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Party is over for dirt-cheap solar panels, says China executive (reuters.com)
242 points by howard941 52 days ago | hide | past | web | favorite | 83 comments

Always over until it starts again. Note that the party is over (in this case) because it is threatening smaller businesses, not because there is a lack of capacity or that the "big guys" couldn't still make money at the reduced rate. In every industry where I have been aware of this this situation coming up (voluntary reduction in production in order to shore up prices), it works for a while and then people "cheat" and ramp up their production to make a bit more money with their now dormant capacity. And then more people cheat, and the party is back on again. The Chinese are notoriously fierce in their desire to make a buck and so I give this one about a 5% chance of lasting through the end of 2019.

The solar industry is evolving fast enough that most dormant capacity left behind by bankrupt smaller producers probably isn't worth reactivating even if module prices rebound. These producers don't just have smaller annual capacities. They also have less sophisticated quality control, less automation, and older, slower generations of the automated tools they do have.

Module assembly is simple enough that some of those lines could be reactivated in response to demand, but module assembly has always been the easiest part. Smaller wafer and cell manufacturers that go bust probably won't see their equipment resurrected anywhere. Newer capacity from the likes of JinkoSolar, LONGi, and GCL yields more wafers per ingot and more efficient cells from wafers, more consistently, at lower costs.

Jinko's polycrystalline cells are so thin as to be almost impossible to keep from breaking, something on the range of 150um. I've got a few sitting here on my desk. Even an ultra-low pressure vacuum pick and place breaks them half of the time.

The mechanical fragility of thinner silicon has broadly stalled the progression toward even thinner wafers/cells. It's a pity since the optically/electronically optimum thickness would be thinner than is common now, and thinner wafers would yield more wafers per ingot.

Do you know how Jinko is handling such thin wafers when they assemble their own modules? If they're making cells of such thinness they presumably have found a way to do it; nobody can afford to accidentally break half of their cells on the way to modules.

Probably use an Electrostatic wafer chuck.

This is a well-studied phenomenon known as Cartel Theory: https://www.cambridge.org/core/journals/business-history-rev...

"The pain will mostly be felt by smaller Chinese producers, which lack international supply chains, triggering industry consolidation or forcing them to close, he added"

So it looks like capacity is being reduced.

Will capacity increase again? Probably. But your mention of cheating seems to be suggesting it's a cartel, I don't think that view is supported by the article, so have you got any other evidence?

Why would consolidation result in a lower capacity? All that's happening is bigger companies becoming bigger while a mix of gov policy and market forces during downturns squeezes out the little guys. Which is standard practice in modern state-capitalist societies.

Bigger companies aren't going to buy up smaller production that is not efficient. The smaller production just goes offline and gets scrapped. Solar panel production is at the point where you need to be doing economies of scale to really churn a profit at it.

You guys need to read up on what happens when a government subsidies something. The subsidies allows inefficient producers to stay in business and it also results in over production....which is what pushes the price artificially low. Once the subsidies end. The weakest go out of business and only the most efficient producers stay in business.

If I run a firm with lots of capacity and a thriving overseas trade, why would I buy up a competitor with no overseas business just to shut down their plant?

Because you will be buying it for less than the cost of the equipment in that plant + some of the best talent + their domestic customer list thrown in for free.

predict: China will increase their cap on solar production in 2019 to at least 20 GW. https://predictionbook.com/predictions/194304

Congratulation on the prefiction, they've already done since they started the year with a capacity of ~125GW.

200GW would make sense however.

Often, one sees industries making changes because market forces have made the transaction cost of manufacturing too onerous. Some industries in that case will consolidate and vertically integrate. If the pain from uncertain prices and supply gets too great, could the solar industry start with mergers and vertical integration? Or is it far too early for that?

Yes, mergers have been common in solar for a while.

This is one of the top manufacturers today:


A Chinese cell and module manufacturer acquired a Chinese ingot manufacturer. Korea's Hanwha Group subsequently acquired this merged Chinese entity as well as the German solar manufacturer Q-Cells. The merged Hanwha Q-Cells is vertically integrated from cells to modules.

