The photovoltaic industry is becoming the most tempting and dangerous track.

the Shanghai photovoltaic and smart energy exhibition (SNEC) held in Shanghai at the end of may 2023 witnessed the glory of the industry: the exhibition covers an area of more than 270000 square meters, more than 3000 enterprises from 95 countries around the world participated in the exhibition, and more than 500000 people registered to attend the exhibition, which is twice the number of the previous one.

"I have participated in several exhibitions and have never seen this year's battle." A photovoltaic enterprise project director who has been working for more than ten years laments.

By the end of 2023, the annual production capacity of the four major segments of global PV silicon, silicon wafers, cells and modules will exceed 800GW. Among them, China's production capacity in all links accounts for more than 80%, and its output exceeds 85%. However, the industry's optimistic expectation for the new installed capacity of global photovoltaic in 2023 is 380GW (corresponding to 450GW of modules). Even if the demand for modules increases to 550GW by 2024, the production capacity in 2023 is still more than enough, and the new production capacity will be put into production in 2024.

The supply and demand situation has reversed and prices have turned downward. The price of silicon, which had the largest gap, returned to below 100000/tonne from close to 400000/tonne, essentially unchanged from before the outbreak. The prices of silicon wafers, battery chips and components have also fallen significantly. And Tongwei shares (600438.SH), Longji Green Energy (601012.SH), Jingke Energy (688223.SH) and other leading enterprises are still in the continuous financing, expansion of production, trying to consolidate the position of the industry, to meet the next round of industrial cycle.

The leap in production capacity has its reasonable side: strong global demand for photovoltaic products, accelerated upgrading of new photovoltaic technologies, and the expansion of production by leading enterprises for the purpose of upstream and downstream integration. Among them, the speed of technological progress is the core variable. How fast and cheap the new technology can replace the old technology determines which capacity will become "excess capacity" with higher risk ".

China's photovoltaic industry has experienced two surplus crises before, one was caused by the "double anti-dumping" (anti-dumping and anti-subsidy) in Europe and the other was caused by the adjustment of domestic subsidized electricity price policy in 2018. Both times, domestic and foreign policy adjustments sharply constrained demand in the short term, resulting in a relative oversupply.

In the current risk of excess, demand is still growing at a high rate, but supply is growing faster, and this is not caused by simple policy adjustments. In the global trend of carbon neutrality, photovoltaic is a rare long-term track with a definite prospect, the capital market, local governments are more willing to provide support for it, the accelerated iteration trend of the technical route also gives newcomers the hope of overtaking the curve, these are driving the rapid expansion of photovoltaic capacity, but also bring risks and controversy.

The world needs more photovoltaics, but I'm afraid not all of them are made in China. In the future, whether the global market can digest the increasingly large production capacity of China's photovoltaic industry is a major variable. What is worrying is that the international trade environment is changing. The more localized supply chain and more complex trade barriers to China's photovoltaic have led to the shift of large buyers in the international photovoltaic markets such as the United States, Europe and India.

The low cost of the whole industry chain is the moat of China's photovoltaic industry, which cannot be surpassed by counterparts in other countries in the short term. If we can keep this core competitiveness, China's photovoltaic industry is not afraid of excess.

But not all companies can survive. Under the situation of oversupply, price decline has appeared. New players often bet on new technologies. Whether they can survive the cycle depends on whether the new technologies can quickly reduce costs and increase efficiency and become superior production capacity. For all enterprises, the thicker the family, the more confident they are.

01 Expansion surge

In less than two years, China's photovoltaic industry has doubled its production capacity. At the Shanghai Photovoltaic Conference in May 2023, Zhong Baoshen, chairman of Longji Green Energy, lamented that the photovoltaic industry had built about 380GW of production capacity in 18 years, and more than 380GW of production capacity had been built in the last 18 months.

Global Capacity and Module Demand Forecast for Each Link of Photovoltaic Industry Chain by the End of 2023

The photovoltaic industry chain includes four main links: silicon material, silicon wafer, battery chip and module.

Based on the forecast data of various mainstream institutions, the production capacity of these four links will exceed 800GW by the end of 2023. And if all the expansion announcements are basically realized on schedule, the production capacity of the silicon material and battery chip link will exceed 1100GW, and the production capacity of the silicon chip and component link will reach 900GW.

The tide of supply is surging, but the pool of demand is not ready. At present, the mainstream institutions have raised the expected global installed capacity in 2023 from 350GW at the beginning of the year to about 380GW, and the demand for converted components exceeds 450GW. According to the InfoLink of the photovoltaic consulting agency, the optimistic situation in 2024 module demand of about 550GW.

In the short term, the supply of capacity in each link has far exceeded the terminal demand. However, it cannot be asserted that "serious overcapacity".

In the past ten years, China's photovoltaic industry has undergone three reshuffles. The market shrank caused by the financial crisis in 2008, the "double reverse" strike in Europe and the United States in 2012, and the "531 New Deal" in 2018. In the continuous fighting, the photovoltaic industry has suffered the pains of growth and achieved a sharp drop in the cost of electricity consumption. Only in this way can it be able to divide the cake with traditional energy and become the main force in the future energy transformation. At present, China's photovoltaic production capacity and output account for more than 80% of the world's total.

