China's Overproduction of Solar Panels, Cheap Prices, and What it Means for NZ
By Aniket Bhor on in International Solar
For many centuries now, China has been known for its gorgeous silk and the mighty, aptly called Great Wall, among other things. However, things suddenly took a sharp turn in the latest century, and I’m afraid the coming generations will know China as ‘The Land of Solar Panels’ more than anything.
China’s aggressive push for solar has resulted in an oversupply of solar panels, which has in turn affected the global market. Here’s an overview of how it happened, and what it means for New Zealand’s solar industry.
How China Produced More Solar Panels Than They Needed
Among China’s “new three” economic driver industry sectors is solar photovoltaics, and for a while now, they have done well on that front. In March 2024, China had a whopping 660 GW of installed solar capacity, which is an incredible 1,500 times more than that of New Zealand. Even if you take into account the difference in size and population of NZ and China, this number is remarkable.
However, China’s push for solar has been so aggressive, that it reached a point where its solar energy production was greater than its transmission and storage infrastructure could handle. Consequentially, China’s authorities withdrew some of the price support for the sector, which then led to a dip in the demand for solar products.
While this happened, Chinese solar manufacturers were already manufacturing staggering amounts of solar panels while also gearing up to expand their scale and set up new facilities. However, this sudden policy change and decreased demand acted like a handbrake to a moving vehicle.
And now, China is battling the problem of excess solar panels. "China's estimated wafer, cell and module capacity that will come online in 2024 is sufficient to meet annual global demand now through to 2032," said Xuyang Dong, China energy policy analyst at Climate Energy Finance in Sydney.
As a result, solar companies in China have started slowing down production. Longi, China’s largest solar cell and module manufacturer, recently announced layoffs of thousands of its employees. The China Photovoltaic Industry Association is also calling for more mergers and acquisitions to restrict domestic competition to control capacity.
But the effects of this problem are seen worldwide. China’s massive piles of unused solar panels are making their way into international markets at dirt-cheap prices, threatening the existence of domestic solar companies in numerous countries.
For instance, in June, the price of solar panels had fallen to just 11 cents per watt, which is nine times cheaper than the cost of solar just a decade ago. This price absurdity has reached a point where people in the Europe have started using solar panels as fencing for their gardens.
What the Panel Oversupply Issue Means for New Zealand
If you don’t get into the nitty-gritty of it and focus on the three words of ‘cheap solar panels’, the whole thing actually starts looking positive. Particularly for New Zealand, where there are no manufacturers of solar panels, cheap panels do not threaten to shut down business.
On the contrary, installation companies can get more customers with lower pricing. In fact, several experts do not see China’s oversupply problem necessarily as bad, and believe it is a transitionary step in our shift to clean energy and fight against climate change.
However, there are multiple aspects to any issue, and this solar panel oversupply is more than just an economic event - it is also a geopolitical issue. When cheap solar panels threatened U.S. businesses, the Biden administration’s statement announcing tariffs included this line - ‘working with partners to address shared concerns about China’s unfair practices.’
This was reiterated by Biden’s economic adviser Brian Deese, who wrote that ‘Harmonising with partners is the most durable way to respond to China’s overcapacity strategy’. In other words, the U.S. wants its friends to be on their side in this problem.
Thankfully, NZ has a Free Trade Agreement (FTA) with China, which means tariffs are unlikely. When speaking about cheap Chinese EVs and American tariffs on them, Trade Minister Todd McClay said that NZ wasn’t considering imposing any tariffs. McClay was also quoted saying, “Ultimately this is a matter for the US and China, but it is important to us that China and the US continue to engage in dialogue on these matters. For our part, New Zealand remains focused on securing trade and economic gains where we can, while remaining clear-eyed on the shifting geo-economic landscape.”
If New Zealand takes the same approach to Chinese solar panels, it would mean no tariffs, no trade tensions and ultimately wider adoption of solar power here in Aotearoa. However, as Labour’s trade spokesman Damien O’Connor mentioned when speaking to Stuff, “Whenever the elephants are stomping, the small players like us get trampled on. The last time there was a trade spat we saw an imposition of [U.S.] tariffs on our aluminium and steel and they remain in place unfortunately.”
In other words, China’s panel oversupply may be both good and bad for NZ in certain ways. As for the questions of how good or how bad, we’ll have to wait and watch.