A handful of manufacturers like GCL have vertically integrated even further:

- Refined silicon production

- Ingot production from purified silicon

- Wafers from ingots

- Cells from wafers

- Modules from cells

I don't know if that depth of integration makes sense long-term or not. Some companies have been burned in the past as they integrated with producers that weren't close enough to the leading edge. All of these steps are evolving rapidly in small increments; a vertically integrated producer has to keep pretty close to the leading edge at every stage if they don't want to see their integration advantages reverse.

I suspect vertical integration works when your key intermediate manufacturing inputs aren't commodities. And you have enough scale to overcome production granularity issues.

I suspect vertical integration works when your key intermediate manufacturing inputs aren't commodities.

What if your manufacturing outputs are also getting to be commodities? The example I was thinking of was refrigerated cargo containers. The inputs are obviously commodities. The outputs are also getting to the point where the cost of financing to build stock for sale or lease is getting to be onerous for smaller players.

Vertical integration to the point where they could acquire cheap land songwriters to optimistically cover with surplus production? This could be an interesting difference to other markets with an overcapacity cycle, e.g. you can't just hook up a month's output of DRAM to the network and have an income stream.


It's customary to assume the most positive interpretation of the author's comment; otherwise things tend to degenerate into a flame war.

Its a fair point. I should have specifically said that the manufacturers are particularly competitive, some more than others, and that competitive quality leads to cheating. That all the big sellers of solar panels in the market are Chinese is not relevant to the point and so I should have left it off.


No, GP is right, I would feel attacked by this if I were Chinese. Hanlon‘s razor though.

Translation: Foreign competition has now been driven out of business by subsidies, time to raise prices.

While there is certainly some truth to your statement, the subsidies being referred to in the article are on installed panels. Prices on panels were held high by subsidies, and their removal resulted in a market supply glut. This 10-15% raise is just the correction from the previous ~30% fall.

That had already occurred. This article was talking about a glut due to China dropping local installation subsidies. Demand dropped in China so all those panels were dumped on the international market.

The party being referred to was had by nonChinese developers, as they were getting panels cheaper than anticipated. That meant more profit for them.

The article says Chinese solar is 30% of the world production, not sure if that’s enough to jack prices.

30% referred to total installed capacity, not production.

It isn't so much that, as many producers were selling very low to get money coming in. These producers have now gone bust/ been bought up.

Now that those forced sellers have gone there isn't anyone willing to undercut everyone, so theres some support to prices.

... or drop the quality of the current products.

aka "The Walmart Playbook".

Eli Yablonovitch has spoken extensively about this. Here is one talk (https://www.youtube.com/watch?v=u_K1URyarE0) but I think he makes the point elsewhere that the central government in China told their regional governments that they would need to close down their smaller scale PV production with the result that they all added capacity to meet the minimum causing an even greater production glut.

Edit: I found the source (cued up for 37:25) https://youtu.be/lDxJsa8miNQ?t=2245

Perhaps more worrying than this change is the recent focus on expanding China's coal plants [1]. China already now is responsible for 45% of the global coal electricity. Just look at this diagram [0]. And with their one-belt-one-road initiative, they are building coal plants around the world.

[0]: https://www.carbonbrief.org/mapped-worlds-coal-power-plants [1]: https://www.forbes.com/sites/judeclemente/2019/01/23/coal-is...

China is still only a moderate emitter per capita, though it's caught up to Europe in recent years. Considering the wealth disparity it's a little hard to criticize.

The earth doesn't care, so to speak, about whether it's per capita or not, it only cares about the total global output.

The consequence of having 1.4 billion people in your society, is that you don't get to pollute at the rate of a nation with one million people that outputs 10x more pollution per capita.

Is that unfair? No. I don't think per capita equality of pollution is the most important factor in this. As a society China has to bear the consequences of their immense population and its impact on the earth. Pre-emptively I'll note this isn't a defense of any other nation's high per capita pollution output level.

Globally we have to take the China output very seriously, and we can afford to not be nearly so concerned about the 10x output of the one million person nation because it's not a dire threat to the planet (which isn't the same thing as not caring about their output, it's a difference of one threatening human existence and the other not; I'm far more concerned about North Korea's nukes & missiles than the localized authoritarian militia activity in a tiny nation - even though they might both be reprehensible governments, one is far more dangerous).