From the data of the China Photovoltaic Association (CPIA) in the past five years, the overall capacity utilization rate of China's silicon wafer link has declined significantly, while the capacity utilization rate of battery cells, especially component links, has not been high.

capacity utilization rate of photovoltaic links in China from 2018 to 2022

The academic community often uses capacity utilization to determine the extent of overcapacity. A literature review published in 2017 by the research group of the China Finance 40 Forum mentioned that there is no common measure of overcapacity, but generally 81%-82% indicates that the utilization rate of capacity is basically normal, higher than 85% can be regarded as a serious shortage of capacity, while lower than 75% indicates a serious surplus.

If this is used as a reference, then in addition to the silicon material around 2021, the four main links of the photovoltaic industry chain have been severely surplus in the past few years. Of course, this is just a statement. The photovoltaic industry is expanding at a high speed. Observing the data comparison of production capacity and output in the past five years, it can be found that the annual output of each link is usually close to or even higher than that of the previous year, indicating that the expansion results of the previous year basically adapt to the growth of demand in the next year. On the other hand, the production capacity at the end of the year tends to increase more, which actually lowers the capacity utilization rate in that year.

This roughly outlines the development outline of the photovoltaic industry in the past few years: with the rapid growth of demand, the new expansion capacity can usually be digested in the second year, and the high expectation of demand continuously stimulates more and more capacity expansion.

2018~2022 China PV each link capacity, output

The growth in demand will ultimately determine whether and for how long the game can continue. At the end of 2023, the production capacity of each link is likely to reach more than 800GW, and the comprehensive agency data, 2024 more optimistic and aggressive forecast scenario, component demand is expected to reach 550GW, still significantly lower than the capacity of each link.

according to the forecast updated by China photovoltaic association (CPIA) on July 20, due to the increase of China's photovoltaic capacity, the global capacity forecast for 2023 is expected to be increased to 305-350GW. in the medium scenario, 360GW and 386GW are expected to be added in 2024 and 2025 respectively. According to Bloomberg New Energy, in the medium scenario, the global annual new installed capacity is in the range of 400 to 700GW from 2024 to 2030, with an annual growth rate of about 10% in 2025 and beyond.

PV companies have a more optimistic outlook for long-term growth. Zhu Gongshan, chairman of Xiexin Group, pointed out in the 2022 annual report that in 2030, the annual new installed capacity of photovoltaic will reach the terawatt level, that is, 1000GW. In response to investors, Longji Green Energy's secretary said recently that it is expected that by 2030, the annual new installed capacity of global photovoltaics will exceed 1500GW. Senior assistant to Liu Hanyuan, chairman of Tongwei's board of directors, believes that green and low-cost photovoltaic power generation coupled with AI's extensive use of energy will far exceed the boldest forecasts of all institutions in the future.

But the risk of excess is concentrated in the near to medium term. At present, unless there is a substantial increase in demand that exceeds expectations, the photovoltaic industry will face a more serious surplus in the next year or two than in previous years. The trend of large enterprises crowding out small and medium-sized enterprises and advanced production capacity crowding out backward production capacity will become more and more obvious.

PV demand is likely to exceed the expected growth in the short term? In the first half of 2023, all links of the industry chain continue to reduce prices, to a certain extent, to stimulate installed demand. In July, the Photovoltaic Industry Association raised its forecast for new installed capacity in China from 95GW-120GW at the beginning of the year to 120GW-140GW. But on the other hand, limited by land approval, grid connection permits, insufficient overseas installation manpower, and shortage of individual equipment components, demand may be difficult to suddenly erupt in a short period of time.

Li Zhenguo, founder and president of Longji Green Energy, told Caijing Eleven that if the market demand is not enough to support the production capacity in the future, or if the production capacity in the bottleneck link of the industrial chain is also greater than the market demand, the photovoltaic industry will face severe surplus. The day of overall surplus will definitely come, but people do not know the specific time, and no one can predict the speed of market development.

He used to be "radical" bullish on PV demand. "The global photovoltaic market will be around 100GW in 2020, and I publicly predicted that it would grow to 300GW in 2025. At that time, people inside and outside the industry thought I was too radical. But no one thought, just afterIn the past two years, the global market will reach 300GW in 2022." Li Zhenguo said.

Demand growth has exceeded Li's "radical" expectations at the time, but supply has grown faster. This time, he issued a warning. In an interview in May 2023, Li Zhenguo predicted that more than half of the enterprises would be eliminated in the next two to three years. He also pointed out that overcapacity may occur next month, next quarter, the second half of the year, or even next year, but the later it occurs, the stronger the next round of overcapacity may be.

02 Two drivers of the production leap

The capital market is an important driving force for the expansion of photovoltaic capacity.

Capital market financing is an important source of funding for PV companies to expand production, and the acceleration of capacity expansion in the past two years is directly related to changes in financing rules.

In February 2020, in order to enhance the ability of financial services to the real economy, the CSRC announced the Decision on Amending the Measures for the Administration of Securities Issuance of Listed Companies, streamlining and relaxing the refinancing conditions. For the pricing and locking mechanism of non-public offerings, the new rules change the issue price from no less than 10% of the average price of the company's shares in the 20 trading days before the pricing benchmark date to 20%, shorten the lock-up period from 36 months and 12 months to 18 months and 6 months, respectively, and do not apply the relevant restrictions of the reduction rules.

