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China to expand PV supply despite falling world prices

China’s 12th Five-Year-Plan includes increases in production targets for polysilicon and solar cells with the aim of reducing the cost of PV modules.

The plan for 2011-2015, posted on the Ministry of Industry and Information Technology website on February 24, aims to lower the cost of domestic solar power and expand the domestic PV industry. Key provisions of the plan, targeted at what the government calls “leading firms,” include reaching the following goals by 2015:

  1. each leading polysilicon company should increase annual production capacity to 50,000 tons

  2. each leading solar cell firm should reach a capacity of 5 gigawatts of annual production

  3. increase the conversion efficiency of monocrystalline silicon solar cells to 21 percent

  4. increase efficiency of polysilicon cells to 19 percent and amorphous silicon cells to 12 percent

  5. reduce the cost of solar power to 12 cents per kilowatt hour by 2015 and by 9 cents by 2020

  6. produce 80 percent of solar equipment and auxiliary materials in China

The plan does not offer an overall output goal, nor does it give details on which firms are subject to these targets.

During the last Five-Year-Plan (2005-2010), panel production grew at an annual rate of over 100 percent, with total output reaching 10 gigawatts in 2010. Chinese firms accounted for half of global production, but almost all of these panels were exported to the U.S. and Europe.

Ingot Manufacturing Facilities at Trina Solar. Photo Credit: Trina Solar

With a flat outlook for share prices in 2012 and a steep decline in global PV prices – the installed cost of panels fell by 17 percent from 2009 to 2010 alone – these increased production targets are bad news for solar firms outside of China.

According to Bloomberg New Energy Finance, the price of solar cells fell by over 50 percent in the last year, while the average price of polysilicon has fallen by 59 percent.

“In an industry that’s oversupplied, that the government announces support for so much new capacity is not a positive,” Sean McLoughlin, industry analyst for HSBC Holdings, told Bloomberg. “The news that China’s aggressive ramping up of production will continue is not helpful for Western producers and their shares.”

As of now, the two largest cell producers, and the fourth largest polysilicon producer, hail from China. But this added government support may see China’s share of the PV market grow even more.

Driving Domestic Demand

Meanwhile, some analysts in China note the need to stimulate domestic demand for PV panels. Some firms are already making panels for the domestic market because their production processes do not meet standards applied abroad, according to Wu Zhonghu, an expert at the China Energy Research Society.

But another problem is that government subsidies promote use of PV panels in rural areas, leaving the enormous urban market untapped.

“It is time for integration of the industry,” Wu Zhonghu told China Daily. “The PV solar industry has a prosperous future, but at present, there are many obstacles, including high costs, shrinking overseas markets and a lack of related laws and regulations to supervise the industry.”

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