China’s solar factories are tapping the brakes as the industry struggles with a price war and overcapacity that could force many into bankruptcy.

Some wafer factories are already operating at as little as 40% of their capacity with more production cutbacks expected in February, the China Silicon Industry Association said in a statement.

Prices for the thin squares that get wired into cells and then assembled into panels have fallen 75% since August 2022, according to BloombergNEF.

Plunging costs followed a massive ramp-up in manufacturing capacity in China, as companies took advantage of cheap credit to build new factories to gain a technological edge over competitors with older equipment.

At the end of 2022, China had 861GW of planned or operating wafer capacity, up from 380GW in 2020.

Not all companies are choking back on production, the association said. Some factories are maintaining utilisation rates as high as 95-100%. Leading wafer producers include Longi Green Energy Technology Co and TCL Zhonghuan Renewable Energy Technology Co.

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Manufacturers of polysilicon, the material wafers are made of, have responded to their own plunge in prices by slowing expansion plans, according to the association. Some smaller producers are selling at prices near their production costs, all but eliminating profit margins, the association said on Wednesday. — (c) 2024 Bloomberg LP