This is an extract from a recent report “China’s ‘spare’ solar capacity offers climate and energy access opportunity” by EMBER

Solar surplus: A supply explosion

Worldwide manufacturing capacity for solar panels tripled between 2021 and 2023, driven mainly by expansion in China. But global installation is running a long way behind production capacity, and manufacturers and investors are feeling the pinch. Stimulated by the exponential growth of solar power in the previous decade, manufacturing companies ramped up investment in new production lines in the early 2020s. The manufacturing capacity of factories worldwide tripled from 2021 to 2023, and is set to reach 1,100 GW per year by the end of 2024. About 80-85% of manufacturing capacity is based in China, which is also the clear market leader in upstream parts of the supply chain.

However, forecasts for deployment this decade suggest that more than half of this manufacturing capacity will lie unused, with neither government targets nor project pipelines running at a commensurate scale. Solar panel prices are accordingly at a historic low of about $ 0.10 per watt, having virtually halved during 2023. This is already having an impact on manufacturers. In the first quarter of 2024 alone, Chinese companies cancelled or delayed an estimated US$ 8.3 billion of planned investments. Shares of major Chinese manufacturers have fallen by more than half since January 2022. Unless installation rates ramp up quickly, market analysts believe that a contraction in manufacturing capacity is inevitable, with production lines shuttered or mothballed. But there is no obvious route to market expansion. Export volumes from China have flatlined over the last year, having tripled in the previous four. Exports to Europe, the biggest market, are currently down by a quarter year-on-year.

In China itself, deployment rose by 50% in 2023 alone, and in the first four months of 2024 was up a further 24% year-on-year. But it is encountering a range of constraints including lack of grid capacity, reducing the scope for a further acceleration. While a shortfall in demand could partially serve to weed out older and less efficient manufacturing plants, it will obviously carry negative consequences for jobs and the economy in communities where factories are located. Chinese companies may be particularly exposed to falling market conditions given that in other countries with substantial manufacturing capacity, such as India and the United States, governments are aiming primarily for domestic use, whereas Chinese companies are targeting both domestic and global markets.

Opportunity: The scale of ‘spare’ solar

Forecasts show a surplus in solar panel manufacturing capacity from 2024 to 2030, presenting a significant opportunity to exceed the COP28 renewable energy tripling target if the spare capacity is utilised. The International Energy Agency (IEA) projects that global solar manufacturing capacity will rise from 1,100 gigawatts (GW) in 2024 to 1,300 GW in 2028. It forecasts that annual deployment of solar panels will run at under half of that level, rising from 400 GW in 2024 to 532 GW in 2028.

Based on the IEA’s figures, and taking into account that the utilisation rates of production lines are unlikely to exceed 85%, we calculate the cumulative manufacturing capacity over the period 2024-30 to be 7,310 GW. We calculate cumulative projected deployment over the same period at 3,473 GW. The difference is 3,837 GW. This can be regarded as ‘spare’ manufacturing capacity, representing solar panels that could be produced, installed and used, but under current targets and deployment projections, will not be. According to the IEA’s estimates, the currently projected deployment of solar would raise globally installed capacity from 1,550 GW in 2023 to 5,023 GW by 2030. Deploying the ‘spare’ solar capacity of 3,837 GW in addition to this would raise the global installed capacity in 2030 by over 75%, to a total of 8,855 GW.

The opportunity gains significance when one compares it against the scale of installation needed across all renewables to deliver the COP28 tripling target. Meeting that would require 11,000 GW of renewable energy capacity to be in place by 2030 (against the 2022 figure of 3,630 GW). Based on the IEA’s projections, we would expect renewable energy capacity worldwide in 2030 to total 9,513 GW: in other words, the 11,000 GW tripling target will be missed. The shortfall from governments’ national targets to the tripling figure is larger still. Ember’s 2030 Global Renewable Targets Tracker shows that governments are jointly targeting 7,241 GW of renewable capacity by 2030 (with solar making up 3,160 GW of that). By contrast, if all the ‘spare’ solar manufacturing capacity could be delivered and installed in addition to the IEA’s baseline projections, this would see the world passing the COP28 tripling target a year ahead of schedule, taking capacity in 2030 to 13,345 GW, exceeding the target by 21%.

With wind power encountering some headwinds, hydropower and bioenergy facing concerns over social and ecological impacts, and other components of 1.5C-compatible pathways such as carbon capture and storage and negative emissions seeing glacial progress, prioritising rapid deployment of ‘spare’ solar would appear to be a prudent move if governments are serious about delivering the Paris Agreement climate targets.

Energy access gap

Access to energy is already highly unequal across the globe, with less than half of people in sub-Saharan Africa having even minimal access to electricity. This is already a barrier to development – and economic factors mean the renewables revolution is leaving the poorest countries behind. Many developing countries’ energy transition plans are currently obstructed by economic factors. Apart from the low levels of per-capita GDP in Global South countries (relative to the Global North), financiers generally view investments as riskier, which raises the cost of capital for renewable energy projects three- to five-fold. The burden of debt repayments, resulting largely from the Covid-19 pandemic, also reduces the capital available in many developing countries. This means that many governments that want to speed the renewable energy transition are struggling to garner the investment needed. Lack of access to modern energy is a barrier to poverty reduction and equitable economic development. Less than half the population of sub-Saharan Africa has access to electricity.

More than 80% of Africans without electricity access live in rural areas. Here, as the IEA and others show, the greatest potential for advancement lies in standalone systems and mini-grids based around cheap renewable generation, predominantly solar. The UN’s most recent assessment of progress towards Sustainable Development Goal 7, which aims to deliver ‘affordable, reliable, sustainable and modern energy for all’ by 2030, concludes that delivery is off track. At current rates of progress, it estimates that 660 million people around the world will still lack electricity access in 2030, the majority in sub-Saharan Africa.

