China becomes solar energy superpower, dominates 80% of supply chain

China's solar manufacturing growth

Huaiyan Sun, a senior consultant at Wood Mackenzieand author of the report, said that attractive margins for polysilicon, advancements in technology, and the establishment of local manufacturing abroad have propelled China's solar manufacturing growth. Sun predicts China will maintain its dominant position in the global solar supply chain and further enhance its technology and cost advantage over its rivals. 

China's solar supremacy is based on its advanced technology, low costs, and complete supply chain. It has announced plans to build more than 1,000 GW of N-type cell capacity, the next-generation technology after P-type, which is 17 times more than the rest of the world combined.

Other countries are trying to catch up with China, but they need help. Government policies in overseas markets have encouraged local solar manufacturing, but they must still be cost-competitive with Chinese products. A module made in China is half the price of one made in Europe and two-thirds cheaper than one made in the US, according to the report.

The US and India have announced more than 200 GW of planned module capacity since 2022, driven by the Inflation Reduction Act (IRA) in the US and the Production Linked Incentive (PLI) in India. However, they still rely heavily on China for wafers and cells, the most critical and costly parts of solar panels.

"Despite considerable module expansion plans, overseas markets still cannot eliminate their dependence on China for wafers and cells in the next three years," Sun said.

India is expected to overtake Southeast Asia as the second-largest module production region by 2025, thanks to its strong PLI incentives. However, it will still lag behind China regarding technology and scale.

China's oversupply and intense competition

The solar supply chain is facing a situation of oversupply and intense competition, which is already leading to some cancellations of expansion plans. The report warns that the market's oversupply mainly targets old production lines that produce lower-efficiency products, such as the P-type and M6 cells. Demand for P-type cells began to decline in 2023, and Wood Mackenzie analysts expect it to be only 17 percent of supply by 2026.

"Oversupply will undeniably hinder some of the current expansion plans. More than 70 GW of capacity in China has been terminated or suspended in the past three months," Sun added.

The solar manufacturing industry in China is facing a tough time. Module manufacturers must either accept losses, cut capacity, or close down. China's solar power boom may leave the world behind, but it comes with risks and challenges.