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China Will Retain Dominance of Solar Industry Despite Looming Shakeout

Lux Research

A chaotic consolidation, fraught with uncertainties, will still provide new opportunities in the Chinese market for new investors and global firms, Lux Research says

BOSTON, MA – August 29, 2013 – After years of breakaway growth, China’s solar industry is poised for a big shakeout, with consolidation and failing firms. However, the changes are not going to change the Asian giant’s global dominance over the resurgent sector anytime soon, according to Lux Research.

Since 2005, when Suntech became the first Chinese company to complete an IPO on the New York Stock Exchange, the country's solar industry has been on a tear, and now accounts for nearly 60% of global production, including nine of the top ten global solar module manufacturers. Chinese firm’s low-cost focus has re-shaped the industry, helping drive solar module prices down 75% since 2007, boosting demand growth – but slashing profit margins, leading to huge losses both in China and abroad.

“Enormous oversupply and heavy debt have set Chinese solar manufacturers up for consolidation," said Zhun Ma, Lux Research Analyst and the lead author of the report titled, “The Great Shakeout: China's Path to a Rational Solar Industry.” "The road ahead will be strewn with chaos and uncertainties, but the consolidation will draw a new solar landscape in China that still dominates the global solar industry.”

Lux Research analysts studied the Chinese solar industry to understand which firms can survive the ongoing shakeout. Among their findings:

  • Tier-one firms like Yingli, Trina to benefit from consolidation. With the likely disappearance of numerous low-tier companies, Chinese tier-1s such as Yingli, Trina, Hanwha SolarOne and Canadian Solar can grab domestic market share as China becomes the world's largest solar energy consumer market.

  • Local partnerships key to global companies. Non-Chinese players can target the large Chinese market by partnering with local companies, as First Solar has done with Zhenfa, or take stakes in domestic leading players as SMA has done. Top materials suppliers will also vie for supply deals with the precious few high-volume manufacturers that survive, as DuPont has with Yingli.

  • Chinese firms become technology leaders. While China's solar success is often seen as driven by cheap labor, in fact top Chinese solar manufacturers increasingly boast world-class technology. Non-Chinese players like SunPower and SolarWorld now need to innovate in areas including metallization, cell architectures and kerfless wafering to keep up.

The report, titled “The Great Shakeout: China's Path to a Rational Solar Industry,” is part of the Lux Research China Innovation Intelligence service.