A sharp increase in solar power production in China and a sharp fall in domestic demand have sparked a sudden surge of cut-price exports, undermining a China-EU agreement to limit damage to European producers.

China produced 27 gigawatts (GW) of solar photovoltaic (PV) modules in the first half of 2016, an increase of 37.8 percent and installed 20 GW of new solar power capacity in the same period, three times as much as the same period a year ago.

However, demand has since tailed off. Solar projects operational since July face a reduced price paid by grid operators for their power. The China Photovoltaic Industry Association (CPIA) has forecast total new capacity by the year-end will be 30 GW, implying just 10 GW in the second half.

EU ProSun, an association of EU solar producers, says the price of some panels had fallen to below 0.40 euros per watt, compared with a previous average European price of about 0.50 euros.

EU ProSun president, Milan Nitzschke, said that prices had come down by some 20 percent in the past month to below the cost of production.

‘We fear a second wave of bankruptcies,’ he said.

The European Union and China were on the verge of a trade war in 2013 over EU allegations of dumping of solar panels into the bloc. The investigation was the largest in EU history, given the value of such exports was 21 billion euros ($23.6 billion) in 2011.

That trade war was averted by agreeing a lower amount of Chinese panels could be imported free of tariffs as long as they did not price them below a minimum initially set at 0.56 euros.

However, having signed up to the undertaking, an increasing number of Chinese firms have chosen to opt out considering it better to sell at even cheaper prices, even when faced with duties of between 27.3 and 64.9 percent.

JinkoSolar Holding Co became the latest to withdraw from the undertaking last week, saying the minimum price no longer reflected the market reality.

Maggie Ma, chief financial officer of Renesola, another company no longer part of the undertaking, forecast that the third quarter would be ‘sluggish’ after China cut preferential tariffs.

Miao Liansheng, chairman and CEO of Yingli Green Energy, said in the company's first-half report that it faced challenges and lower selling prices in the second half because of increasing competition and higher anti-dumping duties in the United States.