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- China dominates the expansion of solar capacity
The use of alternative energy sources to generate electricity is on the rise. An increasing amount of electricity is being fed into the grid by photovoltaic (PV) systems. As a result, 2023 was a landmark year for the expansion of solar generation capacity. According to Ember, an energy think tank, global capacity increased by 36%, significantly outpacing the capacity growth in other alternative sources of electricity.[1] At the same time, the growth in actual electricity generation from solar power rose at only 23%,[2] decreasing the so-called capacity factor. We expect, however, the electricity generation and thus the capacity factor to catch up again in the future.
In the European Union (EU) electricity generation from wind and solar, in the first six months of this year surpassed electricity generation from fossil fuel for the first time, with 385.6 TWh versus 343.5 TWh.[3] The energy transition seems to be on the right track, especially in the EU – at least if we look at the development of photovoltaics.
Solar energy: falling panel prices, sharply rising capacity
Sources: Ember, DWS Investment GmbH as of 8/28/24
When looking at this trend it is important to note that global developments were driven by a massive supply increase from China. As a result, the price of solar panels has again fallen sharply over the past year. In 2023, China installed an enormous 55% more solar capacity than in the previous year, compared to 12% growth in the seven largest industrialized nations (G7) and 5.9% for the rest of the world. China's wind power capacity also increased substantially, by 21%, compared to 4.5% for the G7 and 5.3% for the rest of the world.[1] This means that by 2023, China was responsible for 63% of the world's solar capacity additions and 65% of its wind capacity additions. What is driving this rapid development in China is that the solar industry is benefiting from government subsidies that enable low prices for solar panels.
We expect China's dominance to continue to grow this year. According to China's National Energy Administration (NEA), the country's photovoltaic capacity increased by 123 gigawatts from January to July. This took the country’s total photovoltaic capacity to 740 gigawatts, an increase of around 50%, while wind power capacity was around 470 gigawatts, an increase of 20%.[4] Given these figures, we expect renewable energy capacity to continue to grow through 2024.
The price trend in solar panels is also impressive, which is a direct consequence of the increased capacity. According to the International Energy Agency (IEA), spot prices for photovoltaic solar modules fell by almost 50% year-on-year in 2023, while production capacity tripled since 2021.[5] Production capacity currently under construction suggests that the global supply of solar modules will reach 1,100 gigawatts by the end of 2024, with production potential likely to be three times higher than current demand forecasts.
China is likely to maintain its leading global position. "It is unlikely that the announced projects will significantly change the high geographical concentration of the overall PV supply chain," says the IEA.[6] The European Union has recognized the dangers that could arise in the photovoltaic sector as a result of excessive dependence on China, with about 90% of supplies being imported from China. In contrast, solar panel manufacturers in the US have their profits protected by trade barriers and tax benefits. For this reason, the so-called European Solar Charter was signed on April 15, 2024. It sets out immediate action to be taken by the Commission, EU member states and representatives of the PV value chain. This includes wholesale, distribution and manufacturing sectors, "to ensure full compliance with EU competition and state aid rules."[7]