The lower financing issue price and shorter lock-up period have greatly increased the security and liquidity of participating listed companies in refinancing, accelerating the financing expansion of photovoltaic enterprises. Some photovoltaic listed companies, even if their own funds are abundant, still in the capital market financing to expand, rather than using their own funds, and it is very easy to raise money.

according to the data of the photovoltaic industry association, the total amount of financing of photovoltaic enterprises in the secondary market through IPO, fixed increase, convertible bonds and rights issue will nearly double that of 2019 in 2020, and will continue to maintain high growth in 2021 and 2022. the amount of equity financing in 2022 has reached 136.2 billion yuan, nearly four times that of 2019.

Secondary market financing scale of China PV enterprises

generally speaking, the funds raised as capital account for about 30% of the total expansion investment, and the remaining 70% rely on bank loans. This means that PV companies in the market value rise cycle, can release equity to pry a large amount of money to expand production.

Today, in the case of the risk of excess industry has emerged, the fund-raising expansion is still continuing.

some A- share leading photovoltaic enterprises, the expansion and construction plans mentioned in the announcement since 2023

Another major push to promote the expansion of photovoltaic enterprises is the local government.

In the context of economic growth under pressure and the decline of the real estate industry, photovoltaics and new energy vehicles are currently sunrise industries with relatively certain growth prospects. This not only attracts investors and cross-border players, but also a priority industry for local governments.

In the competition to seize the photovoltaic industry, the conditions offered by local governments can be described as generous. The most common is to build factories for enterprises, which can almost help enterprises save about half of their fixed asset investment costs. Local governments are extremely generous, whether they are industry-leading companies or cross-border newcomers.

in may 2023, the integrated production expansion announcement of component head enterprise jingke energy (688223.SH) attracted the attention of the industry. jingke plans to invest 56GW of silicon wafer, battery and component production capacity in Shanxi transformation comprehensive reform demonstration zone in four phases, with a total investment of 56 billion yuan.

This huge investment quickly attracted the attention of the SFC and sent a letter of inquiry. As of the end of the first quarter of 2023, Jingke's monetary fund balance was 17.617 billion yuan and its short-term loan was 12.631 billion yuan. The CSRC asked Jingke to explain the specific investment and financing plan of the project.

jingke replied that the total fixed asset investment in this round of expansion is about 32 billion yuan, including about 15 billion yuan of engineering construction investment and 17 billion yuan of equipment investment, plus about 24 billion yuan of working capital demand, the total investment is 56 billion yuan.

The government bears nearly half of the fixed costs. Jingke replied that according to the "Investment Agreement" with Shanxi Comprehensive Reform Zone, the Comprehensive Reform Zone will invest about 15 billion yuan to provide customized plant construction for the project. In other words, local governments are responsible for 47 per cent of fixed asset investment.

among the rest of the self-raised funds required, jingke expects to provide 9.821 billion yuan from 2023 to 2025. in addition, there is a loan credit line of about 30 billion yuan and the company's market value exceeding 130 billion yuan. equity financing will not be excluded in the future.

not only is the head enterprise like jingke supported by the local government, even if it is a small, little-known cross-border player in the industry, as long as it is to do photovoltaic, the local government is also flocking to it.

In January 2023, a cross-border photovoltaic company attracted the attention of the CSRC due to an investment that did not match its size. Shi Net Technology (301030.SZ) is an environmental protection company headquartered in Suzhou, Jiangsu Province. In the past, its main business was all kinds of pollution control equipment. However, in early 2023, it was announced that it had signed an investment agreement with the Administrative Committee of Ningguo Economic and Technological Development Zone in Xuancheng, Anhui Province to build an N-model Topcon battery project with an annual output of 24GW, with a total investment of no more than 11.2 billion yuan and a fixed asset investment of no more than 9 billion yuan.

As of the end of the third quarter of 2022, this cross-border company has total assets of only 3.275 billion yuan, total liabilities of 2.171 billion yuan, and monetary funds of only 0.4 billion yuan, which is far lower than the investment required for the project. The SFC therefore issued a letter of concern requesting the company to explain the basis, feasibility, construction plan and financial risk and liquidity risk of the investment funds.

Shijing Technology introduced in detail the source of resources for the first phase of 18GW in its reply: the planned investment is 7.5 billion yuan, of which the investment in fixed assets is 6.3 billion yuan. Among them, the plant infrastructure, mechanical and electrical facilities, and office facilities in the living area are all built by the government where the project is located. The government also provides subsidies for new projects, equipment purchase subsidies, rent subsidies, electricity subsidies and other subsidies for the project. The total amount of construction and subsidies is 4.43 billion yuan, accounting for 68% of the fixed asset investment required for the first phase and 60% of the total investment.

the project plans to raise 4 billion yuan by itself, including bank loan (1 billion yuan), equipment financing lease (1 billion yuan), financing (1 billion yuan) and establishment of special guiding fund (1 billion yuan). The only money Shi Jingke may need to spend is 0.35 billion yuan's own bank deposit.

according to the information learned by relevant investors and photovoltaic enterprises in "finance and economics", the local government support received by jingke energy and shijingke is very common in the industry. after some projects are invested by the government, "enterprises hardly need to spend much money".

However, the government's support for building factories is not a free subsidy. According to the "Finance and Economics Eleven", such funds are generally realized in conjunction with the preferential tax policies of local governments to attract investment.

