China, as the world's largest photovoltaic manufacturing country and consumer market, has achieved remarkable and far-reaching development over the past two decades. During this period, China's photovoltaic industry experienced ups and downs, driven by its integration into global supply chain and the backdrop of China-US competition. The series "China's Photovoltaic Go Global" focuses on the competitive advantages, strategic layout faced by Chinese photovovoltaic industry.
This article focuses on the development of China's photovoltaic industry in the 3.0 era (from 2020 to the present). After establishing global leading research and manufacturing advantages in the 2.0 era of the Chinese photovoltaic industry (China's Photovoltaic Go Global Ⅱ:Breaking New Ground in the Era of 2.0), how to find development space in the unpredictable international relations has become an important issue for the photovoltaic industry. In order to avoid trade barriers and sanctions, leading photovoltaic companies such as China Power and Longi Green Energy have started to explore the path of offshore manufacturing.
In the photovoltaic 2.0 era, China's photovoltaic industry broke through multiple technological barriers and overcame the predicament of Western technology bottlenecks, reconstructing the entire photovoltaic industry chain and possessing research and production capabilities from raw materials and photovoltaic cell components to photovoltaic systems. However, in the current booming photovoltaic industry where China has gained overwhelming advantages, many leading companies are also contemplating the next development direction of the industry. In the context of the decoupling of China and the United States and the trend of deglobalization, relying solely on the manufacturing-export business model is bound to pose many hidden risks for the development of the photovoltaic industry. Rooting in overseas markets and exporting supply chains and production capacity have become the goals that leading photovoltaic companies are actively exploring.
Meanwhile, countries in South America, the Middle East, Southeast Asia, and other regions have experienced a continuous decline in the cost of photovoltaic power generation due to their natural advantages, creating favorable conditions for China's photovoltaic industry to export its production capacity. In June 2016, the United Arab Emirates set a new world record for the lowest cost of photovoltaic power generation, with a cost of only 2.99 cents per kilowatt-hour, lower than Mexico's 3.6 cents and the United States' 3.87 cents, nearly one-third of the local coal-fired power generation cost. In India, the cost of photovoltaic power generation has also become generally lower than the cost of imported coal-fired power generation. This indicates that the price of photovoltaic electricity has already become lower than thermal power prices in multiple countries' markets, making it one of the lowest-cost energy sources.
In response to the impact of increased overseas manufacturing capabilities, exporting production capacity becomes an important way out.
As countries around the world continue to announce carbon neutrality targets, global recognition of new energy has reached unprecedented levels. At the same time, countries are increasing their support for their domestic renewable energy industries. In recent years, the changing geopolitical landscape has had a serious impact on global supply chains, energy supply, and international financial markets. In this context, Chinese companies expanding into overseas markets face more uncertainties, forcing them to reconsider their global supply chain layout to adapt to potential international risk changes.
The challenges faced by Chinese companies expanding into overseas markets are not primarily derived from the demand side but are more focused on differences in brand awareness, insufficient after-sales services, and tightening industrial policies in various countries. Currently, most Chinese brands have relatively low visibility overseas, so there is a need for continuous brand building and increased investment.
Cheng Xin, Global Partner and Chairman of High-Tech Business in Greater China at Bain & Company（贝恩公司）, believes that Chinese companies should focus on forming local ecosystems, creating a truly collaborative community of shared interests, actively integrating into the local market, and transforming from outsiders to insiders. This will enable them to deeply integrate into the supply chain, vertically integrate resources, and achieve a synergistic effect of "1+1>2". Outputting production capacity and building industrial chains overseas have become key business strategies for Chinese photovoltaic companies.
Many leading photovoltaic companies have already begun to expand their presence in markets such as Europe, the United States, and Mexico. According to a press release on the website of the Arizona Commerce Authority earlier this year, JA Solar（晶澳科技） has leased land in Phoenix, Arizona and plans to invest USD 60 million to build its first factory in the United States, which is expected to start operations in the fourth quarter of this year. The Columbus Region Economic Development Organization in Ohio announced that Longi Green Energy（隆基绿能） will collaborate with US clean energy developer Invenergy to build a 5GW photovoltaic component factory in Ohio.
