Long-term forecast for Chinese market demand 2024

According to China’s National Energy Administration, the country’s annual new installed capacity has been growing steadily since 2018 and hit a historic high in 2023 at 216.3 GW, up 147% from 87.4 GW in 2022. As of April 2024, 60.1 GW of capacity has been installed, with cumulative capacity coming in at 671.5 GW.


Source: National Energy Administration
 

Factoring in the PV/inverter ratio and module shipments, InfoLink estimates that China’s module demand in 2023 is 230 GW, increasing 142% YoY compared to 95 GW in the previous year. That accounted for nearly 50% of the global solar demand. However, the development of ground-mounted projects is hindered by land compliance and environment inspection issues starting 2024, which, coupled with the introduction of policies related to time of use price and trading of electricity market in some provinces, makes the liberation of solar electricity trading a trend in the future and adds uncertainty to demand for distributed generation projects. Moreover, grid congestion, feeder, and unbalanced supply and demand issues remain to be solved in China. These factors will bring certain negative impact on module demand this year, keeping most manufacturers sit on the fence.

The State Council issued an action plan for energy conservation and carbon reduction for 2024-25 in May, under which it loosens the renewable energy consumption red line from 95% to 90%, accelerate approval process for new renewables projects, and encourages the adoption of solar in C&I buildings, public buildings, and transport facilities. With strong policy push, supportive incentives, and the renewables trends, solar demand is expected to grow slightly in China this year, coming in at 240-260 GW, a slower growth than last year but still sustains at 4-13%.
 

Source: InfoLink Database
 

Last year’s declining module prices drove the development of ground-mounted projects, with installation volume reaching a new high. This year, demand will mainly come from the great base projects in the northwest China – there are remaining projects from Phase 1, while some projects for Phase 2 and 3 are under construction, although the actual timeframe remains uncertain. The Chinese government also requests to accelerate the deployment of utility-scale wind, solar, and storage projects, which are likely to help stabilize demand for ground-mounted projects this and next year.

In the distributed generation sector, the incentive policies have weakened across provinces. At present, only Beijing, Shanghai, Zhejiang, Guangdong, Jiangsu, and Anhui have subsidies appliable for distributed generation projects this year. The National Development and Reform Commission issued the Measures for Regulating the Guaranteed Full Purchase of Renewable Electricity in April, categorizing the on-grid electricity from renewables projects into guaranteed purchase and market trade, making the time of use price and electricity trading a trend but at the meantime, adds uncertainty to the market. The re-calculation of returns will also impact users’ willingness to install solar. C&I projects, on the other hand, have better outlook this year due to persistent green electricity demand from businesses and supportive policies, which likely to underpin the overall demand of distributed generation projects. Having said that, electricity and trading policies to be introduced by provinces as well as the actual returns remain to be monitored.

In terms of special projects, land compliance inspection and environment conservation policy make it harder for developers to acquire land. As a result, developers are seeking sites in the desert or on the ocean. The great base projects in northwest China are closely correlated to sand management projects. However, some areas, such as Inner Mongolia, require projects to use locally made products and capable of self-peak regulation as well as self-generation with energy storage. Moreover, feeder and transmission issues hindered the development of sand management projects, with the construction of ultra-high voltage projects having been postponed to 2026-2027. This year might not see much demand from sand management project, but there might be some demonstration projects coming next year.

As modules now also need to factor in the reliability test of wind and sand, it requires solutions and applications to become complete. Floating solar is another special scenario developed in recent years. It’s expected that 2-3 GW of module demand will come from floating projects on the ocean this year. Most of these projects are located offshore Shandong, Jiangsu, Zhejiang, and Fujian, where projects will be getting off the ground during July and August. However, uncertainty remains as construction condition is difficult on the ocean and still awaits for the authority to release guidance. Therefore, overall demand shall be evaluated carefully, with potential room for growth. Sand management and floating projects may drive long-term demand growth.

Regarding supply and demand, capacity is still increasing despite relatively sluggish demand in China. Last year, supply became surplus when demand was 230 GW. This year, with limited demand growth but continuous increases in capacity and unclear volume of capacity withdrawal in the supply chain, the imbalanced supply and demand is expected to continue this year. Manufacturers should adjust utilization rates and keep production volume on check to balance with demand.

In the polysilicon sector, supply has reached 250,000-290,000 MT (110-128 GW) of inventory level as of June this year, which equals to more than 1.5 months of inventory. Although some manufacturers have planned equipment maintenance and production cut to ease the oversupply, they are caught in the prisoner’s dilemma and thus the real capacity has not decreased. Moreover, as it takes time for polysilicon lines to shut down and conduct inspection, the stocked inventory issue will become commonplace. The wafer sector, on the other hand, maintains a relatively healthy inventory level, with around 4 billion pieces in stock. Except two leading manufacturers that are operating at a nearly full capacity, most manufacturers have scaled down production and been actively clearing stocks,

In the downstream sector, most cell makers have adjusted utilization rates in response to module demand. Their production relatively matches demand compared to the upstream sector. As of this June, there are around two months of inventory level of modules. Several leading makers are planning to cut production due to trade barriers and uncertain policies, while Tier-2 manufacturers are also scaling down production. Coupled with weakened market demand this year, the module market sentiment is pessimistic.
 

Source: InfoLink Database
 

Overall, ground-mounted and distributed generation PV in China might underpin demand this year, but the market also faces land compliance, grid congestion, and feeder issues. The significant installation growth in 2023 might also impact this year’s demand, resulting in a relatively slack market, and the supply/demand mismatch will continue. In the long run, the market will gradually adapt to the electricity trading, which will ease the pessimistic sentiment of distributed generation projects. InfoLink projects that demand will reach 258-278 GW in China in 2025, an increase of 7-16% YoY compared to 2024. Yet, the actual growth and demand remain to be monitored and adjust accordingly.