The new policy will curb new capacity, but it will have a limited effect on existing capacity. The solution to PV overcapacity with a visible hand is still being discussed, and it is difficult to reach a consensus

Text: "Caijing" reporter Zheng Hui, Xu Peiyu editor, Mark

On November 20, the Ministry of Industry and Information Technology (MIIT) issued an announcement to revise the "Photovoltaic Manufacturing Industry Standard Conditions" (hereinafter referred to as the "Standard Conditions") and the "Interim Measures for the Management of Photovoltaic Manufacturing Industry Standard Announcements". The Normative Conditions were originally issued in 2013 and have been revised three times. The latest revision of the "Specification Conditions" further increases the technical indicators of each link, emphasizing the monitoring of operational technical indicators and the sampling inspection of quality indicators, as well as the disclosure of carbon emissions in the whole life cycle of photovoltaic products. The guiding role of the "Normative Conditions" will help raise the threshold of the industry, further optimize the industrial structure, and promote the high-quality development of the photovoltaic industry. Industry insiders pointed out that the new version of the "standard conditions" can restrict the further expansion of new production capacity in the form of guidance, but the effect on the stock of excess capacity is limited. Overcapacity in the PV manufacturing industry has been going on for many years, and the investment boom in the past two or three years has exacerbated the imbalance between supply and demand in the PV industry. Before the middle of 2024, the market consensus is that the invisible hand of the market should be used to regulate the overcapacity of PV, so that the market can survive the fittest. However, as the price of the entire photovoltaic industry chain continues to fall, many links have fallen below the cash cost, that is, the selling price is not enough to cover the cash paid by enterprises for production. Some PV business people, relevant institutions, and industry experts have called on the competent authorities to formulate policies to resolve PV overcapacity, and combine self-discipline with other disciplines. However, the introduction of mandatory policies is not easy, the photovoltaic manufacturing industry is a large number of subjects, full competition, highly market-oriented industry, with visible hands to regulate, will inevitably sacrifice the interests of some enterprises, the regulatory level needs to consider how to take into account efficiency and fairness. At present, it is more industry associations that are taking action. In the past month, the Photovoltaic Association has organized a number of "self-discipline" meetings for enterprises in all links. Polysilicon and wafer production has also begun to decrease. A number of industry insiders interviewed by Caijing believe that the policy can play a certain guiding role, but the self-help of enterprises based on market rules, especially the strategic adjustment of leading enterprises, is the fundamental way to alleviate the current plight of the photovoltaic manufacturing industry.

The new policy raises the industry threshold and is expected to curb new production capacity, and the "standard conditions" put forward higher requirements for the project establishment, process technology, comprehensive utilization of resources, and energy consumption of photovoltaic manufacturing enterprises. Compared with the draft released in July, some indicators in some links are more stringent. For example, the reduction and comprehensive power consumption of polysilicon new construction and reconstruction and expansion projects are less than 40 kWh/kg and 53 kWh/kg, respectively, while the requirements of the previous draft for comments are 44 kWh/kg and 57kWh/kg, respectively. According to the "China Photovoltaic Industry Development Roadmap (2023-2024)" released by the China Photovoltaic Association, the average comprehensive power consumption of polysilicon enterprises in the industry in 2023 will be 57kWh/kg, and it is expected to reach 53kWh/kg by around 2028. In the wafer sector, the official version of the Specification Conditions proposes a higher threshold for new construction, renovation and expansion wafer projects than the Consultation Paper, requiring water consumption to be less than 540 tons per million wafers and a reclaimed water utilization rate of more than 40%. According to the roadmap, the water consumption of the slicing process will be 870 tons per million pieces in 2023, and it is expected to drop to less than 800 tons per million pieces in 2030. Similar to silicon wafers, the cell sector also has higher requirements for new construction, renovation and expansion projects, with water consumption of N-type crystalline silicon cells required to be less than 360 tons/MW and the reclaimed water utilization rate to be higher than 40%. According to the roadmap, the water consumption of N-type TOPCon cells will be 600 tons/MW in 2023, and it is expected to still exceed 450 tons/MW by 2030. In other words, if the guidance of the "Specification Conditions" is followed, it will be difficult for new production capacity to appear for a long time in the future. However, the "Normative Conditions" is a guiding document to encourage and guide the technological progress and standardized development of the industry, and does not have the pre-emptive and mandatory administrative approval. However, Lv Jinbiao, deputy director of the silicon industry expert group of the China Nonferrous Metals Industry Association, told Caijing that in the second half of each year, the Ministry of Industry and Information Technology will announce a list that meets the "standard conditions", and the list of reference to the new version of the "standard conditions" may be released in the second half of next year, and financial institutions will refer to this list. At the same time, Lv Jinbiao pointed out that the "standard conditions" stipulate that projects with a start-up rate of less than 50% throughout the year cannot apply to be included in the standard list, and projects that have entered the announcement list need to provide self-inspection reports on a regular basis, and those that do not meet the standard conditions will be revoked from the announcement qualification. But on the other hand, in the case of imbalance between supply and demand and collective losses, the industry is advocating to alleviate the contradiction between supply and demand by reducing the existing capacity load.

