(Bloomberg) — In many ways, the solar energy industry has never been better as the race to slow global warming is driving demand for panels to a record high.
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Tell that to the investors in the world's largest manufacturers of solar systems.
Stocks have tumbled as falling prices squeeze margins and factory expansions fuel fears of overcapacity, while investors are drawn to new sectors like artificial intelligence. The combined market cap of the four largest China-based panel makers has fallen more than 40% since August.
“It's an industry that should be doing fantastically, but instead more and more companies are struggling,” said Cosimo Ries, an analyst at consulting firm Trivium China.
The slump follows a staggering surge that saw Longi Green Energy Technology Co., the world's largest solar equipment maker, see its share price rise more than fivefold from early 2020 to late 2021.
Demand for modules has surged due to government climate targets and energy security concerns, while improvements in the supply chain have accelerated installation. The world is on track to have 5,300 gigawatts of total capacity by 2030 — roughly the amount of solar power needed in scenarios that achieve global net-zero targets, BloombergNEF said last month.
But that hasn't been enough to sustain the momentum of solar companies. Longi Green is down 54% since the end of July 2022 and even fell 2% on Wednesday in Shanghai. Trina Solar Co. is down 49% over the same period, while JA Solar Technology Co. and Jinko Solar Co. are down at least 22%.
In the second half of last year the situation began to change. New factories have come on stream to alleviate a bottleneck in the production of polysilicon, the key material used to make panels, causing prices to collapse across the supply chain. Citigroup Inc. recently downgraded Longi to “Sell” over concerns that margins could shrink as supply grows faster than demand.
Fund flows are also showing an impact, according to Dennis Ip, an analyst at Daiwa Capital Markets, with investors looking to move some money out of the clean energy space into areas like artificial intelligence.
Manufacturers are increasing their capacities for the production of solar systems along the entire value chain. According to BNEF data, there are currently enough factories to produce 657 gigawatts of solar panels per year, with another 336 gigawatts announced or under construction. Total installations are expected to increase to 344 gigawatts this year.
Longi recently sounded the overcapacity alarm, saying more than half of China's solar makers could be put out of business in the next two to three years if the current aggressive expansion of production capacity continues.
“There's no way the industry can keep up with this kind of capacity expansion,” said Trivium's Ries. “An event that we may not be able to predict could just tip the whole thing and trigger a new wave of consolidation.”
Not all solar manufacturers are weakening. First Solar Inc., a US-based company that produces far less than its Chinese peers but is expected to benefit from the Biden administration's Inflation Reduction Act, has more than doubled its shares over the past year.
But the industry has seen standstills before. According to BNEF, Suntech Power Holdings and Yingli Green Energy Holding Co. were the world's largest panel manufacturers in 2010 and 2012, respectively. Suntech later filed for bankruptcy while Yingli had to initiate a judicial reorganization.
– With the support of April Ma.
(Updates stock price in seventh paragraph.)
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