Top Solar Firm Warns Excess Capacity Risks Wave of Failures

China's world-leading solar industry could face a wave of bankruptcies if the current aggressive expansion of manufacturing capacity continues, according to the sector's biggest player.

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(Bloomberg) — China's world-leading solar industry could face a wave of bankruptcies if the current aggressive expansion of manufacturing capacity continues, according to the sector's biggest player.

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More than half of China's solar manufacturers could be forced out in the next two to three years because of excess capacity, Li Zhenguo, president of Longi Green Energy Technology Co., said during a group interview Wednesday on the sidelines of the SNEC PV Power Expo in Shanghai.

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"Those that will be hurt first will be those that are not prepared sufficiently," he said. Companies with weaker finances and less-advanced technology are most at risk, Li told reporters.

The global solar market is growing rapidly, with installations expected to rise 36% this year to 344 gigawatts, according to BloombergNEF. But factories are expanding even faster. One step in the supply chain alone — producing the polysilicon that goes into the panels — will see capacity rise enough to produce 600 gigawatts this year, BloombergNEF analyst Jenny Chase said in a presentation at SNEC earlier this week.

"There will be a price crash, it will hurt, and there will probably be bankruptcies across the industry," she said.

Others pushed back against overcapacity concerns. Companies that are expanding are doing so because their customers need it, said Li Junfeng, executive council member of the China Energy Research Society.

"These are the industry leaders, they’re on the front lines, they know the market characteristics the best," Li said on a panel Tuesday.

Longi, the world's biggest solar company by market capitalization, is fully prepared for the upcoming challenge, with cautious investment decision-making and sufficient cash flow, Longi Green's Li said. The company also plans to extend from solar manufacturing to providing more services to its clients, in order to rely less on factory margins, he added. Longi's shares fell as much as 2% Thursday.

(Updates with share prices in last paragraph.)

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