Advanced production capacity has become the main body of overcapacity, and the visible hand must enter the market? At present, the nominal production capacity of the main photovoltaic industry chain, namely silicon materials, silicon wafers, cells, and modules, exceeds 1,000GW (gigawatts), and according to the latest forecast of InfoLink, a third-party professional organization in the photovoltaic industry, the global photovoltaic market demand is between 469GW and 533GW. Looking ahead to 2025, the year-on-year growth rate from 2024 may only be 5%-7%. In mid-2023, the industry began to pay attention to the issue of overcapacity, and some companies emphasized that "advanced capacity is not overcapacity". At that time, the PV technology route was iterating from P-type to N-type, and the N-type production capacity represented by TOPCon technology had not yet achieved large-scale supply. However, due to the fact that the production capacity has been increased too much and too quickly, the production capacity of TOPCon cells has exceeded 800GW so far, accounting for the vast majority of the battery production capacity. Looking at the top seven PV companies in 2023 – JinkoSolar, LONGi Green Energy, Trina Solar, JA Solar, Tongwei Co., Ltd., Canadian Solar, and Chint New Energy – the total shipment target for 2024 is about 497GW-552GW, which is close to or even exceeds global module demand. The imbalance between supply and demand has led to the continuous decline in prices in all links of the photovoltaic industry chain, and enterprises have generally fallen into losses. In the first three quarters of 2024, among the leading photovoltaic companies, LONGi Green Energy (601012. SH) had a net loss of 6.536 billion yuan, TCL Zhonghuan (002129.SZ) had a net loss of 6.478 billion yuan, Tongwei (600438.SH) had a net loss of 4.77 billion yuan, JA Solar (002459.SZ) had a net loss of 857 million yuan, and Trina Solar (688599.SH) had a net loss of about 755 million yuan. The research report of China Securities Construction Investment pointed out that due to the continuous decline in the price of the industrial chain, the operating rate of the industry has declined rapidly, and the operating rate of production capacity in different brands and different regions has shown huge differences, and the operating rate is significantly differentiated. Assuming that the growth rate of end-user demand is 20% and the second third of the utilization rate of each link is phased out, the clearing time of polysilicon and cells may be from the end of 2025 to 2026, the clearance time of modules may be 2026, and the clearance time of wafers may be 2027. According to Caijing, although many small and medium-sized enterprises with poor qualifications have withdrawn, there are still many enterprises that still insist on production in the case of continuous negative operating cash, on the one hand, they want to stay at the table, and even want to occupy more markets, on the other hand, because of the deep involvement of the local government, the development of photovoltaic projects is tied to the government's performance, and it is not easy to shut down. Without the intervention of external forces, clearing out excess PV capacity will be a long process. The photovoltaic industry association has held several meetings to discuss ways to break the low-price involution. An earlier meeting was held in May 2024, when the China Photovoltaic Industry Association held a symposium, proposing to encourage industry mergers and acquisitions and smooth the market exit mechanism; strengthen the crackdown on vicious competition in sales below cost prices; Ensure the stable growth of the domestic photovoltaic market, explore supporting the application of advanced technologies through demonstration projects, and transform the situation of winning bids at low prices. At the end of August, the China Photovoltaic Industry Association organized a "Symposium on the Bidding Price Mechanism for the Construction of Photovoltaic Power Stations". The participants recognized that the current industry-wide loss situation is not conducive to the sustainable and healthy development of the photovoltaic industry, and called on photovoltaic manufacturers to fully realize their main responsibility for solving the current industry dilemma and put an end to vicious competition. However, judging from the subsequent price trends, the lack of consensus and appeals of the implementation subjects have had little effect. In early October, there was even an ultra-low bid price of 0.53/W in module bidding. According to Caijing, module manufacturers were optimistic about the annual installed demand in the first half of this year, and the operating rate was high in the second quarter. On the other hand, the decline in upstream wafer prices has also been transmitted to the module side. On October 14, the China Photovoltaic Industry Association organized 16 leading enterprises in the four links of the photovoltaic industry chain to hold a symposium on preventing "involution" vicious competition in the industry. Four days later, the association announced the cost price of PV modules: the final production cost of PV modules (excluding transportation and miscellaneous expenses) is 0.68 yuan/W, excluding depreciation, and the final module production cost (excluding transportation and miscellaneous expenses) is 0.68 yuan/W, excluding depreciation. The association stressed that winning the bid below cost violated relevant laws and regulations. At present, the price of PV modules has risen slightly, but the actual mainstream delivery price to centralized power stations is still around 0.65 yuan/watt, and the price distribution of conventional modules in distribution channels is relatively scattered, about 0.66 yuan/watt to 0.7 yuan/watt. An industry insider pointed out that the current price is in a stalemate stage, and the sustainability is difficult to judge, if it rises to a certain level, some excess capacity may resurge, which is not conducive to complete clearance.