Specifically, local governments will generally give photovoltaic companies "two exemptions and three halves" tax incentives, that is, the first two years of exemption from income tax, three years of halving the preferential policy of income tax. In actual implementation, enterprises still need to pay taxes first, and the government will return the reduced income tax. And through the government on behalf of the construction, equivalent to the early return of tax benefits for the construction of factories. In other words, the money actually comes from the tax benefits that the company has been reduced and implemented in advance, but for the company, it can significantly reduce the fixed capital investment in the initial stage of the project.

In addition to directly supporting the construction of factories, another way for local governments to support is to trade resources for industry. Local governments have new energy development indicators, which are scarce resources for power companies eager to expand new energy installations. In the process of competitive allocation bidding organized by local governments after subsidies retreat, bidding results are often determined according to supporting construction related industries.

It is a common requirement of local governments to support the development of new energy power stations according to the fixed asset investment quota.

for example, the Shanxi provincial energy bureau released in December 2022 the "Shanxi province 2022 support new energy industry development wind power photovoltaic construction scale evaluation results", the evaluation determined that 17 enterprises meet the arrangement criteria, of which 11 new energy industry chain, the arrangement scale of 2.76 million kilowatts. The 11 new energy industry chain enterprises, including 8 photovoltaic industry chain enterprises, have investment scope covering batteries, modules and tracking brackets. There are also two wind power industry chain enterprises and one energy storage industry chain enterprise. According to the different investment amount, the projects led or participated by these 11 enterprises have obtained corresponding new energy development indicators.

"Finance and Economics Eleven" learned from people familiar with new energy developers that the development indicators of new energy are scarce resources and cannot be sold directly. Through the development indicators obtained by investing in the construction of factories, industrial chain enterprises can build their own power stations first and then sell them to power generation enterprises to withdraw funds, which is often inseparable from the coordination and docking of intermediary parties. Or industrial chain enterprises reach cooperation with power generation enterprises in advance, industrial chain enterprises lead the investment and construction of factories, cooperative power generation enterprises strive for indicators, and then purchase component products of industrial chain enterprises.

with the new energy industry chain investment requirements supporting the development of indicators previously very common, now began to spread to other industries. A document obtained by Caijing Eleven shows that in January 2023, the Heilongjiang Provincial Development and Reform Commission pointed out in its reply to Beiyu Group that the first phase of the Heilongjiang Fishery Industrial Park project with a total investment of 1 billion yuan by Beiyu Group has been completed. During the "14th Five-Year Plan" period, it is planned to invest about 3.5 billion yuan to build other projects, in accordance with the principle that scenery resources follow the industry and follow the project, it was agreed to pre-arrange the construction scale of the market-oriented grid-connected "photovoltaic and fishery farming" project to 1 million kilowatts. In this development, new energy indicators are linked to fishery investment.

Liu Yiyang, deputy secretary-general of the China Photovoltaic Association, told Caijing Eleven that the hands of local governments must be restricted and controlled, and non-market factors must not be allowed to become the main cause of photovoltaic production expansion. In some places, the routine of exchanging resources for industries is still being used, and enterprises build factories locally in order to obtain power station indicators, which is not in line with the laws of the market and should be strictly prohibited.

Is the strong support from local governments sustainable? The industry is in a certain growth track, and local governments need to stabilize the economy and preserve employment, which makes it reasonable to support photovoltaic projects. But it is not just individual local governments who see this. When individual actions become collective actions, the rationality is reduced, and the risk of excess has become real.

An interviewed headPhotovoltaic company executives warned the "Finance and Economics Eleven" that when the industry enters an inflection point, if the government gives sufficient support, it can accelerate technological maturity and industrial development, but if the direction is wrong, the government's thrust may make the industry go to the other extreme.

03 Overseas markets: critical and more complex

At present, Chinese companies are absolutely leading in all aspects of the photovoltaic industry. The technology and capacity advantages of Chinese photovoltaic companies support the global energy transformation.

according to the data of the photovoltaic industry association, in 2022, the production capacity of Chinese photovoltaic enterprises in the four main links of polysilicon, silicon wafers, cells and modules will exceed 80% in the world, and the output will exceed 85%. Among them, silicon wafers are particularly prominent, with China's production capacity and output accounting for more than 97%.

Global PV production capacity and the proportion of Chinese products in the world in 2022

According to the data of the Photovoltaic Industry Association, in 2022, China's exports of photovoltaic products will still grow strongly, with a total export value of 51.25 billion billion US dollars, up 80.3 percent year-on-year. Among them, the export of module products is the largest, accounting for 82.6 percent, with the export volume reaching 153 GW. In contrast, China's new PV installations in 2022 are 87.41GW (corresponding to module demand of about 104 GW), and the international market demand is 1.47 times that of the domestic market.

The broad growth space in the international market, and the technology, capacity and cost advantages of Chinese photovoltaic companies all play an important role in digesting the currently expanding capacity. Once the international market is suppressed, it will aggravate the surplus situation of domestic enterprises.

In terms of export regions, Europe, which is mired in the energy crisis and accelerates the energy transition, is the largest market. In 2022, it accounted for 46% of China's total exports of photovoltaic products, a year-on-year increase of 114.9. Among them, the Netherlands, a transshipment country exported to Europe, is the largest Export destination.

the United States, in order to avoid tariff barriers, head component manufacturers have set up factories in Southeast Asian countries, from domestic imports of silicon wafers, batteries in Southeast Asia production components and then exported to the United States, which also led to the growth of exports of upstream products such as silicon wafers and batteries, especially battery exports increased by 130.7 year-on-year. According to data from the Photovoltaic Industry Association, this trend continued in the first half of this year. The proportion of exports of silicon wafers and cells has increased, and they are mainly exported to Southeast Asian countries. Southeast Asian countries have also quickly become the main source of imported photovoltaic modules from the United States, and behind this is mainly the production capacity of Chinese photovoltaic companies in Southeast Asia.

