Is China's solar sector poised for a shakeout?

September 8, 2015

By William Pentland

China's solar sector is ripe for a major shakeout, or at least that seems to be the prevailing wisdom among industry analysts. And for good reason.

Zhuhai, China. Credit: ufoismey3k/Wikimedia Commons

In August, China's government suggested in a statement that one or two of the country's major solar panel makers might be shuttered over the next year.

China currently supplies more than half of the world's solar panels. Several of China's leading solar companies are feeling the financial squeeze of a global supply glut that began in 2011 after solar panel prices plunged. The drop in prices forced several of China's largest solar manufacturers, including Suntech and LDK, into bankruptcy. Four years later, global prices have yet to recover fully, making another round of consolidation in China's solar industry more likely.

"Companies with the strongest technology, capital, management and brands are best equipped to benefit from market opportunities," said China's Ministry of Industry and Information Technology in a recent statement.

Yingli Green Energy Holding Co., a solar manufacturer based in the industrial city of Baoding, is considered to be one of the most likely casualties from any industry consolidation that may take place over the next year. As recently as 2014, Yingli was the largest supplier of solar panel by shipments in the world. The company has lost two-thirds of its market value to date in 2015. Only a few weeks ago, Yingli reported that it had fallen out of compliance with U.S. listing regulations, which require a company's share price to remain above the $1 level.

A little less than a decade ago, solar panel production soared in China as the result of government policies and incentives. The boom set the stage for the supply glut that has pushed several solar panel manufacturers into the red in recent years.

"If you have a strained balance sheet and are not able to financially sustain yourself, that can prove lethal in this industry," Pavel Molchanov, an analyst with Raymond James Financial, told Bloomberg News. "Yingli is another example."

Despite weak market conditions, China's solar industry has continued to increase output. China's output of polysilicon, a key input for making solar panels, increased 16% during the first half of 2015, according to the Ministry of Industry and Information Technology.

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