How the global solar boom is powered by Chinese exports
There's a strong relationship between a country's solar power capacity and its openness to Chinese solar imports. Look at solar superpowers like the Netherlands, Australia, and India.
(This builds on an earlier piece on Chinese solar and the “German paradox.”)
Let’s look at the world’s solar superpowers. In terms of total installed solar capacity, China is in a league of its own with over 600 GW. In 2023 alone, China added more solar capacity than the US has installed in its entire history. It sounds impressive, and it is.
But if you scale these numbers by population, you’ll see that China actually ranks 19th. (I’ve excluded very small countries with less than 1 GW of solar capacity.) With a population of over 1.4 billion, China is a very big country, which people often forget, so in some ways its impressive numbers are just a matter of keeping up with its population. On a per capita basis, countries like the Netherlands, Australia, and Germany have been leading the push toward solar.
Chinese solar panels everywhere
If you start to dig into each of these solar superpowers, you’ll find Chinese-made solar panels everywhere. The Netherlands is the largest importer of Chinese solar panels, buying up 23% of China’s solar panel and solar module exports since 2021. Chinese solar products make up 89% of the Netherlands’ total solar imports (although 60% are actually re-exported to other countries). Australia is also one of the largest importers of Chinese solar panels. More than 90% of Australia’s solar panels come from China. Australia has the world’s highest rate of rooftop solar—more than 1 in 3 households—but only 1% of these solar panels are actually made in Australia.
Or look at India. India has been one of the Global South’s greatest solar success stories. India is the fifth largest country in the world in terms of on-grid solar capacity and fourth largest in terms of solar power generation. The incredibly low cost of solar energy in India, the lowest among G20 countries, is driven largely by India’s heavy reliance on Chinese solar imports.
The chart below shows how the vast majority of India’s solar imports come from China. In some months, as much as 99% of India’s solar imports came from China. Recently this has been shifting to Southeast Asia as India uses tariffs and other trade restrictions to try to limit Chinese solar imports. Moreover, India is making a push to develop its own solar manufacturing industry.
The China factor
Looking across all countries, there’s a very strong relationship between dependence on Chinese solar imports and solar capacity. Countries that have imported more Chinese solar panels have also built more solar capacity.
I analyzed data from several sources, including Ember, IRENA, the World Bank and mapped out the relationship between each country’s total installed solar capacity in 2022 and the total imports of solar cells and modules from China in gigawatts of capacity over the five years from 2017 to 2021. You can see in the chart below how tight correlated the two variables are. (The chart’s x and y axes are log-transformed to deal with order of magnitude issues. I also only included countries with over 1 GW of solar capacity to reduce outlier effects from very small countries.)
When I run a standard linear regression on log-transformed versions of these variables—controlling for population and GDP, which are also log-transformed—I get a highly significant 0.55 coefficient and an adjusted-R-squared of 0.86. What does this mean? Even after controlling for population and GDP, having 1% more solar imports from China from 2017 to 2021 is associated with having 0.55% more solar capacity in 2022.
To be clear, I’m not making a causal argument about Chinese solar imports causing an increase in solar capacity or vice versa. (For that, you would need ways of identifying exogenous variation for an instrumental variable approach, for example.) Instead, I’m just pointing out that there’s an incredibly strong relationship between a country’s solar capacity and its openness to solar imports from China.
Some people might find this completely unsurprising. After all, China accounts for more than 80% of global solar module production capacity and dominates every stage of solar manufacturing from polysilicon production to solar panels. But my point is you really can’t talk about transitioning to clean energy sources like solar without talking about China’s role as a producer and exporter of clean energy goods.
Is there “overcapacity” in Chinese solar manufacturing?
Solar sits in the center of the Chinese overcapacity debate. China’s solar exports have grown dramatically since the solar boom began in the 2000s triggered by renewable energy policies in Europe, especially Germany and Spain. More recently, Chinese solar exports have shifted away from Europe towards Asia, particularly Southeast Asia, as some European countries such as Germany consider limits on Chinese solar imports. Such efforts are already facing pushback from Europe’s solar power industry who argue that protectionist measures against Chinese solar imports would slow down Europe’s transition to clean energy.
In the meantime, China’s own consumption of solar panels has surged with the rapid buildout of the country’s solar power capacity. From 2017 to 2023, China’s solar capacity grew by 368%. This kind of growth hardly sounds like “underconsumption.”
US Treasury Secretary Janet Yellen has warned in speeches against China’s “excess capacity building in ‘new’ industries like solar, EVs, and lithium-ion batteries.” Others point out the shrinking and even negative profit margins among Chinese solar manufacturers as prices for solar panels plummet.
But I would point out two numbers as a counterargument to claims about China’s solar overcapacity. Solar is still only 16% of the world’s power generation capacity, which is still largely dominated by coal and gas. And 2023 was the hottest year on record in terms of average global temperatures. If we’re really serious about tackling climate change, we’re going to need a lot more solar panels.
Thank you Kyle, an interesting set of propositions followed with a solid analysis of each.
Why did you not include 2023? When Chinese solar addition exploded with 200GW+ and blew up the chart