Behind this change is that Chinese photovoltaic companies are facing a more complex export situation.

The war between Russia and Ukraine has profoundly changed the global energy pattern, accelerated energy transformation, and more attention has been paid to energy security. In the past, Europe relied on Russia's oil and gas resources, but after the acceleration of energy transformation, China's dominant position in the photovoltaic and new energy vehicle industry chain has become more noticeable.

Europe, the United States and India are the most important markets in the world. Now they are constantly setting up trade barriers to China's export of photovoltaic products and striving to build their own photovoltaic industry chain. These barriers and localization efforts will have an impact on the export prospects of China's photovoltaic products in the future.

Trade barrier policies implemented by some economies in 2022, involving overseas markets such as the United States, the European Union, and India

The International Energy Agency's "Photovoltaic Global Industry Chain Report" published in July 2022 believes that the concentration of photovoltaic supply chains brings vulnerabilities and poses potential challenges to the energy transition. To date, globally, policies to support photovoltaic power generation have focused on increasing demand and reducing costs. However, resilient and sustainable supply chains are also needed to ensure timely and cost-effective delivery of solar panels on a global scale. Therefore, governments need to turn their attention to ensuring the security of solar PV supply as an integral part of the clean energy transition. Countries should assess the vulnerabilities and risks of their domestic solar PV supply chains and develop response strategies and actions.

The U.S. Inflation Reduction Act (IRA) is working to build a domestic PV industry chain. In August 2022, US President Biden signed the "IRA". According to the bill, the United States will invest $369 billion in energy security and climate change in the next 10 years. Among them, at the photovoltaic manufacturing end, IRA has subsidies for the entire photovoltaic industry chain. By 2029, IRA will subsidize 7 cents/watt for modules, 4 cents/watt for batteries, 12 dollars/square meter for silicon wafers and 3 dollars/kg for polysilicon materials.

IRA subsidy for photovoltaic manufacturing

according to the report "insight into the us solar energy market in the second quarter" jointly released by the us solar energy industry association (SEIA) and wood Mackenzie in June 2023, since the follow-up policies of the united states require not only localized production of components, but also localization requirements for upstream raw materials, and currently the united states does not have battery capacity, it is expected that this will lead to investment in the battery field and further promote the localization of the photovoltaic supply chain, it is expected that by 2026, the domestic battery cell production capacity in the United States will grow to 20GW, and the local module production capacity will reach 60GW.

U.S. Battery and Module Capacity Growth Forecast

India is the only 10GW PV market outside of China and the United States. More than 80% of India's PV modules are imported from China. In order to get rid of the status quo, the Indian government has issued a series of support policies, including the establishment of trade protection policies and the formulation of subsidy policies for the local photovoltaic manufacturing industry.

The Government of India released the Manufacturing Incentive (PLI) scheme in April 2021, which plans to invest 45 billion rupees over five years to support the establishment of a 10GW PV integrated manufacturing plant. In September 2022, India increased the investment in the PLI program from 45 billion rupees to 240 billion rupees, vigorously promoting the localization of photovoltaic products.

The European Commission's Net Zero Industry Bill proposes that the PV industry will "promote investment, stimulate demand, promote manufacturing and project licensing, and upgrade and retrain the European workforce".

Under the complex geopolitical situation, the subsidy war has begun, and the international photovoltaic market will no longer be a pure economic competition. According to Bloomberg New Energy Finance, after the IRA's tax credits for each link of photovoltaics are superimposed, theoretically the entire production from polysilicon to modules can be subsidized by about 17 cents, which is basically close to China's current actual production costs.

BP chief economist Dai Sipan told the "Financial Eleven" that it is expected that other countries will introduce more policies similar to the US "Inflation Reduction Act. There are two reasons: first, the speed of energy transition is not fast enough, and more support policies are needed to promote development. Second, governments will play an increasingly important role in the process of energy transformation, and governments and enterprises have realized this.

04 From export products to export capacity?

the international energy agency said in the "renewable energy 2022-2027 forecast report" released at the end of 2022 that the new policies of the United States and India will diversify photovoltaic manufacturing. although China will still dominate this industry, China's share of global production capacity will slowly decrease from the current 80%-95% to 75%-90% by 2027. if the influence of geopolitics and local manufacturing expands, this could be reduced to 60 to 75 per cent. The report also warns that investment in the global photovoltaic supply side has significantly exceeded demand, and China's capacity utilization rate may drop to half of the current level.

Forecast of PV capacity and proportion of output from 2021 to 2027

Source: IEA

How can Chinese companies respond to this change?

In the short and medium term, the cost and technical advantages of China's PV are still difficult to shake.

In the component sector, where countries are making efforts, according to Wood Mackenzie's analysis, the cost of components made in China is nearly 60% lower than those made in the United States and Europe, with raw material costs contributing the most. Without subsidies, components made in Europe, the United States and India would be at a significant disadvantage compared to China.