> The consequence of having 1.4 billion people in your society, is that you don't get to pollute at the rate of a nation with one million people that outputs 10x more pollution per capita.

So if China were to split up into a whole bunch of separate countries, it would be acceptable for each of those countries to have a higher per capita pollution rate than is acceptable for current China?

As you noted, the Earth doesn't care. That's why per capita is the correct way to handle this. Otherwise, whether a given set of people producing a given level of pollution is acceptable changes depending on how you draw arbitrary political boundaries among those people.

Good argument, maybe it should be based on the area of land controlled by each nation? Population density or Tons of CO2 produced per square mile? The problem with per capita policy is it encourages over population which makes the problem worse.

On the other hand, focusing on controlled area of land seems like a good way to encourage wars over territory. I don't think there's an easy answer.

Not to be harsh, but that sounds like it will solve two problems with one stone...

I don't think war is good for anyone but it has a way of reducing both population and carbon output.

Well now you've solved it. Everyone this guy sloved the eco crisis.

And China actually made effort in past to control that as well (One Child policy).

Only recently they relaxed it to avoid social side effects and unbalance in proportion between generations, and fertility rate is still bellow that of the USA (1.62 vs 1.80).

China already outputs more than the EU in per capita CO2 output.

EU plans to be carbon emissions neutral by 2050. (Reduction of emissions, planting forests, increasing use of renewables, and so on)

That is quite aggressive for the EU and we'll see how it plays out e.g. with the use of goal.

But what about the province of Sichuan? They have about the same population as Germany. Shouldn't they be allowed to pollute as much under your theory? After all, Germany is simply part of the EU.

The US official policy is that climate change is a hoax and even Northern European countries are failing to live up to the Paris climate accords.

Critiquing others is easy.

You should read more Western media if you are under the impression that those countries aren't criticized as well. Particularly the "US official policy".

Which authoritarian militia is in question?

If the entire world would be emitting like europe or north america do, then we'd be so doomed. Even if europe by then would be zero carbon it wouldn't really matter.

Of course, being the historic polluters, we shouldn't point with fingers here. They do have a right to wealth like any other economy in the world. But I think that wealth + renewable energy sources are possible. China has giant deserts. The only real problem is energy storage, but until a good cheap solution is found, you could just use conventional sources until the night or if there's no sun.

All I'm saying is we shouldn't be pointing fingers. Expecting poor nations to stay in poverty by making sacrifices we refuse to is both unfair and won't work.

The price of the PV modules only makes up like 1/3 the cost of a utility scale solar installation and like 1/5 the cost of residential installations. A 10-15% increase in module cost will not slow solar adoption that much. The solar train will keep chugging along.

We'll eventually get to a point where we generate 5% of the world's power with solar and people will still underestimate its impact and will still claim its too expensive to scale...

This is actually accelerating and there's no real reason it should stop. I think it's going to happen slowly and then all at once.

We're already there, now that solar+storage is cheaper than coal.

Even my local electricity coop, which sends me climate change denial newsletters every month[1][2], is buying solar.

[1] https://ulfheim.net/files/currentwv.pdf

[2] https://ulfheim.net/files/CurrentWV3.pdf

Really? What's the rest of the cost from?

If you want to invest in or speculate in (i.e. time your installation on your house) it looks like the model to follow is the historical DRAM market: a largely undifferentiated commodity market that depend mainly on cap ex and scale, thus subject to boom and bust as technologies changed (or failed to).

the fact that they are both silicon technologies I think is tangental

Solar panel prices tumbled around 30 percent last year after China, the world’s largest producer, cut subsidies to shrink its bloated solar industry, pushing smaller manufacturers to the brink of collapse.

1. Cutting subsidies should raise prices. I guess the subsidy cut could have offset a steeper decline, but the article is full of head-scratchers like this one.

2. When has China ever cut a major subsidy?

A poster below said these were installation subsidies, which makes sense. So demand fell, there was a supply glut, and prices fell.

55% of solar capacity installed in 2017 was installed in China, so a fall there is going to have a big impact on the global market.

