Currently, the downstream part of the photovoltaic industry-or at least a part of the Western world-is a bit panic about having to audit the supply channels of solar module manufacturers, most of which are at the core of their global expansion plans in the past few years.
However, although today’s problem is related to the Xinjiang region, it is essentially another “Made in China” dilemma that has received many attentions in the past. This will not be the last time this issue has surfaced.
This article clarifies the dominant position of Chinese manufacturing in the photovoltaic industry today, with special attention to the production stages of polysilicon, wafers, cells and modules. In addition, we also presented the latest findings of our internal PV ModuleTech bankability rating analysis and discussed the ongoing manufacturing issues in China.
Project developers and institutional investors—now critical to the 100GW annual utility scale deployment—have been somewhat independent of manufacturing sources for many years. Minimizing construction capital expenditures has always been an obsession, increasing the target rate of return throughout the life of an asset (usually a large ground-mounted solar farm).
As government subsidies and incentives are reduced (or completely eliminated) and solar energy begins to compete with other forms of renewable energy in competitive auctions, module prices will drop indefinitely at an annual rate of about 10%, almost becoming an expectation. This was indeed observed until the end of 2020.
This, of course, directly affects companies that can maintain operations and increase production capacity, because their reported cost structure is about 10-20% lower than the actual sales price. In this regard, entities with low labor costs, the fewest land/building commitments, ridiculously low electricity bills, and seemingly thrifty capital expenditures will clearly be the winners.
Except for First Solar (especially not made in China and not based on silicon), the above summary explains to a large extent why almost all module supply (for large projects) comes from Chinese companies. Without tariffs, or in the absence of any other manufacturing-related divestiture gains in the domestic manufacturing industry, no one outside of China can actually compete with these reported costs.
The only substantive sanctions (US 2012 AD/CVD) previously imposed on the photovoltaic industry only affected the establishment of bases by Chinese companies in Southeast Asia. If this sanction is lifted, these websites may disappear tomorrow.
Today, the photovoltaic manufacturing industry-as a global sector-has been eliminated. Some component assembly plants outside of China (or their assets in Southeast Asia) are operating and try to establish battery production from time to time. But the industry is dominated by Chinese manufacturing, and global investors/developers are hungry for profit.
This situation certainly cannot continue. Perhaps by then, the Xinjiang issue (regardless of whether it manifests through any specific sanctions) will become a catalyst or awakening for a wider community than accountants, that the establishment of a multi-GW solar portfolio is not only about investment returns, but almost entirely by China Manufacturing components fill the overall social and economic impact of global assets.
Today, the reaction of many investors and developers around the world after the media reported on the Xinjiang issue is really sad. Given that so many investor tools have been publicly listed-and keenly aware of public perception and brand equity-it is reasonable to ask why so many people have largely ignored components (inverters, modules, steel) The facts all come from China, because of a whole, or parts produced by Chinese companies in Southeast Asia. However, the reality is-do they really have a choice?
It is worth mentioning that this is not aimed at China itself. If any other country has such constraints in photovoltaic manufacturing, it will raise the exact same question. As it happens, China-like many commodities used in the world-dominates today’s photovoltaic industry. The Xinjiang issue has a direct impact on the entire industry.
For many investors and developers, the issue today is not to conduct audit trails, but to trace back the self-owned assets established over the past decade. Considering the way polysilicon is traded and mixed in China, and the combination of wafers and batteries from in-house, outsourced or third-party contract manufacturing, Goodness knows how they will proceed to the end if needed. good luck!
In the next section, I will take a simpler look at how many products are manufactured in China today. This must be the first step in the process before anyone looks at the area segmentation.
Except for the supply of thin-film modules (all First Solar for the sake of simplicity), all other photovoltaic modules are largely similar. Polysilicon is pulled into ingots and then cut into wafers; wafers are processed into solar cells and finally assembled into photovoltaic modules. Various raw materials (glass, silver, etc.) are used in each step; today, most, if not all, of these raw materials are also produced in China.
