China’s Solar Boom Is Big, Fast, and Unstable

China’s solar revolution is immense — quite literally world-changing — but that doesn’t mean everything is running smoothly.

Last year China installed a record-breaking amount of solar – 87.4 GW – but that number came amidst zero COVID lockdowns and economic turmoil. This year, things are off to a blazing start, with over 48 GW already installed through April and BloombergNEF projections exceeding 154 GW for 2023. For comparison, total installed capacity in the United States is only 142 GW, meaning China is deploying more solar this year than the U.S. has put up over the past two decades. There’s simply nothing happening that approaches the scale of what China is doing anywhere else on the planet. Many of these panels are part of gargantuan energy bases in China’s remote north and western deserts, but rooftop solar is also growing rapidly.

China isn’t just deploying solar power, it’s expanding factories up and down the supply chain. In September of last year, amid crazy natural gas prices, spiking lithium markets, and concerns about Europe freezing, Bloomberg’s David Fickling sounded an optimistic note by looking closely at the solar supply chain. Polysilicon, ingots, wafers, cells, and modules all have annual production capable of making enough to add over 400 GW, suggesting there was a lot more room to run.

Similar announcements continued the drumbeat of solar growth. LONGi declared in January it intends to spend over $6.5 billion to build the world’s biggest manufacturing site for solar. Tongwei, world-leading polysilicon producer and cell maker, is vertically integrating to capture more of the value from its output, expanding into modules.

The cumulative scale of these investments is something to behold. The IEA’s 2050 Net Zero Emission report has been a benchmark for examining the progress the world is making (or, more often not making) towards deep decarbonization. Just a few weeks ago, Exxon denounced it as unrealistic, saying that it’s “highly unlikely that society would accept the degradation in global standard of living required to permanently achieve a scenario like the IEA NZE.” But the IEA just released a report finding that in terms of solar production, the world is already ahead of their 2030 targets. And not just a little ahead. The 1.1 TW (that’s terrawatts!) of manufacturing capacity is “65% higher than the level required to satisfy deployment needs under the NZE Scenario in 2030.”

To be sure, solar isn’t everything, and while the battery sector is similarly ramping up, other key technologies, like wind, are relatively stagnant. Still, we’re at the point where the question isn’t whether we can make enough solar panels to hit climate goals, but how much we’ll need to reconsider the energy mix in these scenarios and just lean more into solar.

The sufficiency of the global supply chain shouldn’t paper over the fact that the vast majority of this investment and production capacity is taking place in China.

There have been many welcome announcements about investments in clean tech production taking place in the United States and Europe, especially in the wake of last year’s Inflation Reduction Act, but nothing compares to the Chinese renewables industry. Italy’s Enel announced it would build a “massive” solar-panel facility in Sicily — its planned capacity: 3 GW. The new IEA report explicitly defines “major projects” as those over 20 GW a year, all of which so far are located in China.

This pattern of development makes clear the dangers of decoupling from China. The EU can’t come close to hitting its goal of installing 400 GW in the next seven years without relying on Chinese panels. But if Europe and North America boycott Chinese-made solar, then these game-changing investments might evaporate.

Not a Dinner Party

However, to paraphrase Mao, the solar revolution is not a dinner party.

All of this construction and production is needed to meet our climate goals, but there remain critical questions about how neatly supply and demand will sync up.

Venture capitalist Dipender Saluja calls the energy transition “the biggest opportunity in the history of the world.” He’s thinking about profits when he says this, but profits don’t arise merely from investing in a growing sector. Cutthroat competition, material constraints, time inconsistency, managerial capacity, logistical difficulties, geopolitical pressures, interest rates, financial stability, global pandemics, and more all mean profits in renewable energy are hard won.

For example, the solar sector saw prices of polysilicon, a critical component of solar panels, collapse from $36 per kilogram in December to below $20 in mid-February, only to see it quickly rebound back to $30 by the middle of February before sliding back down below $20 now. This kind of volatility wreaks havoc on the supply chain.

Indeed, the major manufacturers fear that price pressures and overcapacity are going to lead to businesses shuttering. Bloomberg’s eminent solar watcher Jenny Chase said just this week “there will be a price crash, it will hurt, and there will probably be bankruptcies across the industry.”

But the supply and demand issue is not only on the manufacturing side of China’s solar boom. Deploying dozens of gigawatts of solar means unleashing tons of cheap electrons onto a grid that can quickly fall victim to duck/canyon curves where spot prices are essentially zero on a sunny day but ramp up immensely when the sun sets. California was a world leader here, and Chinese provinces like Shandong are increasingly grappling with similar dynamics.

These kinds of difficulties can be seen in data around electricity generation. Despite record expansion in installed solar capacity across China, the growth displayed in generated electricity is mediocre. Solar provided 84.6 TWh in China over the first four months of the year, only 7.5% more than the same period in 2022. And, of course, it’s the energy generation that matters.

Now it just might have been unusually cloudy, and the dust storms and air pollution surely aren’t helping. We know grid connections are lagging as well.

But all of this potential needs to actually start generating electricity fast because climate change isn’t waiting for us. It’s here now. Beyond the storms and droughts and heatwaves, in the electricity sector, climate change is demolishing hydropower production. The past two months have seen China produce the least amount of electricity from hydro since 2015. And, as ever, scale matters. Even with such low production, hydro is about three times the generation from solar, meaning coal makes up the gaps.

The pieces for an energy and economic revolution are assembling, but in China and elsewhere, it’s going to require a lot of effort in designing and planning the future.