Europe last year accounts for more than 50% of China’s total solar exports, becoming China’s largest solar export market. The industry was optimistic about this year’s China and Europe market, but then excess inventory occurred. As a result, total Chinese solar exports to Europe in the second half of this year may not double as last year, but only sustain at last year’s level or grow marginally.
Module supply, demand, and prices in China
China, the world’s largest solar market, dominates 80% to 90% of global polysilicon, wafer, cell, and module production, and thus the global solar development is not only interrelated to policies and market factors but also closely related to China’s market movements. As of June, solar installations in China reached 78.42 GW, up 154% YoY. However, China is faced with oversupply in the upstream. Moreover, domestic land compliance audit and end market’s anticipation for prices to fall further led to a decrease in short-term demand. Inventory issue may not improve in the short term and prices may decline further. Against these backdrops, InfoLink estimates that Chinese module demand will reach 170 GW this year or even 190 GW if the aforementioned issues could be solved.
According to InfoLink’s research in July, Chinese polysilicon and wafer prices have almost bottomed out, leaving little room for further price decline. Moreover, polysilicon prices have slightly increased in July, but overall prices remained low. In the wafer sector, manufacturers have cut prices and slightly lowered utilization rate to ease inventory pressure, but excess stocks will remain for the short term as some cell makers still hold enough inventory. In the cell and wafer sectors, trading prices for cells rose slightly but they are still subject to real cell production. Moreover, trading activity for module remains low, putting cell makers under price pressure from module makers, a sign that the end market is still sitting on the fence.
Overall, surplus inventory and inactive end market will persist in China’s solar market in the short term, potentially impacting module production in the third quarter. Total production in the second half may turn out lower than expected.
Demand and market outlook in Europe
Last year, Russia-Ukraine conflict accelerated energy transition in the EU, where supportive policies are introduced to develop solar market and new targets are published, including 320 GW solar installation by 2025, 600 GW solar installation by 2030, and 45% of renewable capacity in the energy mix.
The industry expected high for Europe market this year. Moreover, the traditional low season in the first quarter saw higher-than-expected market growth. Over the January to June period, Europe imported 62.4 GW of modules from China, but the growth has slowed in the second quarter. China’s module exports to Europe in the third quarter may stay the same as the first quarter or grow marginally.
Last year’s optimistic view on the market and the recent falling electricity prices result in excess inventory among distributors. In general, the market believes Europe to install around 60 to 70 GW of solar capacity this year. Factoring in stock in preparation and inventory, InfoLink projects module demand to come in at 92 GW conservatively and 114 GW optimistically.
As Europe’s inventory draw beat forecast in the first half, while labor shortage impacted installation, installation pace was unable to catch up, resulting in stocked inventory. In addition, the second quarter, which is supposed to be a high season, failed expectation. These factors limited the market growth. Having said that, strong policy push for renewable energy and solar installation underpins the long-term demand in Europe, which is projected to grow 20% to 30% annually.
As per InfoLink’s observation, Europe’s demand is limited due to excess stock, while the Chinese market demand seems lackluster. While China’s module exports to Europe in the first half still witnessed growth, export volume in the second quarter has slowed from the first. Moreover, although the EU proposed in March the Net Zero Industry Act that sets a benchmark for net-zero technologies to meet at least 40% of the EU’s annual deployment need by 2030, the EU is unable to fully wean itself off the Chinese supply chain in the short term if it wants to meet the 600 GW target for 2030, for China dominates more than 80% of the market share across the solar supply chain and enjoys low costs and advanced technologies.
Although price decreases in the supply chain help push up demand, stocked inventory issue remains to be heeded this year. In addition, the supply chain may be faced with temporary surplus capacity in the short term, but the global energy transition trend is continuing. In light of this, InfoLink projects global solar demand to grow 38% to 390 GW this year conservatively. If inventory, land compliance audit, and grid connection issues could be eased, global demand could reach 455 GW. Moreover, increasing capacity across the supply chain in China will drive down module prices, thereby stimulating end user demand, and if the EU’s policy push continues, long-term demand will still grow.