In large part this is because the renewables revolution, much like the Green Revolution in agriculture half a century ago, is largely passing Africa by. While investment globally in clean energy is rising, less than 2% of it reaches Africa. The negative impact this situation will have on prospects for social and economic development is compounded by the fact that many countries with poor energy access are also highly vulnerable to climate change impacts. As things stand, the global transition to a clean energy system, with all the benefits it brings, is set to be deeply unjust. Countries and communities that would benefit from it most are set to miss out, and where it does take place in the developing world, it is set to be relatively more costly than in the more prosperous Global North.

Potential impact: Using ‘spare’ solar for global development

Underutilised solar manufacturing capacity offers a chance to support the global energy transition, especially in Global South countries with low levels of energy access. Deploying even a seventh of the spare 3,837 GW of solar capacity could in principle extend basic electricity access to 809 million people. Utilisation of ‘spare’ solar manufacturing capacity could significantly advance the energy transitions of countries that need it most, increasing energy access and avoiding the need to build new fossil fuel power stations. This looks at a group of countries generally positioned below the global average in terms of development, including many with limited energy access. These nations are in general vulnerable to impacts of climate change and supportive of a global clean energy transition. This group is defined via membership of three blocs: the Least Developed Countries (LDCs), Alliance of Small Island States (AOSIS), and Climate Vulnerable Forum (CVF).

Renewable win: A China solution?

As China is the clear world leader in solar manufacture (as well as in deployment), China has much to gain from supporting roll-out of the ‘spare’ solar capacity to developing countries. It would not be the first time that the government has supported deployment in order to bolster its solar manufacturing future. With the vast majority (80-85%) of solar manufacturing plants located in China, supporting deployment of ‘spare’ solar capacity in the developing world presents a significant opportunity for China to deliver national gains, in addition to helping deliver global goals on development and climate change. One gain is economic, in that supporting deployment is a way to keep factories running and people employed until global demand naturally catches up with supply. And history offers a striking parallel.

During the 11th Five-Year Plan (2006-2010), Chinese companies expanded and modernised solar manufacturing facilities in order to compete on the world stage. However, after the 2008 financial crisis, major Western markets such as Germany cut back deployment rates and slowed imports from China, partly in an attempt to shore up domestic manufacturing. To support its industry through this economically difficult period rather than allowing factories to shut down, the Chinese government invested in building a substantial domestic market, introducing a range of support policies to stimulate deployment within China. The benefits of that response can clearly be seen today, both in the scale of China’s growing annual solar deployment and in Chinese companies’ dominance of the global market.

Now, with Chinese manufacturers similarly hard-pressed, the option of significantly accelerating domestic deployment is far less feasible because deployment is already happening at significant scale and pace and running up against constraints. The US is again erecting trade barriers; and India, hitherto a rapidly expanding market for Chinese exports, is planning to meet national demand with domestic manufacturing. Against this backdrop, supporting deployment across the developing world is an obvious option if the Chinese government wants to keep as much as possible of the industry running through this difficult period.

The second gain is diplomatic. Western nations have acknowledged their responsibility to support the Global South’s energy transition on numerous occasions, from the 1992 UN climate convention onwards. They are also committed to supporting delivery of the Sustainable Development Goals. But they have repeatedly failed to provide the agreed collective sums of climate finance, are currently not delivering reforms to the international financial system that would speed up clean energy deployment by de-risking investment, and are not supporting implementation of SDG 7 well enough to ensure delivery.

Conclusion

The world needs abundant cheap solar power, for energy access, wider economic development and climate change. And it is available. The figures in this report show the global benefits that would accrue from supporting deployment of ‘spare’ solar capacity. This single move would ensure that governments collectively exceeded their target of tripling renewable energy capacity by 2030 by a substantial margin. Deploying just one-seventh of it in the countries that most need clean electricity would contribute to improving energy access and energy independence.

Supported solar energy deployment in Global South countries would bring a range of added development benefits to those countries. Solar would create jobs in the installation and maintenance whilst reducing fossil fuel import costs; but cheaper and more plentiful electricity would also provide a boost to industry and support countries’ underlying clean development. Parts of the supply chain could be relocated in-country, as is already happening in Southeast Asia where companies are progressively moving from solar panel assembly to the manufacturing of upstream components such as solar cells and silicon wafers. Given the synergy between solar generation and battery storage, solar panel deployment on a significant scale would make countries more attractive destinations for investment in battery manufacturing, as is already happening in North Africa.

What emerges overall is an opportunity for South-South-North collaboration that has the potential to markedly accelerate progress towards agreed international goals on both climate change and development:

● China has abundant ‘spare’ production capacity, and companies that may atrophy without temporary market support. It also has established diplomatic and investment links with many poorer developing countries.

● Across the developing world, governments are keen to progress the energy transition but are hindered by economic factors largely beyond their control.

● Developed countries have an acknowledged responsibility to deliver support to the developing world that improves energy access, generates jobs and income, and ensures low-carbon development. They also have abundant expertise in energy transition-related skills and knowledge to share.

From the perspectives of clean energy access, development and climate change, the conventional representation of the current situation is flawed. The situation is not, as it is often described, one of overproduction, but of under-deployment. The spectre of supply chain shortages is often cited as an obstacle to rolling out clean energy globally. Here, the supply chain is clearly in robust health; but governments and multilateral institutions are electing not to utilise the full extent of goods that it can produce, despite the social and economic advantages doing so would bring. The opportunity to capitalise on the potential of solar energy will not last indefinitely. The workforce layoffs and investment delays already witnessed in solar manufacturing would be expected to deepen quickly unless governments act to support the market.

Access the complete report here