The second half of 2012 proved to be a pivotal point in the PV industry. It finally cemented the rise of China as a major force in global PV demand, complementing its place as a leader in the upstream supply side.
China has been the dominant producer of solar PV components for several years, with domestic manufacturers rapidly expanding capacity and pursuing economies of scale, aided in no small part by government assistance at the provincial (driven by local job creation goals) and national (supporting a key industry sector) levels.
Germany, on the other hand, has seen its production base dwindling over the past few years, while remaining the largest single-country end-market in the world. But this changed at the end of 2012 when China passed it. According to research in the upcoming NPD Solarbuzz Marketbuzz report, this trend is now set to continue for many years.
The timing of China emerging as a major downstream (demand) force overlaps with uncertainty within the industry caused by European trade investigations. Indeed, if this trade dispute is to restrict the European market from Chinese-produced PV products, it may cause a severe bifurcation within the industry into China and non-China based supply/demand environment. Chinese manufacturers that lack the ability to pursue partnerships/acquisitions in Europe may become completely inward-focused, having to put all their efforts into securing projects in their own end-market.
This bifurcation of PV demand could bring its own set of challenges for companies trying to balance global supply chains and would certainly accelerate any China/non-China industry split. Already, some Chinese manufacturers have exploited local end-market growth to boost Y/Y shipments and increase their market-share globally. If this trend continues in 2013, it is possible that China will become the largest – and for many the only – market for domestic supply.
Unfortunately – as we know from past experience – over-dependence on any one market comes with considerable risks to PV manufacturers. The rise and fall of European PV manufacturing stands as a bleak reminder for those that relied too heavily on end-market growth in only Germany or Italy.
A major development to watch in regards to overall industry stabilization will be how China manages domestic supply to meet its own PV demand climate over the next 12-18 months. The related issue is how Tier 1 Chinese manufacturers adapt to the situation outside of China to keep a strong pipeline of global opportunities going forward.
Figure 1: China vs. Germany: Global Production and Demand Shares Q3’12 – Q4’13
Source: Adapted from NPD Solarbuzz Quarterly