from the US but also across the EU.

Sources: Financial Times


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