Introduction: One article takes you through the major trends in the photovoltaic industry for next year!
This article was originally a casual note during my discussion with Mr. Li Xianshou (Note: Mr. Li Xianshou is the chairman of Realtek Solar and a legendary figure in China’s photovoltaic industry; his younger brother, Mr. Li Xiande, is the chairman of another photovoltaic listed company, JinkoSolar). Unexpectedly, it drew everyone’s attention and sparked discussions.
After being sorted out and re-edited by Wang Shujuan, the founder of “Zhihui Photovoltaic”, it is published here for the second time. The author hereby clarifies that the core idea and logical relationship to be expressed in this article are:
In 2018, the global demand for photovoltaic power slowed down due to factors such as the decline in subsidies in China, the 201 anti-dumping and countervailing duties in the United States, and the reduction of the FIT subsidy policy in Japan.
In view of this, the upstream photovoltaic manufacturing industry will undergo a major reshuffle. Similar to the situation in 2012, after this reshuffle, the installation cost per watt of photovoltaic power has dropped significantly, bringing the photovoltaic industry into a major cycle of grid parity.
In regions with better resource conditions, photovoltaic power can even become the cheapest energy source locally (currently, the lowest international photovoltaic electricity price has reached 1.786 cents per kWh, equivalent to 0.12 yuan per kWh).
With the advent of grid parity, the photovoltaic industry will no longer be severely affected by subsidy policies, and its development will tend to stabilize. At this point, the photovoltaic industry will give rise to truly leading enterprises.
After achieving grid parity, the scale of the photovoltaic industry will differ by several orders of magnitude from its current situation, and leading enterprises will have the potential to reach a market value of hundreds of billions.
Regarding the major trends in the photovoltaic industry for next year, I have the following predictions.
- Silicon material stage: The price war will be extremely fierce
The expansion of silicon material production is severe, but the demand has decreased.
In 2018, 50-micron diamond wire will become mainstream, and the number of wafers produced will further increase. The demand for silicon material per unit quantity of silicon wafers will significantly decrease. Just the transformation of 40-gigawatt polycrystalline silicon wafers to diamond wire will reduce the upstream demand for silicon material by more than 40,000 tons.
Moreover, for monocrystalline silicon wafers of the same power, the demand for silicon material will be less.
Therefore, the industrial historical trend of monocrystalline silicon wafers replacing polycrystalline silicon wafers will further reduce the demand for silicon materials.
At least 115,000 tons of new capacity for silicon materials was added in 2018.
This includes: the release of 15,000 tons of silicon material production capacity by Dongfang Hope, the addition of 40,000 tons of silicon material production capacity by GCL-Poly in Xinjiang, the 25,000-ton production capacity of Tongwei Co., Ltd. in Leshan to be put into operation in the second half of 2018, and the 25,000-ton production capacity in Baotou.
According to the data obtained from our research, the actual output of silicon material will be 120% of the nameplate output. Therefore, the combined 50,000 tons of silicon material nameplate production capacity of Tongwei Co., Ltd. in Leshan and Baotou corresponds to an actual output of 60,000 tons.
- The price war for silicon materials will be extremely fierce next year.
I still firmly believe in my judgment that there will be a very fierce price war for silicon materials next year. The reasons are as follows
Due to the huge new capacity of silicon material, the demand for silicon material will decline significantly next year.
At the same time, the costs of each company are lower.
Take Tongwei Co., Ltd. as an example. The power consumption for the entire process of one kilogram of silicon material is approximately 60 kilowatt-hours, and the cost control is extremely excellent. According to the data in the 2017 semi-annual report, the total cost of one ton of silicon material of Tongwei Co., Ltd. was 57,000 yuan. Tongwei Co., Ltd. completed the upgrading and transformation of its production line in the third quarter of 2017. It is expected that the cost will be further reduced, and the cost of the new production capacity may even be within 50,000 yuan.
The price of silicon material per kilogram will drop to 85 yuan per kilogram by the third quarter at the latest next year. However, many friends do not believe it. I still maintain this judgment and wait for the market environment next year to bear witness.
Ii. Silicon wafer segment: Diamond wire is widely used, but there is a serious overcapacity. Monocrystalline silicon may account for 60% of the market
- Technological innovation leads to cost reduction and increased production
After the wire cutting transformation, the production capacity at the entire silicon wafer end immediately increased by 25%.