Depending on the structure of the subsidy, it’s possible for a cut to lower prices. For example, EV buyers get a tax credit for their purchase. A big chunk of that surplus is captured by the seller. Without the tax credit, the natural price would drop. Compare the price of a new Fiat 500 EV to a used one. The latter is practically free, and it’s not the natural depreciation of a used car.

30% price drop last year.

Expected to climb 10-15% over two years.

Doesn’t seem like the party has ended. Just cooled a bit.

Until the next cost-reduction tech scales up, and so on, and so on...

The most interesting part of the article is the seemingly perverse economic response where the government cut subsidies and then the prices _fell_.

Is this an actual known pattern or just a strange side effect of this situation?

As other commenters have noted, it was an installation subsidy. Installation is a major cost of solar, other than just the cells themselves. That made it cheaper to move inventory out of the warehouse and into the field. With the subsidy gone, the inventory piles up in the warehouse and manufacturers get desparate to sell. So they drop their prices, but it's still more expensive to bring those panels online than it was when the subsidy was in force.

It's possible that the price will keep dropping until the panels are cheap enough to move at their current production capacity. But it's also possible that the lost profits make this level of production unsustainable, and solar panel costs climb back up as manufacturers shut down their no longer profitable lines and supply drops. It depends partly on what their margins are now, and what cost reduction room they have.

no shit, this is what everybody with a brain has warned about

China's MO is to subsidize Chinese businesses, restrict foreign competition internally, and steal foreign companies IP until they are bankrupt, while simultaneously being allowed to export their goods to those same countries with no penalty. Then they jack up the prices when all the competition is gone

Everybody criticized Trump for the steel and solar tariffs because they don't think beyond next quarter earnings report. What happens in 20 years when China has a monopoly on steel, solar, and other key industries and they decide to jack up prices? The rest of the world won't be able to do anything about it because they are junkies and China is the supplier

Lots of people profit short-term by trading with China. It's easier to make a profit as a middleman with China than as a manufacturer in a western country. I'm definitely left wing, but I applaud Trump for the tariffs. Tariffs are a must for the western world if we want to maintain our standards of living and survive long-term.

Germany is also a predatory exporter in Europe, but fewer people seem to care about that. The US definitely doesn't want to end up having the same relations with China as Southern European countries ("PIIGS") have with Germany. You can't win if you have zero leverage left to negotiate.

Germany is the prime exporter of the EU. It has the benefit of the Euro in the internal market for buying power due to its size and it has the benefit of the Euro in the external market because German bonds denominated in Euros are cheaper for it than the other EU states.

I'm a democratic socialist, but tariffs are not the way to control trade and standards of living. That is a mercantilist attitude from the 19th Century. Tariffs are paid by the consumers in the country that has the tariffs (ie Tariffs on China by US is paid by people in the US). It primarily hits those that spend most of their income on consumption, which is those that are poorer.

What is needed is the power of Labor (ie unions etc) to be applied in the foreign country, by having restrictions on goods and services that are not provided by Labor with fair conditions.

That's not the same as pay or money, there are comparitive advantages in things like the supply and demand on local food production etc.

> Tariffs are paid by the consumers in the country that has the tariffs (ie Tariffs on China by US is paid by people in the US). It primarily hits those that spend most of their income on consumption, which is those that are poorer.

But consumers are already paying for the current situation in Germany. Instead of tariff, Germany decided to put downward pressure on salaries via the Hartz reforms. The effects are not far from tariff in that it shifts money from consumption towards savings/investments. That's why Germany has such a large trade surplus. And like tariff, it's a losing solution. In the end, your currency should reevaluate. Germany is just lucky to have the euro.

For a long time, I was really puzzled by why the German European partners stuck with Germany in the currency union were so tolerant of pretty much being spoiled. But after Macron, I think it's pretty clear: the richest are far too happy to be able to present lowering salaries and degrading work conditions as an inescapable part of modern economic competition. They are after all on the right side of the rising inequality.

>What is needed is the power of Labor (ie unions etc) to be applied in the foreign country, by having restrictions on goods and services that are not provided by Labor with fair conditions.

Although this would generally negate the need for tariffs, there are serious issues:

-You can't enforce this. It's a very different country on the other side of the globe.

