China's One Trillion Watt Solar Journey

This week, China announced it had installed an unprecedented amount of solar capacity by the end of May — more than one terawatt, i.e. one trillion watts or 1,000,000,000,000 watts.

That’s equal to nearly half of the world’s total installed solar capacity, and possibly enough to power Norway or the United Arab Emirates.

In May alone, the country installed nearly 93 gigawatts in solar capacity, which measures up to about 230 million solar panels for the month, or nearly 100 solar panels every second, according to an analysis by Lauri Myllyvirta, a senior fellow at the Asia Society Policy Institute.

For anyone following China’s unparalleled growth of its clean tech sectors, those numbers would not be a surprise. Earlier in March, the country’s wind and solar power generation capacity exceeded fossil fuel-based thermal power capacity for the first time in its history, energy regulators said.

But behind those extraordinary numbers lies a concentrated effort by the Xi Jinping-led Chinese government, an effort that has created some headaches but also a huge amount of leverage for the world’s second-largest economy. And it is an effort that Xi began more than a decade ago — two years after he took over as the chief of the country’s authoritarian administration.

According to a report by the Financial Times last month, Xi ordered energy officials to “revolutionise” the country’s “technologically backward” energy system in the middle of 2014. At the time, his primary motivation wasn’t to become climate-friendly, but to cement China’s energy security by cutting down its reliance on imported oil and gas.

In the years since, China has spent many billions of dollars throughout the clean energy supply chain and established its dominance in nearly every aspect needed to make the industry a success — be it the procurement and refining of the metals required to manufacture solar cells and wind turbines, the research and innovation into making them more efficient and compact, or the provision of subsidies to boost local manufacturing and consumption by way of rooftop solar.

A key result of these policies has been a significant shift in costs to produce and install solar, which according to the International Energy Agency have declined more than 80% since 2008. And that cost reduction has effectively made solar PV the most affordable electricity generation technology in many parts of the world.

The result? Over the past few years, China’s biggest solar firms have mounted thousands of solar panels over deserts, hilltops and even waterways. Right now the country is in the midst of building a “solar great wall” across the Kubuqi Desert in Inner Mongolia, with an aim to generate enough solar to power Beijing.

Meanwhile, clean energy sectors now account for about 10% of China’s gross domestic product. And at a time of growing concern around man-made climate change, the giant leaps in renewables have also given China a moral high ground in its rivalry with the West — which, ironically, was the birthplace of solar power technology.

We’re at a point where China is so confident about its renewables industry that it now plans to subject it to market-driven pricing. Let that sink in — Beijing is putting renewables in direct price competition with fossil fuels. That China is confident of renewables being “cost-competitive with traditional energy” is proof of just “how much the cost of renewable energy has come down in China” and just how much the world has underestimated that transition, Yanmei Xie, an independent expert on Chinese industrial policy, told the FT.

And yet, this transition has also been a problematic one. Currently China’s capacity for manufacturing wafers and solar cells far exceeds demand, creating a problem of overcapacity that has led to bankruptcies and razor thin margins. In fact, in the first quarter of this year, China’s four biggest solar companies reported a combined loss of nearly 6 billion yuan or upwards of $830 million. Those losses have been exacerbated by sliding prices of solar cells, with one executive describing the industry as being in a “death cycle”.

To make matters worse, China’s grids are not yet equipped for the flood of new renewable energy capacity, which means much of its wind and solar energy has been going to waste.

Another major challenge is that despite its promise of clean energy, China’s renewables industry still has a dirty footprint — that of coal powering the factories that manufacture solar cells and turbines. Coal is currently powering more than 60% of the electricity China uses for global solar PV manufacturing.

And finally, there’s the problem we’ve become too familiar with since the COVID-19 pandemic: having too many eggs in one basket. According to the IEA, one out of every seven panels produced worldwide is manufactured by a single facility in China. For Beijing and the world — which buys nearly 80% of its solar supplies from China — that’s a significant vulnerability.

That said, for the world, and especially Asia, China's journey to 1,000,000,000,000 watts of solar installations presents many lessons - of things to do, and things they shouldn't do. And all of those lessons will be necessary to catch up in the race to energy security.

Tariffs — a bane and a boon

Coming back to China’s solar industry — it now has a new problem to reckon with, one posed by the steep tariffs brought on by Donald Trump. For Chinese solar panel makers, exports to the US were a crucial step to combating their overcapacity troubles at home. But with levies of more than 60%, their already tiny margins face a complete wipe-out.

Putra Adhiguna, managing director at the Energy Shift Institute think tank, told AFP last month that the tariffs "will practically make solar exports to the US impossible commercially”.

And yet they could also present Beijing new opportunities.

One would be building capacity at home by way of the products that are no longer cost-effective to export. The Chinese government plans to spend a whopping $800 billion on its grids by 2030 to make that happen, according to the FT.

At the same time, experts expect China to "supercharge efforts" to push for policy and infrastructural change in favour of renewables across South Asia, with an aim to open up the region to its exporters. While that will create its own share of challenges — around security and diversification — it would be much needed to build energy security and resilience for a region that houses a vast proportion of the world’s population.

Besides, Trump’s tariffs have hurt solar exports out of Cambodia, Vietnam, Thailand and Malaysia, too. Combating that by bumping up solar installation at home could be particularly important, considering Southeast Asia is quickly becoming a hotspot for global data centres, known for requiring gargantuan amounts of electricity.

With so much going on, experts contend that Trump’s tariffs are likely to end up fuelling Asia’s renewables transition — a boom that would only open up new markets for China. As Kingsmill Bond, a strategist at energy think tank Ember explained to the FT: For many countries… the choice between American liquefied natural gas and Chinese clean power technologies could be a defining one both financially and for decarbonisation.

• Australia is suing a China-linked company for allegedly breaching foreign investment laws in its dealings with rare earth miner Northern Minerals.

• Ford says it is still struggling to get the volume of rare earth magnets it needs to keep up normal production due to China’s slow pace of approvals.

• China’s BYD, Chery Auto and Great Wall Motor are gearing up to expand in South Africa, which they see is a “gateway to the African continent.”
  

• And a survey released this month shows record export growth in India is fuelling a boom in its manufacturing.