Take GCL-Poly, the industry leader in polysilicon wafers, as an example. It is estimated that after its diamond wire cutting transformation is completed, its silicon wafer production capacity will reach 25GW.
- The substitution of the technical route for monocrystalline silicon wafers may have already arrived
In terms of production capacity layout, two major giants have been expanding their production capacity at an extremely aggressive pace this year. One is Longi Green Energy Technology Co., LTD. (601012), and the other is China Energy Technology Co., LTD. (002129). Both of these companies are listed on the A-share market and have each conducted two rounds of private placements in recent years, with considerable amounts of issuance.
Among the companies in the photovoltaic industry, Longi and Zhonghuan are the two with the strongest capital strength. Longi’s net assets are approximately 11 billion yuan. After the injection into Guodian Photovoltaic and the completion of the private placement, Zhonghuan’s net assets will reach 12 billion yuan.
Both of these two giants have independently chosen the technical route of monocrystalline silicon wafers.
It is expected that the last factory of Longi will be completed in August 2018, with a production capacity of 25 gigawatts. I previously estimated that the capacity of Zhonghuan would be 22 gigawatts. However, according to the latest bulletin, in another three quarters, the monocrystalline silicon wafer production capacity of Zhonghuan Co., Ltd. will reach 23 gigawatts.
Adding JinkoSolar’s 5.5 gigawatts and JA Solar’s 3.5 gigawatts, the production capacity of the monocrystalline silicon wafer giants alone will easily exceed 60 gigawatts next year.
If the demand for photovoltaic modules remains stable or even slightly declines next year, the proportion of monocrystalline modules will easily exceed 60%.
- There will be a serious overcapacity of silicon wafers
The capacity of monocrystalline silicon wafers has been expanding at a frenzied pace. After the wire cutting transformation of polycrystalline silicon wafers, the overall capacity has increased by 25%. Overall, the capacity of silicon wafers is seriously excessive.
Next year, it is a certainty that polysilicon wafer manufacturers will engage in a price war at the cost of cash. Meanwhile, those mortar cutting capacities that have not been transformed in time will permanently exit the historical stage.
Due to the extremely huge production capacity of monocrystalline silicon wafers, even those polycrystalline silicon wafer production capacities that have completed the wire saw cutting transformation will face a battle for survival next year.
Iii. Component Stage: High efficiency has become the mainstream, and prices have dropped rapidly
High-efficiency components with a capacity of over 3 million will become mainstream
Due to the significant decline in silicon material prices next year and the overcapacity of silicon wafers, there will also be a price war.
In the component power stage, due to the superimposition of a series of brand-new technologies and the monocrystalline technology route becoming mainstream.
The power of the components will reach over 300 watts next year. Under the combined effect of bifacial power generation components and single-axis tracking components next year, the cost of photovoltaic power generation will drop significantly. Therefore, although I expect a fierce price war in the upstream of the photovoltaic industry next year.
However, this price war is a great thing for the entire industry. In the long term, photovoltaic power will usher in a major cycle of grid parity, and the arrival of this cycle will be faster than anyone imagined.
- The prices of auxiliary materials have dropped
The current gross profit margins of diamond wire, photovoltaic glass, EVA film and string inverters are all very high, generally above 30%.
In the manufacturing industry, such high gross margins are unreasonable.
They have a huge room for price reduction. If their prices can also come down, it will further promote the grid parity of the photovoltaic industry.
- The prices of components have dropped significantly
Next year, the photovoltaic industry will face short-term uncertainties due to the reduction of subsidies in China, the 201 anti-dumping and countervailing duties in the United States, and the reduction of FIT subsidies in Japan.
Due to the disturbance of this uncertainty, the prices of photovoltaic products will experience a significant decline next year.
Inefficient products will be rapidly phased out of the market. The mainstream power of components will increase rapidly from 265 watts in 2016 to 310 watts in 2018, which will further dilute the BOS cost.
The emergence of ultra-high-efficiency modules and the maturity of bifacial double-glass technology will inevitably ignite the market for tracking axis systems (as ultra-high-efficiency and bifacial technologies will effectively amortize the additional costs of tracking photovoltaic brackets). If there is any industrial link in the photovoltaic industry that will achieve excess gross profit next year, it must be the sales of tracking photovoltaic brackets.