-You can't properly observe working conditions for the entire supply chain (and conversation on what constitutes "fair conditions" can enter the realm of philosophy very quickly)

-Even if labor was in control of production, they could still act maliciously as a group

-Small transient fluctuations in efficiency are magnified without a hard cutoff to stop them from using the extra capital to become too big and undercut competition

And on top of that, rich countries have to face a sharp recession while the poor countries catch up. That's not a small amount of time. In much of Europe we already have 1-2 generations that faced very harsh economic conditions because of this. Generosity has limits. Yes, free trade (generally, not always) allows poor countries to develop faster, but they grow asymmetrically and the working/middle class of rich countries suffers too.

> I'm definitely left wing, but I applaud Trump for the tariffs.

I thought tariffs are leftist proposition. At least in Europe it is.

Tariffs are supported by both left and right for different reasons. People like Trump represent national/regional industrial interests so they want local production and less competition from abroad. Leftists (in the european, non-neoliberal sense) want to empower the local workers and economies. The resulting action is the same. And it makes sense from a geopolitical perspective too.

There are valid reasons not to implement tariffs too, but having completely unrestricted trade imbalances is a bad idea no matter how you look at it.

The opposite of tariffs is not "completely unrestricted trade imbalances".

The opposite of tariffs is common quality, safety, labor, ecological impact requirements.

Tariffs are just a tax on one part of the local population to subsidise another part. Tariffs are paid by the importer, not the exporter.

For the exporter, not being able to export to a particular country, if there are other markets available, is a hindrance, not a killer.

The US is a big market for Chinese solar panels, but so is the rest of the world.

China was a big customer for US soybeans, now it buys none. This has ruined US farmers, but the global soybean market has taken up that slack.

Tariffs are dumb, clunky, 19th century tools for a global, multinational world. We need to accelerate not just the flow of capital, but also of labor, we need to make sure that the benefits of development are shared, not "trickled down".

We need to bring the 3rd world to the level of the 1st, not drag the 1st down to the 3rd. It's not a zero-sum game.


explain how China is the world's fastest growing economy and has the fastest growing living standards while being one of, if not the most protectionist countries on earth?

According to most economists and their textbooks their growth should be terrible because they are so anti free trade

The only people who benefit from low tariffs are the rich, who can then outsource production and ship goods back into the country with no consequences. That's why income inequality has skyrocketed in the last few decades. The supposed savings of outsourcing weren't passed back to consumers, it was pocketed by the rich

I wouldn't say tariffs are China's reason for success or anywhere near it. That said, China and the US are drastically different.

It seems that most of their protectionist polices are about moving China from dumb labor into a tech hub. Global companies are forced to partner with a local business. This keeps some profits in China as well as locks businesses in and gives the local company the ability to do its own designs or even just steal IP outright. While frustrating, this is actually a pretty cheap exercise for the global entity. Sign a deal, do some meetings, fill some paperwork and boom you have access to a billion users and very cheap labor. The cost of competition comes later and many many businesses take the deal.

Contrast this with tariffs that are just a dumb tax that immediately bite into profits and don't directly promote growth locally. If you actually want to target US businesses, you'd be supporting subsidies not tariffs.

>The supposed savings of outsourcing weren't passed back to consumers, it was pocketed by the rich

I mean, this is just clearly false. The savings literally have to be passed back to the consumer or the Chinese goods would not out compete local goods and there would be no problem.

USA and a number of Western countries are waaaay more protectionist than China.

The idea that China is the most protectionist country in the world is no more than a meme.

Ranks of ease of market entry are very objective proofs of that.

It gas been definitely easier to setup a viable business in China than in US for a few years now.

>It gas been definitely easier to setup a viable business in China than in US for a few years now.

Where are you getting that information? Every international index disagrees with that assertion.

Ease of doing business report only deals with formal legal requirements and paperwork, but running business is not only about law/tax compliance.

Access to labour, facilities, depth and readiness of local market to accept new things - all that matters.

I am not agreeing with assessment that legal compliance in USA is easier than in China at all. USA has hideously complex tax system, you can't do a single thing without a lawyer, and any dealing with securities is past all hope for a person who have not purposefully studied that.

