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Business trends

China's solar panel makers top global field but challenges loom

Eight out of the world's top 10 manufacturers are Chinese, but profits are scant

Most workers at Longi Solar's panel plant in Taizhou, China, do quality control and product inspection. The manufacturing itself is largely automated.

SHANGHAI -- Chinese solar panel makers have supplanted international rivals and now command a dominant position in the global market.

Massive amounts of investment have helped Chinese companies increase production and drive down costs. They now control more than 70% of the global market. But fierce competition and policy changes around the world mean the field is fraught with risk, and businesses that have risen to the top have quickly run into trouble.

Longi Solar, the world's sixth-largest solar panel maker, is based in Taizhou, about 200 km northwest of Shanghai. The company's 146,000-sq.-meter plant began operating in 2016.

The first thing one notices entering the plant is the acrid smell of ethylene vinyl acetate, or EVA. Visitors are required to wear coats and masks before entering the production area. The air is perfectly still. It feels more like an assembly plant for electronics than a conventional factory.

The heart of a solar panel is the photovoltaic cells that generate the electricity. Silicon wafers are etched into cells and implanted with electrodes at plants in Yinchuan, in central China, and elsewhere, then delivered to the Taizhou plant for assembly.

Experienced technicians can put together a panel in about a minute.

The bulk of the work at the plant, other than some soldering and framing, is done by machine. Most of the factory's roughly 600 workers are engaged in quality control and inspection of the finished products.

Longi's Taizhou plant can turn out 4 million kilowatts worth of panels a year, equal to about 70% of Japan's annual demand. The company is pushing ahead with automation at its newest plant, which will further increase productivity.

Company founder and president, Li Zhenguo, said the company was able to quickly step up production in response to rising demand. Longi, which in the past specialized in making silicon materials, started producing solar panels themselves in 2014.

Workers install solar panels in Lianyungang, in China's Jiangsu Province. China controls more than 70% of the global market for solar panels.   © Reuters

China's solar panel market took off after the government introduced a feed-in tariff scheme for renewable energy in 2011. The country now accounts for around about half of global solar panel demand.

Longi specialized in making the high-performance monocrystalline silicon used in industrial-grade panels for solar power plants. The company became the No. 6 panel maker globally in just four years by channeling revenue from its silicon materials business into panel factories.

The company also enjoys economies of scale in procurement. Being part of a cluster of panel and materials makers near Shanghai allows it to minimize logistics costs. It ships about eight times as many panels as Sharp, Japan's biggest manufacturer.

"Prices for Chinese solar panels are 20% to 30% lower than those of Japanese manufacturers," said an industry source.

Eight out of the world's top 10 solar panel makers are Chinese, according to IHS Markit. China is by far the world's biggest producer with a 71% market share. Second-ranked South Korea trails far behind, at 7%, according to Tokyo-based solar power consultancy RTS.

"Many Chinese companies enjoyed the latecomer's advantage," said Izumi Kaizuka of RTS. When they first began making solar panels, Chinese companies bought manufacturing equipment from Germany and Japan, gradually replacing this with domestic equipment. Because they can use the newest and most efficient gear, latecomers gain a cost edge.

Chinese manufacturers also have an advantage in buying silicon. When a global silicon shortage struck in the late 2000s, Japan's Sharp, Kyocera and Sanyo Electric -- now owned by Panasonic -- which were the market leaders at the time, signed long-term purchase agreements with suppliers. But manufacturers in China and elsewhere began increasing silicon production around 2010, sending prices plummeting to around one-tenth their previous level.

Despite these advantages, many Chinese companies find it hard to make a profit. Suntech Power, which became the world's largest solar panel maker in 2010, collapsed three years later. Yingli Green Energy, which took the top spot in 2012, ran into financial difficulty in 2014.

The panel business is risky: Plants are capital intensive and the market for solar power is susceptible to sudden policy shifts. In the industry it is said that when a company rises to the top, it then will go under.

The cost of generous feed-in tariffs is rising in developed countries. China and Japan have largely ended the subsidized rates at which solar energy was sold to utilities, while the U.S. and India have imposed tariffs on Chinese solar panels to hold back a flood of imports.

Another risk comes from the race to expand among Chinese manufacturers. This has affected quality. "Some solar panels may not even last for 20 years," said one industry insider.

Solar panel makers have only been in mass production for short time. Because the first generation of solar panels is just now wearing out, there are no prescribed methods for testing panel degradation. But panels are beginning to deteriorate in Germany, which has expanded its solar power generation rapidly since 2000, according to one material maker.

It is difficult for manufacturers to set their products apart in terms of the power-generating efficiency. As a result, they often compete by offering longer guarantees, while at the same time cutting corners by using lower quality materials.

But these challenges have not quelled the ambitions of current leader JinkoSolar Holding, which this year hopes to increase its shipments by 40% to 60% to 16 million kilowatts to 18 million kilowatts. The company is also building a new wafer plant in China's central Sichuan Province. Longi, meanwhile, plans to lift its production capacity about fourfold to 30 million kilowatts by the end of 2021.

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