Iv. Summary
Regarding the major trends in 2018, my judgment is as follows:
Under the short-term disturbances caused by the reduction of subsidies in China, the 201 anti-dumping and countervailing duties in the United States, and the continued decline of the fit subsidy policy in Japan, the prices of photovoltaic products are expected to drop significantly next year, and inefficient production capacity will be rapidly eliminated from the market.
According to estimates, the system cost of centralized ground-mounted power stations will fall below five yuan next year. In regions like India where labor costs are extremely low and the price of photovoltaic modules does not include tax, the manufacturing cost of a 10,000-watt system may even be less than four yuan.
In most parts of the world, photovoltaic power has achieved grid parity. In some areas with better sunlight conditions, photovoltaic power may even become the cheapest form of energy application locally. Photovoltaic power will enter a major cycle of grid parity in the second half of 2018.
- As photovoltaic power generation can achieve grid parity in most parts of the world after the second half of 2018 and no longer be disturbed by subsidy policies, 2018 will be the last coming-of-age ceremony for the entire photovoltaic industry. The industry pattern of photovoltaic power generation will tend to stabilize and show a long-term stable development trend.
It is unlikely that the entire industry will suffer large-scale losses after the second half of 2018. Moreover, the remaining photovoltaic giants after the 2018 elimination round will grow into true giants with a market value of over 100 billion yuan.
V. Explanations for Other Issues in this Article
Question: If the capacity of monocrystalline silicon reaches over 50GW, it is very likely to be held back by the Americans.
Americans have done many good deeds to hinder China’s progress and development.
For instance, in order to restrict the development of China’s space industry and prevent Chinese people from accessing the International Space Station; For instance, in order to prevent the development of supercomputers in China, the Obama administration restricted the export of high-performance computing cards to China. Including the previous GT furnace, all were subject to export restrictions.
Monocrystalline silicon was small before, and a few GW was not a big deal. But when it reaches over 50 GW, it’s hard to say. China is vigorously developing its IC industry, which inevitably leads to a high reliance on high-purity quartz. When Americans are eyeing China’s IC industry, they will also be affected by the quartz sand used in photovoltaic applications. This is the greatest uncertainty for the single crystal route.
Answer: There are indeed risks in the supply of raw materials from the upstream. Moreover, the proportion of single crystal is getting higher and higher now, and the phenomenon of upstream raw material suppliers raising prices on the spot has already emerged. The prices of some upstream raw materials have risen by more than one hundred percent.
Domestic manufacturers also have countermeasures, and Longi Green Energy Technology Co., Ltd. is an outstanding example among them.
Longi Corporation has been making efforts to cultivate its own supplier system for many years. Longi Corporation supports domestic suppliers. For raw materials that domestic suppliers cannot provide, Longi Corporation chooses to sign contract agreements with upstream suppliers to ensure the supply of raw materials and lock in the prices of raw material supply.
It is true that at present, we cannot be self-sufficient in some raw materials in the upstream. However, as the monocrystalline silicon technology route becomes mainstream, the market demand in China is growing larger and larger. It is believed that in the near future, independent suppliers in the upstream will launch competitive products and completely get rid of the above concerns.
Question: At present, regardless of the process, the glass on the battery surface and the backsheet frame are indispensable. So, does it mean that the base cost per watt is only 1 yuan for perovskite batteries or any other technology? If the component costs 2 yuan, would it be meaningless to develop other technologies?
Answer: If the price of crystalline silicon modules drops to two yuan, is there no need to develop other technical routes? I don’t think so.
Crystalline silicon cells are too brittle and have a fixed shape. This natural characteristic restricts their application scenarios.
So no matter how cheap crystalline silicon photovoltaic cells are, there is still room and necessity for the development of other battery technology routes.
For instance, on the wall, on the roof of a bike, and on the body of a bicycle. Only thin-film batteries can be applied to these irregular shapes.
In addition, in the future, crystalline silicon photovoltaic cells may follow the HIJ technology route.
This technical route allows the surface of its photovoltaic cells to be covered with a thin film, thereby further enhancing the power generation efficiency.
From this perspective, the crystalline silicon technology route and the thin-film technology route are complementary to each other rather than a life-and-death relationship.
So even though crystalline silicon modules are the cheapest, it is still very necessary to develop other types of cells and other technical routes.