Global solar manufacturing capacity under construction indicates an increase of 330 GW in 2023 to almost 800 GW – triple the 2021 level, according to the International Energy Agency (IEA). This surplus in capacity is projected to more than double the forecast installations for 2023, creating a significant supply surplus.

The manufacturing pipeline suggests further expansion to over 1,100 GW in 2024 and 1,300 GW in 2028, maintaining more than double the annual photovoltaic (PV) installations over the forecast period.

Since 2017, the main bottleneck in the PV supply chain has been the insufficient PV-grade polysilicon manufacturing capacity. This challenge was particularly evident in 2021 when delayed investments and a major manufacturing plant fire resulted in a global polysilicon shortage and a threefold price increase, significantly impacting PV module prices.

Although wafer manufacturing is anticipated to be the least developed part of the global supply chain in 2024, shortages are unlikely due to the significant capacity surpassing expected demand.

Most PV manufacturing capacity expansion through 2028 is anticipated in China, with projections ranging from 85% for modules to 95% for polysilicon. Chinese companies have significantly increased their investment plans in response to dynamic global PV demand growth, driven by concerns over energy security following events like Russia’s invasion of Ukraine and many countries’ growing clean energy aspirations.

The remaining investments will be divided among the U.S., India, and the ASEAN countries. Expansion outside of China is primarily driven by various policy measures supporting domestic manufacturing, although Chinese companies are investing in the ASEAN region to diversify their production geographically.

Between 2022 and 2023, numerous PV manufacturing projects outside of China and the ASEAN region were initiated, thanks to policy incentives like the IRA in the United States and the Production-Linked Incentive in India.

In the U.S., approximately half of these projects focus solely on module assembly, while the rest are evenly distributed across other segments of the manufacturing process.

As a result of these investments, it is anticipated that by 2028, PV manufacturing capacity across North America will be able to meet about 35% of the region’s solar PV demand.

Cell and module manufacturing capacity in India is projected to exceed local demand significantly by 2028, presenting export opportunities. However, due to delays in polysilicon investments, India’s self-sufficiency in PV is estimated to reach only about 50%.

In contrast, insufficient policy support for domestic PV manufacturers in the European Union has led to limited project announcements. Turkey is expected to attract most European investments due to its local content incentives and relatively low manufacturing costs. Despite Europe’s growing manufacturing aspirations, it’s projected to achieve just 10% self-sufficiency by 2028, remaining the largest PV import market, with China likely as its leading supplier.

While the U.S. and India have ambitious PV manufacturing development plans that should reduce their import dependence, global geographical diversification of PV manufacturing is unlikely to improve significantly due to China’s extensive investment plans.

Consequently, China is still expected to dominate production, accounting for 90% of wafers, 85% of polysilicon and cells, and 75% of modules by 2028.

In the European Union and the U.S., PV module imports surpassed PV installations in recent years, leading to considerable stockpiling, particularly from China. Distributors in both regions are building stockpiles ahead of circumvention tariffs scheduled for June 2024. The surplus resulting from this stockpiling, coupled with the low-price environment due to oversupply, led to an estimated 90 GW of module stockpiles in the EU and 45 GW in the U.S. by the end of 2023, nearly double the forecasted installations for 2024.

According to the report, despite this surplus demand, global PV manufacturers managed to maintain a 75% average capacity utilization rate in 2022. However, with the continued expansion of the supply chain, the global average utilization rate was set to fall to about 60% in 2023. This oversupply has intensified competition among manufacturers, driving a 50% drop in module spot prices between January and December 2023.

On the other hand, manufacturers outside of China are likely to maintain higher utilization rates, often shielded by various supportive policies and trade measures. Considering the persistent trend of declining production costs and low utilization rates in manufacturing, PV module prices are anticipated to continue decreasing over the forecast period.

Manufacturers prioritize cost reduction and innovation to thrive in this fiercely competitive market. Larger, vertically integrated firms hold an edge as they can manage costs throughout the value chain. Notably, there’s rising adoption of TOPCon (tunnel oxide passivated contact) solar cell technology, although PERC (passivated emitter rear contact) cells currently dominate the market.

Chinese companies lead the way in upgrading manufacturing lines in their plants in China and ASEAN countries. However, the surplus manufacturing capacity and resulting low PV module prices are poised to pose financial challenges for less efficient manufacturers. This could lead to cancellations of manufacturing projects and overall market consolidation.

Established Chinese manufacturers, often vertically integrated firms, play a significant role in driving down module prices. They benefit from economies of scale, resulting in high production cost efficiencies unmatched by any other country in the medium term.

However, several governments, including the U.S., the European Union, Turkey, and India, have implemented direct subsidies, tax credits, local content requirements, and trade measures to bolster domestic PV equipment manufacturing. These initiatives aim to attract investment, generate employment, and enhance the security of the clean energy supply chain.

While diversifying the solar PV supply chain is necessary to reduce excessive concentrations in certain regions, it also comes with added costs for governments and consumers.

For example, manufacturing a PV module from polysilicon to the finished panel was estimated to be approximately 10% higher in India, 30% higher in the United States, and 60% higher in the European Union compared to China by the end of 2023. These differences stem from increased investment, labor and energy costs, smaller production scales, and a lack of vertical integration.

By 2028, these disparities could widen to 70% in India, 100% in the United States, and 140% in the European Union.

Consequently, the cost of replacing Chinese PV imports with pricier domestic manufacturing from 2023 to 2028 is projected to reach $12 billion in the United States and $8 billion in the European Union and India combined. These estimates assume capacity utilization rates of over 70% for planned manufacturing plants in these countries, which would enable efficient operations.

Despite the high investment costs, local manufacturing provides numerous economic benefits to a country, including job creation, innovation stimulation, and bolstered supply chain security, all of which should be factored into policy planning.

India added 20.8 GW of solar modules and 3.2 GW of solar cell capacity in the calendar year 2023, according to the recently released State of Solar PV Manufacturing in India 2024 Report by Mercom India Research. The country’s cumulative solar module manufacturing capacity reached 64.5 GW, and solar cell manufacturing capacity reached 5.8 GW as of December 2023.