As Chinese Wind Turbine Makers Call Truce On Price Wars, Could Solar Follow?

In a clear indication of the extraordinary efforts being made in China to stem the losses or low profitability in its renewable energy manufacturing sectors, a conference on Wind Energy in Beijing saw 12 of the country’s leading wind turbine firms sign a truce. Four of the world’s top 5 wind turbine makers are Chinese, with Goldwind leading the rankings.

Signatories include Goldwind Science & Technology, Envision Energy and  Ming Yang Smart Energy Group and nine other firms that have been slugging it out in a price war with repurcussions in China and beyond. Besides the obvious injunction to signatories against selling turbines below cost, the agreement also pledges to ensure they adhere to legal pricing practices and establish actionable self-regulation rules, among other points. Price undercutting or undermining competitors claims or making claims without any evidence will also be checked.

The move has come at a time when China’s wind energy sector is enjoying its highest ever market share globally, even while it struggles to turn a profit. The top two firms, Goldwind and Ming Yang are the only two to have managed to grow profits. Envision Energy of course has a strong presence in India as well. It is worth noting here that despite their huge dominance in both the solar and wind sectors, there have been no earlier reports of any effort to collude on prices, with firms competing fiercely against each other usually.

The move by the wind majors could send a signal to the solar sector as well, where Chinese firms enjoy similar dominance, and face the same issue of low prices killing profits for now. What has stopped similar efforts is possibly the much more fragmented nature of the solar industry, with many more manufacturers spread out across the whole solar supply chain. However, if we were to consider just the firms with a significant overseas focus, then consolidation is not impossible, with implications for the rest of the world.

Low solar prices seen in the past 12 months have kickstarted a much faster pace of capacity additions worldwide, from the US, to Europe and even South America. In India, while the pace has picked up, recent additions have been backed by domestically made modules.

However, with over 80% of non-Chinese module manufacturing  still dependent on inputs from China, be it cells or wafers, a concerted Chinese industry effort to lift prices will have major implications. In India for instance, current module prices are over 90% higher than Chinese prices, thanks to 40% tariffs and non-tariff protection from ALMM(Approved list of Module Manufacturers) which has kept out all Chinese makers so far. Prices have somehow been accepted due to the fact that even these higher prices compare well to prices seen in 2021-22, for instance, and come with dependable supplies. Most importantly, solar energy costs in large utility scale tenders are possible at sub Rs 2.5- 2.6/kW levels at these prices for now. Hikes that take tender prices beyond say, Rs 2.80 per unit will start to bite the key buyers, state discoms, who have previously delated signing PSAs at those rates. Thus, the government will face the uncomfortable task of passing on the costs to the end consumer, after years of hype around solar being a lower cost source of power.

The current rush to make cells and even wafers domestically does not really help as costs remain higher by 100% or more in India, thanks to a smaller base and other factors we have written about earlier. (see related stories)

We believe all it will take is a 15-20% rise in Chinese costs, the minimum manufacturers there are hoping for, to disrupt the Indian market, and other global markets significantly. Perhaps that explains the full order books being enjoyed by local manufacturers for now, as customers try and lock in the good times while they last. In short, while hardly immediate, the risk of a buyers market in Solar turning again into a more balanced market is not as far fetched as it seemed three months ago.