Cost analysis of PV module production in various countries

Source: Woodmac

Tan Youru, a financial analyst at Bloomberg New Energy, said that the EU bill requires public procurement to give priority to locally manufactured silicon rods, wafers, cells and components, hoping that photovoltaic products manufactured in the EU can meet at least 40% of the demand in the future. However, the high cost of local PV manufacturing in Europe can easily exceed the 10% price premium threshold required by the Net Zero Industry Act. Therefore, combined with Europe's current energy demand and low-carbon transition target planning, it is expected that China's PV exports to Europe will remain relatively optimistic in the short term. In the future, as the EU will implement a broader low-carbon certification policy, it may put forward higher requirements for Chinese companies to track and certify the carbon footprint of the supply chain and reduce carbon emissions from production.

In the face of emerging trade barriers, Chinese companies are cautiously considering going overseas.

Li Junfeng, chairman of the Renewable Energy Professional Committee of the China Energy Research Association, believes that in the context of marketization, the distribution of industrial chains in different countries is the market choice of industrial division of labor, and globalization is the rational division of industry in the context of marketization. However, if the industry chain security issues are politicized and the market rules are not followed, all companies in the world must be vigilant. Even in the context of marketization, it is not recommended to put eggs in one basket. In the future, Chinese photovoltaic enterprises should be more active in the world layout, to win the global market in the way of global industrial chain layout. Chinese photovoltaic enterprises should learn from Japanese, German and American enterprises, such as Toyota, Siemens and DuPont.

Li Zhenguo told Caijing Eleven that the demand for photovoltaics in various countries is increasing, and the corresponding policies of various countries to support the local photovoltaic manufacturing industry will also become a trend. In this case, going out has become a necessary thing to do. He also admitted that the complexity of building factories overseas is increasing. There is still some uncertainty as to what impact the support policies of Europe, the United States and other countries will have in the end.

The person in charge of the market of a domestic photovoltaic manufacturing company told Caijing Eleven that he is not worried about competition in the domestic market, but more worried about changes in the international market environment. At present, the EU's policy on China's PV will not be as tough as that of the United States. Chinese PV companies are welcome to cooperate in building factories in the past, but joint ventures in the EU face many challenges to meet local regulatory requirements, and Chinese companies also need to be cautious.

Lu Jinbiao, deputy director of the Expert Committee of the Silicon Industry Branch of the China Nonferrous Metals Industry Association, told Caijing Eleven that many companies are now going abroad for research, but the decision-making is difficult. It is far better to avoid the speed of setting up factories in Southeast Asia in order to avoid the "double reverse"., Because I don't know if I can get subsidies after I go. The market in the United States is so large, and its subsidies are so large that the cost is very high, and the production cost in China is still falling.

05 Who is the most dangerous under excess?

Trade barriers in the international market will have an uncertain impact on the demand side in the long run, but it is not obvious in the short term. For the photovoltaic industry, the current risk of overcapacity is more concentrated in the short and medium term.

A number of industry insiders told Caijing Eleven that the problem of industry surplus is not big and there is no need to worry too much. The reasons for supporting this confidence mainly include: 1. looking at the historical development of the photovoltaic industry, the overall oversupply is the norm; 2. appropriate surplus can stimulate competitive power, prompting the industry to continuously reduce costs and upgrade technology. The current new production capacity is mainly based on new technology routes, not homogenization and low-level replication; the 3. photovoltaic industry has a bright future, and the future demand will rise rapidly. The future development of the industry will digest the current overcapacity. Overall, the impact of this round of surplus will not exceed 2012 and 2018.

But the extent of the impact of excess on different links and companies varies.

From the perspective of each link, silicon materials are the most impacted, followed by silicon wafers. The cost control capabilities of these two links will become an important support for the survival of enterprises. Battery chip link, the new expansion capacity mostly focuses on the N-type new technology route, excess pressure is mainly concentrated in the stock P-type capacity. The component link has been very internal volume, product homogeneity is serious, but the fixed investment per unit of production capacity in this link is not high, the risk is relatively controllable. Wang Jian, director of the new energy department of Jibang Consulting, pointed out that in the component link, component enterprises with refined supply chain management and channel strength have real competitive strength. In the future, the market will become more concentrated and second-and third-tier small enterprises will be eliminated at an accelerated pace.

The greater the upfront fixed investment in capacity, the greater the pressure on excess capacity. According to the "Finance and Economics Eleven", if only equipment investment is considered, the current investment of 1GW in the four links of silicon materials, silicon wafers, batteries and components is about 0.26 billion yuan, 0.163 billion yuan, 0.17 billion yuan and 0.065 billion yuan respectively. Among them, the high investment in batteries is due to the fact that the new production capacity is mainly invested in N-type technology, and the cost still has room for decline.

Investment in each link of photovoltaic industry chain

Lu Jinbiao, deputy director of the silicon industry expert group of the China Nonferrous Metals Industry Association, told Caijing Eleven that the silicon material link has large initial investment and limited production flexibility, and can't stand the surplus. He said that there is no obvious surplus of silicon this year, and some new enterprises are not raising production as fast as expected. The total output is expected to be about 1.5 million tons (equivalent to 600GW). The real surplus will occur next year, especially in the first quarter.

According to the statistics of the Silicon Industry Branch, the silicon production capacity will reach 2.852 million tons by the end of 2023. Of the new production capacity, about 750000 tons will be put into production in the fourth quarter. As this part of the production capacity will take time to climb, assuming that production will not be expanded in 2024, the 2024 annual silicon production will reach 230~2.5 million tons (equivalent to 920GW-1000GW). In December 2023, the monthly silicon output may reach 200000 tons. Considering that all enterprises need to clear their stocks at the end of the year, if there is another off-season in demand in the first quarter of next year, the contradiction between supply and demand will be very prominent.

