Ilaria Rosella Pagliaro Overproduction of solar panels in China is causing energy surplus and storage problems: US and Europe call on Beijing to rein in overproduction, raising global concerns and prospects of a trade war
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China has produced an enormous quantity of solar panels, drastically reducing prices and supporting the country’s clean energy transition. However, according to the United States, the European Union, and their allies, Chinese manufacturers have produced too many solar panels. These countries are now asking Beijing to limit the overcapacity of solar panels and other goods, increasing the risk of a trade war.
Rapid growth and overproduction in China’s solar sector
Following a rapid expansion in the solar energy sector, particularly in photovoltaics, one of the three key pillars of China’s new economy, the country is now facing an overproduction problem. According to a recent report by Reuters, China has installed so many solar panels that it generates a surplus of energy, which the country lacks the capacity to store or transmit. This excess has prompted Chinese authorities to withdraw some subsidies for the sector, thereby reducing the number of new solar panel installations.
In the first quarter of 2024, China continued to install solar panels at a rapid pace, with a 33% increase compared to the previous year, according to official data. However, this growth is much slower than the 154% surge seen in the same quarter of 2023. As of March this year, China, the world’s largest market for solar energy, had installed a capacity of 660 gigawatts, while the United States ended 2023 with 179 gigawatts, enough teo power 33 million American homes.
Exporting excess solar panel production
An analysis by Bloomberg in April revealed that Chinese manufacturers were producing more solar panels than were needed in the domestic market. This development suggests a possibility not well received by the West: China might continue to dump its excess solar panels on the international market.
Chinese manufacturers are also feeling the pressure of overcapacity. In March, Longi Green Energy Technology, the world’s largest producer of solar cells, announced the layoff of thousands of workers due to overcapacity and low prices. The situation is so severe that the China Photovoltaic Industry Association has called for more mergers and acquisitions, as well as restrictions on internal competition to control production capacity, as stated in a post on its official WeChat account.
Earlier this month, U.S. President Joe Biden announced that he would double tariffs on Chinese solar cell imports, raising them from 25% to 50%. David Fishman, a senior manager at the economic consultancy The Lantau Group, told Reuters:
“Every country in the world that is installing a lot of renewables and facing the challenges that come with this variable intermittent generation is looking for smart ways, enabled by AI or at least supported by models, to distribute this energy and use it in the most efficient and effective way. Certainly, this is the direction China is heading.”
The global impact of solar overcapacity
China is not the only country affected by solar overcapacity. Germany is also producing so much solar energy that electricity prices have fallen into negative territory during peak production periods. However, experts say these are only temporary hurdles in the global transition from fossil fuels to green energy, which in its next phase will focus on optimizing supply and demand.