According to an analysis by Ping An Securities（平安证券）, Longi Green Energy's overseas revenue ratio is steadily increasing, and the company is actively establishing production and sales bases overseas. Currently, the company has established production capacity in Southeast Asia with silicon wafer, cell, and module production lines in Malaysia and Vietnam totaling 14.35GW. In addition, Longi Green Energy has also set up sales outlets in Japan, Australia, India, Germany, Spain, and the United States to optimize its service capabilities. Last year, Longi Green Energy announced the issuance of Global Depositary Receipts (GDR) and applied for listing on the Swiss Stock Exchange. The company publicly stated during investor surveys that they are accelerating the globalization process and expanding overseas production capacity through the issuance of GDRs.
Easing Trade Restrictions: America's Reluctant Move
According to data from the U.S. Energy Information Administration (EIA), approximately 75% of solar panel supplies in the United States in 2021 relied on imports, with imported solar panels reaching 22.97 GW, while domestic production accounted for only around 14%, with 4.23 GW. In order to achieve the goal of freeing the U.S. power sector from fossil fuel dependence by 2035, the Biden administration has begun considering substantial support for domestic solar panel manufacturing. Currently, solar energy only accounts for 3% of electricity supply in the United States, and the Biden administration plans to increase it to 40%.
To support relevant industry enterprises and technology research and development, including batteries and solar panels, the United States enacted the Inflation Reduction Act in August 2022, planning to invest approximately USD 369 billion in energy security and climate change programs, including supporting the solar panel industry through appropriations and subsidies. Despite the impact of trade barriers and import/export restrictions, the price of domestic solar panels in the U.S. market is about 10 cents per watt higher than the international market. However, the higher selling price and generous subsidies make domestic solar panel production more attractive.
Currently, the solar panel production capacity in the United States is approximately 6 GW, with planned capacity exceeding 30 GW. Among them, First Solar has a planned and under-construction capacity of 10.6 GW in the United States, followed by Hanwha Q Cells with a planned and under-construction capacity of 8.4 GW. Nevertheless, due to lagging behind China in solar panel research and manufacturing capabilities, the cost of domestically produced solar panel products in the United States remains relatively high. According to BloombergNEF, the cost of establishing a full industry chain from polysilicon to panel production in the United States and Europe will be more than three times higher than the cost of building factories in China.
China holds the world's leading manufacturing capacity in the solar panel field. However, due to trade barriers and other factors, Chinese solar panels have faced some obstacles in entering the U.S. market in recent years, which has also affected the progress of related solar projects in the United States. The American Clean Power Association (ACP) has stated that due to the inability to access solar panels, solar installations in the United States decreased by 23% in the third quarter of 2022, and nearly 23 GW of solar projects were delayed. The association believes that this poses a risk to the Biden administration's clean energy and climate change goals. Recently, U.S. White House officials confirmed that due to the urgent need for new energy, the United States has begun allowing the import of solar panels from China.
Even under trade barriers, domestic photovoltaic companies have consistently held a significant share in the U.S. market. According to data from Berkeley Lab, the top three companies in the U.S. module industry accounted for approximately 45% of the market share in 2021. Among them, First Solar, Longi Green Energy, and JA Solar ranked in the top three, with shares of 23%, 11%, and 11%, respectively. In 2022, this data reached 48%, primarily due to the advantages of leading companies under the support of policy barriers. Among them, First Solar, SunPower, and JA Solar ranked in the top three.
Heading to Mexico: Photovoltaic Companies Making Inroads in South America
On February 17, 2023, the Federal Electricity Commission (CFE) of Mexico announced the completion of the first phase of the 120 MW Peniasco Port photovoltaic power plant. This project benefited from Xinyuan Zhichu Energy's comprehensive energy storage solutions, advanced storage equipment, as well as complete debugging and technical support. This also marks the successful implementation of the first overseas electrochemical energy storage project by State Power Investment Corporation (SPIC) in Mexico.