However, the key steps now reviewed are polysilicon, wafers, cells and modules. The chart below shows the percentage of production in the silicon-based module value chain from 2013 to 2021.
The Xinjiang issue is particularly related to polysilicon, which nowadays several leading Chinese companies have factories. The only polysilicon suppliers outside of China are WACKER (Germany) and South Korea-based OCI (produced in Malaysia). The upward trend of polysilicon in China will increase in the next few years, and all expansion and elimination of bottlenecks will be online by the end of 2021.
Wafer production is now almost entirely a part of China. A small part of the production is located abroad, and previous supporters Japan and South Korea have been withdrawing for some time. Interestingly, in terms of barriers to entry, wafer production may be the “fastest” problem to solve.
China’s share of battery and module production has remained stable, mainly because Chinese companies have to produce batteries and modules in Southeast Asia for US shipments. Similarly, as mentioned above, excluding CVD/AD and cells/modules in 2012, China’s production share level will exceed 90%.
As can be clearly seen from the picture above, China’s dominance is not new. Therefore, most solar farms built in the past decade will use various (if not all) components made in China, or at least wafers (and possibly polysilicon).
PV ModuleTech’s bankability rating analysis has now become the industry benchmark to understand the financial and manufacturing health of leading module suppliers. Banks, investors, developers, and (for benchmarking) module companies often use it.
The latest (second quarter of 2021) level pyramid is shown in the figure below, and there are 7 suppliers in the A level. Compared to when we launched this method two years ago, there are far fewer suppliers within the overall AAA-to-CC rating; this is due to the increase in shipments of leading companies and the inability of companies that have failed to keep up with market growth. Relative share in the market. However, in order to perform the benchmarks correctly, there are still about 50 module vendors that need to be aware of today.
With reference to this article, it can be seen that First Solar and Hanwha Q CELLS are the leading non-Chinese entries. Except for Longi (with its wafer business), most of the leading module suppliers have similar models. JA Solar remains a leader in internal value chain production: other companies maintain a more informal stance on the use of third-party component manufacturers.
So far, with a few exceptions, photovoltaic assets built by global companies are seen as the key to long-term positioning and strategy. However, its “global” aspect is only based on the location of solar farms, not the global nature of component manufacturing. This will have to change, and it will need to be manufactured in different regions of the world in the future.
It is unrealistic to rely on the government (or policymakers such as the EU) to do this. It must come from the ultimate site owners-those who will benefit financially in the long run, and also meet other internal goals by owning solar assets.
If this is not possible, we will see that starting/stopping government or state-to-state politics (such as US-China relations) will produce short-term shocks, but it will not be long-term, and will not be dominated by any country. The promotion of global reordering. manufacturing.
Somehow, it is necessary to change thinking and mentality, not just crazy panic to stay away from any strong opposition from the media (like the Xinjiang issue that happened today). Supporting a multi-GW construction asset portfolio needs to promote manufacturing “diversity”. Although it is not clear how this happened!
Another option is to let some leading Chinese companies establish wafer and battery production outside of China: you don’t have to be forced to enter! What a positive move this will be, and it will almost certainly see investors prioritize this in terms of future contract module supply. Although there is sometimes a tendency to choose the largest players (or superpowers) and try to impose sanctions to curb global dominance, it may not be a bad idea to make the market leader part of the solution.
However, for now, the audit trail frenzy is all the rage, and it is unlikely to have any useful impact. To be sure, nothing will change overnight. Solving the diversification of the global manufacturing industry requires other voices, and following the funds of major global investors in the utility solar field may be the best way out. Whether such things will happen is controversial, but people live in hope!
If you need to learn more about the photovoltaic manufacturing industry, our photovoltaic manufacturing and technology report is a valuable resource that allows you to track, measure and predict changes in the photovoltaic market.