China to restrict expansion of solar equipment producers

BEIJING (Reuters) - China intends to impose restrictions on expansion of solar equipment production to tackle overcapacity in the industry in the face of falling domestic installations, a draft plan issued by the country's industrial ministry showed on Friday.

Surging manufacturing capacity helped to spark grid price parity, where electricity from solar and coal are priced the same, but also led to a severe supply glut in the Chinese market and encouraged producers to dump cheap Chinese products abroad.

"(We will) strictly control the solar equipment manufacturing projects whose solo purpose is to expand capacity," the Ministry of Industry and Information Technology (MIIT) said.

China, the world's biggest manufacturer of photovoltaic products, had silicon wafer production capacity of 173.7 gigawatts (GW) by end 2019, accounting for 93.7% of the world's total, according to China Photovoltaic Industry Association.

It also took 77.7% of the world's solar panel production capacity, 69.2% of photovoltaic modules capacity and 69% of polycrystalline silicon capacity in 2019.

Overcapacity is expected to exacerbate alongside the drop of solar station installation in China, which saw new installed solar power capacity fall 32% in 2019 from a year earlier.

But the MIIT said it will encourage solar manufacturers to cut production costs through technology innovation.

Eligible solar equipment producers in China will have to invest at least 10 million yuan ($1.4 million) every year into research and development, and have to utilise at least 50% of their designed capacity each year, according to the MIIT draft.

The MIIT also set standards on energy and water consumption during solar equipment manufacturing and quality criterion for solar panel efficiency.

Companies that locate in the ecological protection zones, set by environmental authorities, will have to cap their size and gradually shut down, it said.

The draft will be open to public consultation until June 10.

(Reporting by Muyu Xu and David Stanway; editing by David Evans)