According to the "2022-2026 Investment Outlook and Risk Analysis Report for Mexico's Solar Power Generation Industry" published by the Energy and Power Research Group of Mexico's Business Department, renewable energy currently accounts for approximately 20% of Mexico's energy structure. The Ministry of Energy of Mexico has announced a new energy transition plan on its official website, which sets clear goals and strategies for the development of clean energy production. By 2024, renewable energy in Mexico will account for 30% of total electricity generation, and by 2036, it will reach 45%. By 2050, the goal is to achieve 60% renewable energy in the energy mix.
Mexico's energy supply primarily relies on imports from the United States, with imported natural gas alone being sufficient to meet the country's electricity demand. However, since mid-February 2021, the shale gas production in the central and southern regions of the United States has sharply declined due to a cold snap, leading to an inability to meet normal export demands.
According to data from the U.S. Department of Energy, natural gas production in the United States has decreased by 630,000 cubic feet per day in the past two weeks, accounting for over 30% of gas production in the central and southern regions and approximately 7% of national gas production. Consequently, the Governor of Texas ordered a halt to natural gas exports to Mexico, resulting in insufficient gas supply and making it challenging for Mexico to maintain its natural gas power generation capacity. Furthermore, natural disasters such as hurricanes and earthquakes have worsened Mexico's already fragile power infrastructure.
To optimize its energy structure and enhance energy self-sufficiency and security, Mexican President Lopez Obrador has expressed that Mexico will increase domestic energy production and improve its ability to be self-reliant. Considering the drawbacks of traditional energy sources in terms of high pollution and emissions, Mexico is shifting its focus to clean solar energy.
Subsequently, the Mexican government began planning to construct the largest photovoltaic power plant in Latin America in the Penasco Port, Sonora state, which has abundant solar resources. The project is part of the Federal Electricity Commission's (CFE) modernization program for power assets and distribution systems, with an estimated investment of around USD 2 billion and covering an area of approximately 2,000 hectares. It will require the construction of new transmission lines, and the project will be implemented in phases.
In addition to government support, Mexico has inherent advantages for photovoltaic power generation. Firstly, Mexico is in the early stages of developing the PV industry. Secondly, due to the rapid growth in Mexico's electricity demand, it is projected to increase to 22 GW by 2025. Thirdly, Mexico has abundant solar radiation resources, estimated at 5.5 kilowatt-hours per square meter. These factors have contributed to the rapid growth of Mexico's photovoltaic market. According to a report by the industry association SolarPower Europe, Mexico's installed PV capacity reached approximately 14.1 gigawatts by 2021, with the potential to become the world's seventh-largest solar PV market.
Middle East Deserts: More Than Just Oil
The Middle East is one of the important destinations for the overseas expansion of the photovoltaic industry. However, during the period of 2012-2020, when the photovoltaic industry flourished globally, the development of the photovoltaic industry in the Middle East was relatively slow compared to the world average. By the end of 2021, the total installed capacity of photovoltaics in the Middle East was only 24 GW, accounting for less than 1% of the global total installed capacity. This is closely related to the energy structure of Middle Eastern countries. As the region with the richest reserves of fossil energy in the world, the Middle East is abundant in oil and natural gas. Therefore, there is not a strong market demand for developing the photovoltaic industry locally.
Undoubtedly, Middle Eastern countries have unique oil resources, which allow them to easily gain significant economic benefits. However, this excessive reliance on the oil-based industrial structure has hindered the development in other sectors in these countries. With the tense geopolitical situation and the rise of the new energy industry, the oil-based economies of Middle Eastern countries are facing challenges in the global transition towards a cleaner and low-carbon energy structure. McKinsey & Company points out that considering the changes in the global energy market and population structure, Middle Eastern countries can no longer rely on oil revenues and public investment alone to drive economic growth in the long term.
Most Middle Eastern countries have recognized the structural issues mentioned above and have begun to develop their renewable energy industries. Saudi Arabia's previously announced "Vision 2030" plan indicates that renewable energy is expected to account for 50% of the country's energy mix by 2030.
