China’s significant production of solar panels has led to a dramatic decrease in prices, facilitating the country’s clean-energy transition. However, Chinese manufacturers now face overcapacity issues, raising concerns among the United States, the European Union, and their allies. These entities are urging Beijing to address the overproduction of solar panels and other goods, potentially leading to a trade conflict.
China’s rapid growth in solar energy, a vital component of the country’s “new three” economic drivers, has resulted in an overproduction problem. Reuters reported that China had installed so many solar panels that they generated more power than the country’s storage and transmission infrastructure could handle. This surplus prompted Chinese authorities to withdraw some price support for the sector, resulting in fewer solar panel installations.
In the first quarter of 2024, China continued to set up solar panels rapidly, with the installation rate increasing by over one-third year over year. However, this growth was much slower than the 154% surge in the same quarter of 2023. By March 2024, China had installed 660 gigawatts of capacity, significantly outpacing the United States, which ended 2023 with 179 gigawatts.
Chinese manufacturers, facing a domestic oversupply, will likely export their excess solar panels to the international market. Bloomberg’s analysis in April highlighted that Chinese manufacturers were producing more solar panels than could be sold domestically, potentially leading to an influx of cheap solar panels in global markets, which could be unwelcome by Western countries.
Overcapacity has also directly affected Chinese manufacturers. In March, Longi Green Energy Technology, the world’s largest solar cell manufacturer, announced the layoffs of thousands of workers due to overcapacity and low prices. The China Photovoltaic Industry Association has called for more mergers and acquisitions and restrictions on domestic competition to control capacity.
In response to the overcapacity, US President Joe Biden announced a doubling of tariffs on Chinese solar-cell imports from 25% to 50% earlier this month, highlighting the growing trade tensions between China and the West over solar panel production.
China has disputed the West’s claims of industrial overcapacity, arguing that such assertions are attempts to contain its economic growth. Meanwhile, Germany has also experienced issues with excess solar energy, leading to negative energy prices during peak output.
Despite these challenges, experts view them as transitional issues in the global shift from fossil fuels to renewable energy. The next phase of this transition will involve optimizing supply and demand. David Fishman, a senior manager at The Lantau Group’s economic consultancy, emphasized the need for smart, AI-enabled, or model-backed approaches to efficiently distribute and utilize this variable, intermittent generation.
As China continues to navigate its overcapacity challenges, effective management and innovation in renewable energy distribution will be crucial for both domestic stability and international relations.