>Tariffs hurt US consumers

US consumers are first and foremost US workers first -- and only consumers in as much as they have a job and they make enough to pay rent, consume, etc.

So while they might not get cheap global shit as easily, they'll be able to get jobs easier...

If your manufacturing employer consumes steel and that steel is now more expensive it means less of those jobs, not more. You're only pulling money from other US citizens and companies so its not really a gain to the US overall. It increases the cost of US manufactured goods that have to buy tariff laden supplies. This ends up hurting US manufacturing exports over all. All of this assumes we actually do pay for US steel but the reality is we'll just go to the next cheapest supplier which may or may not be local.

>If your manufacturing employer consumes steel and that steel is now more expensive it means less of those jobs, not more

Then don't impose a tariff on steel, impose a tariff on consumer products. It's an instrument of economic policy, not a binary all-or-nothing choice.

That steel is only cheap short term. Once China has a monopoly they can charge whatever they want. The only reason Chinese steel is cheaper is because it's lower quality and their government subsidizes it with long term strategic intent

There's some merit to this argument. If your goal is to hurt China's competitiveness in spite of what it costs US buyers than its a legitimate strategy.

However, this policy is being sold as a way to help US manufacturers and that's not quite the same thing. The benefits could easily go to other imports with weaker tariffs. This coupled with the problem of hurting down stream US manufacturers means that the only benefit is hedging against a Chinese monopoly and not the direct benefits that are usually talked about.

But it helps local businesses raises wages, etc.

Tariffs are important to keep certain industries alive locally.

There's no incentive to raise wages. At best it forces Americans to pay more for certain goods but the idea that that money goes to workers is indirect. These Chinese tariffs just increase the cost of Chinese goods so unless the US is second in cost, they cut into US profits but increase the profits of other global entities. In the case of steel, Russian imports are up.

It's not just John Q Public that sees increased prices either. Increasing steel costs hurt US manufacturing jobs that use steel. Because tariffs don't bring in any new money abroad, it's US companies that are footing the bill. The net gain to the US is zero or even less if there are less manufacturing jobs because of increased resource costs. Less manufacturing ripples back into less profit for steel.

Tariffs help US businesses and american workers. It's why the first major act of congress was a tariff.


The US economic might was built on tariffs protecting american businesses. We became the largest economy in the world in the late 1800s due partly due to tariffs. It's also why europe, japan, korea, china, etc used tariffs to become economy powerhouses.

It's true that it can hurt consumers, but given how big our economy is and the resources at our disposable, I highly doubt it. Also, it could hurt american businesses globally, but considering the US is the biggest market in the world, I doubt it.

Also, anyone who believes Trump is propping up russian steel is watching way too much CNN, MSNBC, etc.

As everything in life, tariffs aren't all good or all bad. It can be good, it can be bad. To make a general claim that "it's not good policy" is factually incorrect. History proves this.

"Tariffs help US businesses and american workers. It's why the first major act of congress was a tariff."

Well, one can argue about whether or not tariffs help domestic businesses and workers, but that was not the reason tariffs were one of the first major acts of congress.

It was one of the first acts because tariffs were THE major revenue source for the US federal government. Remember, those were the days before things like income tax.

Absolutely, like most things economic, we can debate the merits forever. But what's not debatable are economic and historical facts. The blanket claim was that tariffs hurt US businesses and workers. We know this is factually incorrect because we can look to the US economy and businesses in the 1800s where we rose from a relatively underdeveloped nation to the largest economy in the world with the world's largest businesses under a tariff heavy century. We can look to west germany, japan, korea and now china also.

Now that doesn't mean tariffs never hurt businesses. My belief is that tariffs can help or hurt businesses. I don't like ideological blanket statements like "Tariffs are always bad" or "Tariffs are always good". Tariffs are a national tool. Like any tool, it can be use for good or bad.

China should continue to subsidize solar so they eatablish a completely dominant position, then use their navy to start sinking oil tankers. That's our best hope for salvaging Earth's climate.

That would also throw throw us into a world war that would devastate the planet, but hey.

Aren't most of the oil tankers near China supplying oil to China? In which case there's no need to sink them — just stop buying the oil.

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