The Middle East region is not just a desert with fossil energy resources. It is one of the sunniest regions in the world, with high solar radiation in almost all Middle Eastern countries. This provides excellent conditions for the development of solar-based renewable energy in the region, making photovoltaics the optimal choice for many Middle Eastern countries.
Countries like Israel, Jordan, and Saudi Arabia have a total annual solar irradiance of 8640 MJ/m2. The United Arab Emirates has a total annual solar irradiance of 7920 MJ/m2, with a technical development capacity of approximately 2708 TW·h per year. Israel has a total annual solar irradiance of 8640 MJ/m2, with a technical development capacity of approximately 318 TW·h per year. Iran has a total annual solar irradiance of 7920 MJ/m2, with a technical development capacity of approximately 20 PW·h per year. Jordan has an annual solar irradiance of approximately 9720 MJ/m2, with a technical development capacity of approximately 6434 TW·h per year. As a comparison, areas in China such as the Qinghai-Tibet Plateau, northern Gansu, and northern Ningxia, which have abundant sunlight, have an annual solar irradiance ranging from 5040 to 6300 MJ/m².
According to predictions from companies and institutions like APRICORP and Sharbatly, the solar photovoltaic industry's output value in the Middle East region will reach USD 128.5 billion, with a solar power generation capacity of 50 GWh. Saudi Arabia's National Renewable Energy Program indicates that it is expected to achieve a new energy generation capacity of 58.7 GW by 2023, with a solar power generation capacity of 40 GW, accounting for 68.14%. While the existing market is relatively low, the enormous growth potential undoubtedly sparks enthusiasm among solar PV suppliers, who are actively joining the competition and rapidly entering the market.
In 2022, Middle Eastern countries, represented by the United Arab Emirates and Saudi Arabia, imported approximately 11.4 GW of photovoltaic components from China, an increase of 78% compared to 2021. This demonstrates the vision and desire of Middle Eastern countries for the photovoltaic industry. Additionally, many Chinese photovoltaic companies are evaluating the establishment of supply chains in the Middle East.
Chinese photovoltaic companies such as JinkoSolar, Trina Solar（天合光能）, and JA Solar have gained an advantage in the Middle Eastern market and have participated in projects such as the 800 MW project in Qatar, the 2.1 GW project in Abu Dhabi, and the 100 MW inverter solution for a replacement project in Egypt.
However, exporting to the Middle Eastern market is not an easy task. The Middle East and North Africa have vast deserts, with intense inland sandstorms and strong sunlight, while the coastal areas are high in salt content and humidity. This poses higher requirements for the wind and sand resistance and lifespan of photovoltaic components. In addition, many solar power plants are located in remote desert areas, requiring a large number of remote monitoring devices to ensure smooth operation. Furthermore, it is essential to maintain the cleanliness of the photovoltaic components to avoid significant decreases in electricity generation.
On the commercial side, the low cost of electricity generation leads to increasingly competitive bidding prices. Currently, the competition in the Middle East's solar power generation sector is fierce, with low bidding prices for photovoltaic projects, which has created operational challenges for companies. Although companies have expanded their market presence, they face the risks of high costs and low selling prices. Therefore, the solar energy industry in the Middle East is primarily dominated by local energy companies such as Masdar, AWCA, and Siraj Energy, while Chinese suppliers participate in local projects mainly through the EPC (Engineering, Procurement, and Construction) approach.
By establishing an industrial chain in target markets, Chinese photovoltaic companies can better grasp market demand and respond more quickly to customer requirements, thereby enhancing product competitiveness and market share. Additionally, this diversified supply chain structure improves industry resilience, reduces sensitivity to external factors, and promotes technological innovation and knowledge sharing. Close collaboration with local partners and research institutions accelerates the development and transfer of new technologies, driving industry progress and development. Through active capacity expansion in overseas markets, the Chinese photovoltaic industry will steadily grow and make a greater contribution to global sustainable energy development.
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