Exports of key solar components this year have already exceeded last year's total and executives expect growth to continue next year, stoking concerns of a flood of cheap Chinese products undercutting those of manufacturers worldwide.
"Solar makers are indeed really struggling with over-capacity in the domestic market. But if (they) have to dump the inventory, why not dump it on the overseas market where the prices are better?" a manager involved in the solar business at a major Chinese firm told Reuters.
Players such as GCL-Poly Energy Holdings Ltd and LONGi Green Technology Co Ltd were beneficiaries of rapid expansion in domestic solar capacity, driven by a subsidy received by generators for each kilowatt-hour of power produced.
In 2017 alone, equipment makers added a record 53 gigawatts (GW) of solar capacity to China's grid, more than the United States had managed in its entire history. That sparked talk of grid price parity, the sector's Holy Grail, where electricity from solar and coal are priced the same.
With costs plunging and a subsidy payment backlog exceeding 100 billion yuan ($14.21 billion), the government last year devised a timetable to reduce subsidies to zero.
New installations subsequently plunged to 15.99 gigawatts (GW) in January-September - a third of the 2017 level - leaving manufacturers saddled with a price-sapping surplus having rapidly expanded amid expectations of sustained demand growth.
Graphic: China's installations of new solar capacity have plunged since key subsidies were removed - https://fingfx.thomsonreuters.com/gfx/ce/7/7828/7810/ChinaSolarCapacity.png
Domestic capacity growth is now forecast to slow to 10% in five years, from 56% over the last three years, showed data from domestic solar equipment manufacturer TrinaSolar.
Daiwa Securities analysts said some manufacturers have already panicked and tried to dump inventory after prices of some products fell below the costs of higher-grade producers.
Official January-September data showed exports of solar modules - electronics such as data sensors for solar panels - were the equivalent of 58 GW, versus 41.6 GW for all of 2018.
Executives said the domestic slowdown could be the new norm, particularly because the government plans to lower coal-fired power prices next year as part of an economic stimulus package.
The situation has pushed some solar equipment makers to the brink, with at least five bankruptcies this year in mainland China and Taiwan. Even GCL-Poly Energy Holdings Ltd, China's biggest producer of polycrystalline silicon used in solar panels, booked a 9.98 million yuan loss for January-June.
"We are alive because there are still subsidies," said a marketing manager at a silicon material firm in the northwest Shaanxi province. "But the cutback will force more silicon suppliers and solar panel makers to close because they cannot maintain cash flow."
Chinese manufacturers faced with over-capacity tend to raise production to be ready to win the customers of fallen rivals. In solar equipment, though domestic installation fell, output rose.
Producers made 82.2 GW of solar panels and 75 GW of modules in January-September, up a respective 48.6% and 32% from the same period a year earlier, showed data from the China Photovoltaic Industry Association (CPIA).
LONGi Green Technology, which accounts for a quarter of global monocrystalline silicon solar equipment manufacturing, invested 29.3 billion yuan this year to expand monocrystalline silicon production in mainland China and Malaysia, showed a Reuters calculation based on stock exchange filings, to raise solar wafer capacity to 65 GW by 2020 from 28 GW last year.
LONGi said it was confident domestic and global demand was enough to justify expansion. It also expects monocrystalline silicon to replace the less efficient polycrystalline silicon, its chairman, Zhong Baoshen, told Reuters, but he said it was getting harder to profit.
"There can only be more difficulties for the solar industry in the future... with more challenges from policy, competition from peers and competition from other energy sources," he said.
DARKNESS BEFORE DAWN?
Though the solar equipment industry has slowed markedly since the removal of subsidies, leading solar makers in China and elsewhere remain optimistic about the long-term outlook.
The International Energy Agency expects solar power installations globally to reach 140 GW each year over the next five years, with China likely to provide around half of that. Moreover, in many regions in China and elsewhere, solar is already the cheapest form of electricity.
"We haven't in fact reached the price parity age," said Ray Jin, chief operating officer at Jinko Power, speaking at a recent BNEF forum in Shanghai.
"I think this year and next year - from the point of view of photovoltaic power - is a transitional period for large scale price parity... Now it is the darkness before the dawn."
(Reporting by Muyu Xu and David Stanway; Editing by Christopher Cushing)
By Muyu Xu and David Stanway