In the first half of 2023, silicon prices plummeted. There are market rumors that due to the impact of price cuts, some new projects have been delayed and old projects have begun to stop for maintenance. Lu Jinbiao said that these were mostly planned arrangements and were not affected by price cuts. Overall, the projects expected to be put into production before the end of the year will proceed normally. Shi Zhenwei, an analyst at SMM's silicon-based industry chain, also believes that these projects have already invested a lot in the early stage and should take the last step. The price reduction may affect the projects to expand production next year. "It is estimated that more than 800,000 tons of production expansion plan will be carried out normally in 2024. For other projects, it seems that substantive promotion actions such as design entrustment, main equipment ordering and on-site civil engineering have been suspended at present," Lu Jinbiao said.

The return on investment logic and production characteristics of the silicon industry are different from those of other segments. An executive of a head photovoltaic company told Caijing Eleven that silicon is a large chemical industry, and its investment logic is different from other links. Its return period is not three to five years, but five to ten years. At the same time, once silicon production starts, if it is shut down again, the climbing cost will be higher, and stable production should be maintained as far as possible. Therefore, there is a surplus of silicon, which will be more stressful than other links.

He also said that the "double reverse" and price competition in 2012 made a group of silicon companies withdraw from the scene may be repeated, but the intensity should not be as intense as before. In the current market environment, silicon companies may also respond by limiting production, downtime and maintenance. In contrast, other links are less affected by excess, capacity adjustment is more flexible, and component links are least affected.

Silicon price trend

Currently, silicon prices have fallen back to 2019-2020 levels. According to the data of the Silicon Industry Branch on July 5, 2023, the average transaction price of single crystal dense materials is about 65700 yuan/ton. This has touched the total cost level of many enterprises. Lu Jinbiao said that at present, the general cost level of silicon material link is cash cost 50000 yuan/ton, production cost (including depreciation) 60000 yuan/ton, and total cost (including period cost) 70000 yuan/ton. Shi Zhenwei said that at present, the total cost of first-line enterprises is also 50000 yuan/ton, and there is not much room for cost reduction for silicon materials.

Changes in average gross profit margin of sample enterprises in various photovoltaic links

After the price of silicon materials returns to normal, the competitive differentiation of the silicon wafer link will be more obvious. EnergyTrend data show that on August 2, 2023, the average transaction price of M10, G12 silicon wafers were 2.95 yuan/piece, 3.9 yuan/piece, compared with January 11, respectively, down 0.65 yuan/piece, 0.9 yuan/piece.

a leading silicon chip enterprise executives told the "financial eleven", in the past two years, central, Longji, the two silicon chip leader expansion is relatively conservative, and with the help of capital, many relatively jerky players enter. Some enterprises are not strong in endogenous competitiveness. During the upward period of the industry, they can tell stories to the capital market. Even if they buy silicon materials, they can make money without production. However, when the price of silicon materials falls, it is time to test their product strength and cost control ability.

Silicon wafer manufacturing is mainly divided into two parts: pulling crystal and slicing. Some people from relevant enterprises said that the silicon wafer link has been surplus at present, and the crystal pulling link has always had a large capacity, and there are many small silicon wafer factories that can provide this kind of processing service. Such small factories have low investment costs and relatively flexible operation. When there is no business, they will shut down and do other things. Although this link is surplus, the consequences are not serious.

06 Next-generation photovoltaic cell technology, who is the king?

The iteration of the technical route of the battery link is another major driving force for this round of expansion. The battery link is at the node of the transition from the P-type battery to the N-type battery. Previously in the silicon wafer link, focus on single crystal technology Longji is to seize the opportunity of technology conversion to become the industry leader, the current cross-border and expansion of many enterprises, but also.Hope to reproduce this anti-super in the battery link.

according to the 2022 annual data released by the national photovoltaic and energy storage empirical test platform (Daqing base) in July 2023, among the different technical route component products, the n-type TOPCon component has the highest power generation capacity, 0.5 and 2.24 higher than IBC and PERC components.

EnergyTrend data show that compared with January 11, 2023, the average price of PERC battery decreased from 0.8 yuan/W to 0.74~0.75 yuan/W on August 2, while the average price of M10 single crystal TOPCon battery was about 0.8 yuan/W on August 2. the reason for enjoying the premium is that TOPCon battery has higher conversion efficiency.

Therefore, the current new battery and component capacity are basically invested in N-type high-efficiency batteries. The photoelectric conversion efficiency of PERC cells is approaching the theoretical limit of 24.5 percent, and the industry is beginning to explore the next generation of battery technology. The N-type battery is relatively mature and the development path is clear, among which TOPCon is the main direction of expansion.

2022 is regarded by the industry as the first year of the development of N-type battery technology. According to Infolink data, by the end of 2022, the landing TOPCon and HJT battery capacity will reach 81GW and 13GW respectively, and the entire battery link capacity will reach 590GW that year. By the end of 2023, TOPCon's nominal production capacity is expected to reach 477GW, which will be equivalent to PERC battery capacity.

according to the statistics of the photovoltaic industry association, by the end of 2023, the proportion of n-type battery capacity of jingke, jingao, trina and chint is expected to reach 70%, 55%, 53% and 80% respectively. In the module products released by photovoltaic enterprises in the last three Shanghai photovoltaic exhibitions, the proportion of N-type modules is 7.4, more than 60% and more than 90% respectively, and the switching speed is obvious.

a market analyst of a battery company told Caijing Eleven that only from the announcement caliber, TOPCon's planned production capacity has exceeded 1000GW, and this figure is still being updated. Among them, about 470 ~ 500GW is expected to be put into production by the end of 2023.

