Zhejiang Solar Industry Hit Hard by Falling Demand

Solar power firms are struggling to stay afloat in Zhejiang, the most fiercely entrepreneurial among China’s manufacturing-driven eastern provinces. Shrinking global demand combined with a capacity glut is idling the solar industry’s more recent entrants.

Most of the 210 photovoltaic firms in Zhejiang are concentrated in the mid- and downstream sectors and are vulnerable to being squeezed out as the value of the province’s photovoltaic output is expected to plunge from 60 billion yuan ($9.4 billion) last year to 50 billion yuan ($7.85 billion) this year.

The drop in demand has been especially sharp in the European market which accounts for 60% of the sales of ReneSolar, Zhejiang’s biggest photovoltaic maker. The company projects sales of 8.3 billion yuan ($1.3 billion) this year, far below its original forecast of 10 billion yuan ($1.57 billion). It will manage to squeeze out 1.2 billion yuan ($188.4 million) in profits by scaling back production, reducing inventory and raw materials, and laying off 400 workers.

Small and medium firms face far greater difficulties, especially if they are recent entrants to the field, says Shen Fuxin, secretary of Zhejiang’s photovoltaic industry association. Due to the traditionally export orientation of Zhejiang firms, they have been especially hard hit by shrinking overseas demand.

Globally photovoltaic demand reached 25GW this year, of which 1GW was in China, says Li Shengmao, a researcher at CI Consulting. But the capacity of China’s photovoltaic industry alone hit 25 GW in 2010 and jumped to 40GW in 2011. As a result only 3GW of Zhejiang’s 8GW output capacity is currently being used.

In an effort at promoting efficiency, the association had considered integrating 20 local small and medium photovoltaic enterprises into ReneSolar’s operations. But the program was shelved after all of them sank into the red.