According to Caijing, the industry is hotly discussing two policy directions to limit photovoltaic production capacity: one is to set thresholds with energy consumption and other indicators to control the operating rate of production capacity, of which silicon materials and silicon wafer crystal pulling will be the key considerations. The second is to refer to the OPEC organization in the oil industry to set up a photovoltaic OPEC to coordinate production capacity, and allocate the output quota of each enterprise according to multiple factors such as market demand and production capacity. Guiding the high-quality development of the industry by setting energy consumption thresholds is a way to resolve overcapacity in the manufacturing industry. Lv Jinbiao told Caijing that there are fewer than 20 companies in the polysilicon sector, and the market is relatively concentrated, making supply and demand more transparent and predictable. Moreover, the energy consumption of polysilicon production is relatively the largest in the photovoltaic industry chain, and there can be clear data on the energy consumption index as a reference for production limiting, while it is difficult to find a clear starting point for other links, except for the silicon wafer crystal pulling link, which has similar characteristics. Even the regulation of the polysilicon sector is facing certain difficulties. Lv Jinbiao mentioned that in recent years, the new expansion projects are all 50,000-ton level technology platforms, in strict accordance with the new norms and guidelines, if you want to limit production by tightening the index, it is not in line with the continuity of the policy, and it is difficult to decide the project to start and stop production through the slight difference in the index. The advantage of the introduction of policies is that it can give the industry a guide, and the indicators for future expansion will be tightened, but if you want to control the stock capacity, you still need to adjust your strategy and reduce production, especially the leading enterprises. "Now we have reached the stage of fighting for cash flow, and the cost advantage of leading enterprises is difficult to reflect." He said. According to Caijing, the current production capacity of polysilicon, that is, polysilicon, is about 2.65 million tons, and the overall operating rate has dropped to below 60%, and another about 880,000 tons of production capacity has been completed but delayed. At present, the price of high-quality N-type polysilicon is around 40 yuan/mt, while the better tax-included cash cost of leading enterprises is 41 yuan/mt to 42 yuan/mt, which means that even the high-quality production capacity of leading enterprises is not optimistic. "At present, the polysilicon inventory exceeds 300,000 tons, and tens of billions of cash flows are out," added Lu. In the past month, the Photovoltaic Association has organized a number of "self-discipline" meetings for enterprises in all links. Polysilicon and wafer production has also begun to decrease, but this is more based on market factors. At present, Yunnan, Sichuan and other places have entered a dry period, and local electricity prices will be raised. This factor has become an opportunity for leading enterprises to reduce production. In general, June to October is the wet season, and November to May of the following year is the dry and flat period. Shi Zhenwei, an analyst at SMM, predicts that polysilicon production will drop to just over 110,000 tons in November and may further drop to 90,000-100,000 tons in December. Shi Zhenwei wrote an article revealing that in mid-November, more than 20 wafer companies held an online industry self-discipline meeting, and a leading company took the lead in lowering the operating rate, from 40% planned at the beginning of the month to about 30%, and it is expected that domestic wafer production will fall below 40GW in November. According to market feedback, the meeting initially discussed the estimation of the total demand of the wafer market in 2025 and the allocation plan for the production reduction quota of the corresponding wafer enterprises, but did not reach an agreement on the "self-discipline" of production scheduling, and wafer companies may continue to meet and discuss in the near future. In addition to the regulation of energy consumption indicators, there are also views that it is necessary to establish a photovoltaic capacity control organization similar to the Organization of the Petroleum Exporting Countries (OPEC) to control the output of the entire industry chain. Those who hold this view point out that if the competent authorities of the photovoltaic industry or industry associations can take a stronger attitude towards photovoltaic companies, they can balance the output of the whole industry. OPEC, established in September 1960, now has 12 member countries and owns 79.1% of the world's proven crude oil reserves. OPEC's goal is to coordinate the oil production of its member countries to stabilize oil prices, thereby safeguarding oil revenues for oil-producing countries. There are two reasons why OPEC operates relatively effectively: first, its impact on international oil trade is large enough; Second, Saudi Arabia, as the leader, has better achieved OPEC's internal output control. However, there has been a great debate about whether OPEC is a monopoly organization, and if Chinese photovoltaic companies want to establish an OPEC-like organization, they will also face questions at home and abroad about whether they are suspected of monopoly. Article 17 of China's Anti-Monopoly Law expressly prohibits competitive undertakings from entering into monopoly agreements that limit the quantity of goods produced or sold. Unlike the high concentration of oil producers, the market concentration of the photovoltaic industry is relatively low, and there is no leader like Saudi Arabia who is willing to suffer small losses to maintain the overall situation. According to Caijing, the solution to PV overcapacity with visible hands is still being discussed, and it is difficult to reach a consensus for the time being.

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