HONG KONG (Reuters) - A weekend deal between Beijing and Brussels to regulate trade in solar panels will limit Chinese firms' growth prospects in the European Union, the world's largest solar market, and force them to step up sales to 'emerging' markets at home and in the United States and Japan.
News of a deal - which had threatened to boil over into a wider trade war covering wine and steel - helped push up shares in Shanghai-listed solar panel makers Hareon Solar (600401.SS) and Shanghai Chaori (002506.SZ) on Monday, outperforming a 1.7 percent drop on the Shanghai Composite Index .SSEC.
"It's good news they finally found a solution," said Haiyan Sun, a senior executive at panel manufacturer Trina Solar Ltd TSL.N, which competes against Yingli Green Energy Holding Co Ltd (YGE.N), LDK Solar Co Ltd LDK.N, Suntech Power Holdings Co Ltd STP.N, JA Solar Holdings Co Ltd (JASO.O) and Canadian Solar Inc (CSIQ.O). "The focus for us is to rapidly develop other markets, like China, Japan and the United States."
Globally, Chinese manufacturers are on track to ship a total of 22-23 gigawatts (GW) of solar modules this year. Total estimated global demand is 35 GW, according to industry analysts.
For Chinese firms, future growth is likely to be in their domestic market, Japan, the United States, the Middle East and South Africa, analysts said.
China's solar panel demand should reach 7-8 GW this year, said Glenn Gu, senior analyst at IHS consultancy in Shanghai, while shipments to Japan and the United States could reach 3-3.5 GW and 2 GW, respectively.
While the small print of the EU deal has yet to be announced, one EU source said it had been agreed that Chinese firms could sell into Europe at a minimum price of 0.56 euro cents per watt, with a total ceiling of 7 GW a year - around half of the EU's 2012 demand of about 15 GW.
Chinese solar panel production quadrupled in 2009-11 to 55 GW as it took advantage of renewable energy market growth amid concerns about climate change. But the global financial crisis and euro zone paralysis forced EU governments to withdraw generous industry subsidies. That, along with cut-price Chinese imports, pushed many European solar firms into bankruptcy.
Anticipating EU restrictions, Chinese solar panel makers revved up sales to Europe in the first half of this year, with exports already reaching 6.5 GW, analysts said. Chinese solar panel sales to the EU reached 21 billion euros ($27.9 billion) last year.
It's unclear if any annual EU quota on Chinese panels covers first-half shipments, but exports to Europe are expected to ease in the current quarter after a surge in April-June, which has left an inventory build-up of about 2 GW.
China said earlier this month it aimed to more than quadruple solar power generating capacity to 35 GW by 2015 in an apparent bid to ease a massive glut in its panel industry - which employs thousands and is staggering under heavy debts - and trim its reliance on coal.
But Gu and other analysts question how Beijing can crank up domestic demand given the uncertainties over subsidies to the industry, the country's geographical energy imbalance and a lack of infrastructure needed to harness intermittent renewable energy.
As part of an ongoing restructuring of China's solar panel sector, some of the more than 100 panel makers are likely to go out of business, Gu said, with industry leaders - most of which are U.S.-listed and supply high-quality panels and better warranties - emerging as the winners.
Globally, the solar industry has made significant gains in driving down costs over the last five years, but it has yet to be weaned off big subsidies. Solar power remains an inefficient source of energy and is hugely expensive - installing 35 GW of solar capacity would cost around $50 billion, plus the subsidies needed for solar producers under long-term power purchase agreements with the government, analysts said.
"Solar power has good development prospects but its cost must come down further," said Bai Jianhua, deputy chief engineer at the research institute overseen by State Grid Corp, China's dominant utility and buyer of renewable power.
"It's not time to embark on large-scale development of solar power. Now it's only time to carry out some development while pushing for technological upgrades," he told Reuters recently, adding this was his personal view.
($1 = 0.7539 euros)
Editing by Ian Geoghegan