The progression of China's solar energy development in Southeast Asia - where's it headed?
Southeast Asia is quickly becoming a world-leading hub for solar component production and exports, thanks to the arrival of factories backed by Chinese solar heavyweights. This shift has been accelerated by overcapacity and brutal price wars in China's domestic market, as well as US import tariffs.
The region, comprising Malaysia, Vietnam, Thailand, and Cambodia, now accounts for over 40% of global manufacturing capacity of solar modules outside China, and around 20% of worldwide exports. Countries like Vietnam, China, and Taiwan have emerged as leading producers and exporters of solar modules, with Vietnam boasting an installed solar capacity of 18.4GW as of 2023.
However, the growth of solar development in Southeast Asia is not without challenges. Regulatory hurdles are slowing approvals for solar projects in Thailand, even for small-scale installations like rooftop solar. Grid connectivity issues, logistical and labour costs, and limited production range of solar components within individual countries are barriers that prevent the region from absorbing its surplus export capacity domestically.
The US International Trade Commission is expected to confirm the most recent solar tariffs in June, which could lead to more Chinese manufacturers leaving the market. These tariffs, combined with additional levies announced in November, have already prompted several Chinese manufacturers to suspend or scale-back production or shift operations to Indonesia and Laos.
The US tariffs might induce producers to leave Southeast Asia altogether in favor of regions such as the Middle East, according to Bloomberg analysts. This is a concern, especially since countries like Vietnam, China, and Taiwan depend significantly on exports to the USA, although exact export dependence figures are not detailed in the available data.
The European Union sources 97% of its solar equipment directly from China, leaving little room for Southeast Asian producers to quickly offset their losses from the previously dominant US market. Despite this, Adhiguna remains optimistic about Southeast Asia's solar potential, but stressed the importance of improving the sector's offering amid intensifying competition from places such as India, which are increasingly localizing solar manufacturing.
Notable Chinese solar investments in Southeast Asia include Trina Solar's two factories in Vietnam, producing silicon wafers and solar cells, with a third, US$454 million, 25-hectare facility announced. Longi has spent over US$1.1 billion on multiple facilities in Malaysia, employing over 8,000 people as of 2023, although some operations have reportedly halted in response to tariffs.
The shift of solar production to Southeast Asia began in response to US import tariffs in 2012. However, policymakers in Thailand are reportedly scared of solar development due to competition with established natural gas interests. In June 2024, then-US president Joe Biden ended a two-year relief on import tariffs for solar panels from the region's four leading producers, targeting China-linked manufacturers over alleged unfair business practices.
Meanwhile, coal interests are proving hard to overcome in Indonesia, despite pledges to phase out coal by 2040. This could potentially hinder the growth of solar development in the region.
Despite these challenges, Adhiguna recommended deepening involvement across the solar value chain in Southeast Asia for mutual benefits for both Chinese companies and Southeast Asian countries. This could be a step towards a brighter, more sustainable future for the region.
