China's photovoltaic (PV) industry has emerged as a dominant force on the global stage, showcasing remarkable achievements in both installed capacity and manufacturing prowess. We discuss China's utilization of solar resources, its integral position in the global PV supply chain, and the potential benefits for foreign investors seeking to enter this market.
The global energy landscape is currently undergoing a significant transformation, driven by increasing fossil fuel prices, decarbonization efforts, and geopolitical factors like the Russia-Ukraine conflict.
Consequently, there is a growing emphasis on renewable energy (RE) sources, which in turn has accelerated the worldwide growth of the photovoltaic industry, commonly abbreviated as PV. This industry harnesses solar energy through photovoltaic conversion.
China has an abundance of solar resources and hosts a thriving photovoltaic industry. Foreign investors can benefit from its cost-competitive products and an ecosystem that facilitates RE sector innovation.
This article aims to explore the opportunities and advantages of investing in China's PV industry, which has positioned itself as a global leader in terms of installed capacity and manufacturing capabilities.
Overview of the global PV industry
The PV industry chain encompasses the production of high-purity polysilicon raw materials, solar cell manufacturing, solar module production, and other related production equipment.
According to data from SolarPower Europe, a member-led association for the European solar PV sector, by the end of 2022, the global cumulative installed capacity of solar PV systems experienced 25 percent growth, reaching 1,177 GW compared to 938 GW in 2021, when the solar fleet grew by 21 percent.
The majority of the top 10 solar markets in 2022 retained their positions from the previous year, although there were significant shifts in rankings and some newcomers due to varying growth dynamics.
China doubled-down on its position as the market leader in 2022, installing more than four times as much solar PV capacity as the second-largest market, the United States. China’s additions in 2022 actually surpassed the combined capacity added by the other top nine markets. Most of the other top 10 markets increased their PV market sales compared to the previous year, showcasing robust demand.Consequently, the China Photovoltaic Industry Association forecasts a significant increase in domestic new installed photovoltaic capacity – to reach 100-125 gigawatts (GW) by 2025. France's Energy Transition Plan has set a target of surpassing 100 GW of solar installation capacity by 2050. As per the US Solar Market Insight Report, cumulative solar installations is projected to exceed 700 GW by 2033 in that market. Germany's amendment to the Renewable Energy Sources Act outlines plans to raise the country's installed PV capacity to 215 GW by 2030.
China’s dominant position in global PV chains
In recent years, the global focus of the photovoltaic industry has further shifted towards China. In terms of global production capacity, China's remarkable share of 98 percent in silicon wafer production capacity demonstrates its dominant position and strong growth momentum.According to the International Energy Agency's (IEA) Special Report on Solar PV Global Supply Chain, China is projected to become the primary source for nearly all key components of global photovoltaic module production by 2025. Its silicon wafers are expected to capture a market share of 95 percent globally.
In terms of global PV installed capacity, growth has been primarily driven by China. China alone accounted for a significant 40 percent of the total annual installations worldwide, marking a notable increase of 7 percentage points compared to its 33 percent contribution in 2021. A comprehensive examination of solar PV installations in various countries reaffirms China's prominent position within the PV industry.Despite the widespread deployment of solar PV systems worldwide, China accounted for a significant 34 percent of the world's total solar capacity in 2022 with an operational fleet capacity of 403 GW.
Advantages of investing in China’s photovoltaic industry
China's photovoltaic industry offers a multitude of compelling advantages that make it an ideal destination for foreign investors looking to capitalize on opportunities in the sector.Abundant solar energy resources
China possesses abundant solar energy resources, making it an ideal region for the development of the PV industry. The country's solar energy resources are primarily concentrated in Inner Mongolia, Gansu, Qinghai, and Tibet. Approximately 66.8 percent of the land in China has the potential to be cost-effective sites for solar power stations.China’s western regions focus on centralized photovoltaic systems to efficiently utilize solar energy resources, while the eastern regions prioritize distributed photovoltaic systems to enhance grid absorption capacity.
High level of PV investment intensity
In terms of PV investment intensity, China has consistently exhibited a higher level of investment compared to Europe and the United States. According to industry research published by CITIC, since 2012, China's investment intensity has remained ahead of its peers, often surpassing 0.6 percent of its GDP and reaching peak level 1.2 percent in 2017.By contrast, Europe's investment intensity has maintained a relatively stable level of around 0.35 percent since 2013, with its historical peak approaching 0.7 percent in 2011. The United States has maintained an investment intensity of approximately 0.25 percent over the past decade in the RE realm.
Various supporting policies
In terms of policy support, China is firmly committed to supporting the photovoltaic industry based on its dual carbon goals and energy transition. According to statistics from the China Photovoltaic Industry Association, a total of 18 photovoltaic-related policies were issued in January 2023.
The policy measures encompass promoting advancements in intelligent photovoltaic technology and industry applications, encouraging and supporting the direct participation of commercial and industrial users with a voltage level of 10 kilovolts and above in the electricity market, and guiding the balanced development of solar photovoltaic, energy storage technology, and related products to avoid overcapacity and cutthroat competition.
The most complete PV chains and cost-effectiveness
China’s photovoltaic industry boasts the most complete supply chain in the world. It has a well-established industrial ecosystem and a strong synergy between upstream and downstream sectors, leading to significant capacity and production advantages.Benefiting from a supportive policy environment, relatively low input costs, and economies of scale, the manufacturing cost of photovoltaic products in China has consistently remained at the lowest global level.
According to a report by the IEA, China is the most cost-competitive location for manufacturing all components of the solar photovoltaic supply chain, with costs at 10 percent lower than India, 20 percent lower than the United States, and 35 percent lower than Europe.
Challenge emanating from trade risks and localization efforts
The global demand for photovoltaic applications remains strong, but competition in the manufacturing industry is escalating. Trade policies play a pivotal role in shaping the import-export landscape for PV products.Currently, some countries in Europe and North America are actively planning for the localization of photovoltaic industry production and supply chains. For example, the US "2022 Inflation Reduction Act" plans to invest US$30 billion in production tax credits to promote the development of US renewable energy companies, including PV related enterprises. As part of its “EU solar energy strategy,” the European Union region has announced a 750 GW target of installed solar-PV capacity by 2030.
However, establishing a complete industry chain will take several years. In the meantime, these countries will rely on importing Chinese photovoltaic products to support their domestic infrastructure development. This presents a golden window of opportunity for investing in the Chinese photovoltaic market.
Investment spotlight: Opportunities for FDI in China’s PV industry
As foreign investors explore opportunities in the photovoltaic industry, it is essential to identify key areas that offer promising avenues for investment in China.According to China’s latest Catalogue of Encouraged Industries for Foreign Investment (2022 Version), foreign investors are encouraged to invest in multiple areas related to PV, such as:
- Production of photovoltaic glass for building-integrated photovoltaics
- Development and application of photovoltaic technology in agriculture
- Design and manufacturing of containerized energy storage systems for photovoltaic solar power plants
- Recycling and disposal of waste photovoltaic modules
- Development and application of integrated technology for photovoltaic power generation systems
- Development and production of silicon materials and new materials for crystalline silicon photovoltaics
To effectively address these challenges, it is crucial for foreign investors to increase their investment in the research and development of PV products. Here, establishing partnerships and investing in the Chinese PV space may give foreign firms an advantage to replicate in other target markets or their home economy.
A forward-looking approach will enable foreign investors to better navigate international competition, enhance their global competitiveness, and mitigate market risks.