Although the enthusiasm for expanding production is high, it is difficult for new production capacity to move towards mass production. "According to our observation, many of the TOPCon production capacity expected to be put into production in June and July this year did not meet expectations. TOPCon battery has a long process flow. Battery enterprises not only need to debug equipment together with different equipment manufacturers on the production line, but also face many difficulties in the layout planning of the production line, the control of production rhythm in each link, and even the training of skilled workers. To achieve a reasonable yield and efficiency is not as simple as imagined." The above analysts said. He pointed out that this year's TOPCon module shipments are expected to be about 120GW, and the battery output is about 140 ~ 150GW, while the 400 GW capacity completed by the end of this year will squeeze the P-type battery when the mass production scale comes up next year.

Jingke is currently the leading company in TOPCon's capacity transformation. At the end of May 2023, Jingke released a huge expansion project, which plans to invest 56 billion yuan in two years to build a total of 56GW of integrated production capacity in four phases. Li Xiande, chairman of Jingke, published a signed article, proposing to "fill up the atmosphere of a tough battle" and "any feast is doomed to usher in a grand battle".

Longi has always adhered to the principle of "no lead, no expansion", although the TOPCon production capacity also has a layout, but the expansion is not large. Longji Green Energy Secretary said that the current surplus is phased and structural, so there is no contradiction between overcapacity and capacity expansion. The company's production expansion plan will be flexibly implemented according to market supply and demand changes and rhythm to meet the next industrial cycle.

Some Longji people also told Caijing Eleven that whether TOPCon is a long-life technical route has yet to be verified, and it may also face the risk of being replaced by HJT or other technical routes, so Longji is also laying out new technical routes for research and development.

Lu Jinbiao believes that as long as the expansion of the photovoltaic manufacturing industry is based on technological progress, there is no worry about overcapacity. What I fear most is low-level large-scale replication under the promotion of capital and all parties. For example, it is not committed to improving the efficiency of photoelectric conversion, but is marked with new differences in size. Mainstream enterprise products do not rely on technology and brand reliability to enter the market, but are divided into camps according to specifications and sizes, and set up obstacles to each other. The specifications of intermediate products are varied, leaving upstream and downstream and supporting enterprises at a loss.

Shi Zhenwei said that after this round of reshuffle, the degree of vertical integration of the enterprise's upstream and downstream extension layout may be deepened. Integration can help enterprises smooth the risk of cyclical fluctuations and improve their viability. From the capacity planning of leading enterprises, the trend of supplementing missing links and expanding weak links is more obvious.

Li Xiande, chairman of Jingke Energy, pointed out that integration has the advantages of scale effect, quality control and traceability, but in the final analysis, it is for the sake of cost. Cost and efficiency cannot be compared with others. Integration will only give birth to heavy asset burden with low capacity utilization rate.

the production capacity of some leading enterprises at the end of 2022 and the expected production capacity at the end of 2023

The head of the market for a second-tier photovoltaic manufacturing company told Caijing Eleven that the current technology iteration is faster than any previous period. Ten years ago, depreciation of photovoltaic equipment was generally calculated by ten years, but now it is calculated by six years. The technology update cycle of silicon chip and battery chip is getting shorter and shorter. Photovoltaic enterprises to stay ahead, it is necessary to continue to build new production lines. Some small and medium-sized enterprises that cannot keep up with the pace may be eliminated.

Can Topcon batteries revolutionize the life of PERC batteries and lead the next era? Or is it just a transition, and the higher conversion efficiency of heterogeneous section (HJT) batteries is the real next era, which has yet to be verified by the market.

Fu Bo, Director of Global Photovoltaic Market of DuPont TEDLAR Business, told Caijing Eleven that the photovoltaic industry is still in the early stages of new technological changes, the penetration rate is approaching an inflection point, new products will emerge one after another, and new production capacity will continue to expand. The new round of production expansion will give full play to the advantages of the integrated manufacturing model, but once the new technology leads to change, it will break the industrial chain pattern again.

Xu Xiaohua, chairman of Huasheng New Energy, who is regarded as HJT Unicorn, told Caijing Eleven that the equipment and material supply chain of heterojunction technology have been industrialized, but the supply of equipment and materials is relatively limited, and there will be no expansion of several hundred GW a year like Topcon technology. It is expected that the expansion scale of production in 2024 will be 50-80GW, when the competitiveness of heterojunction products will begin to appear.

If Topcon becomes mainstream in the next few years, it will be the PERC production line that faces the crisis of excess elimination. At present, PERC batteries still have a cost advantage. If heterogeneous cells enter the market faster, the current expansion of the main TOPCon capacity may face the risk of excess.

This is the exciting part of the PV industry. In the face of the global market, technology is constantly iterating, the market is constantly expanding, there are always opportunities, no one can dominate the country forever.

this article comes from wechat public number "finance and economics eleven" (ID:caijingEleven), author: more than eleven, 36 krypton is authorized to publish.