Solar sector readying for new challenges

Overcapacity, price concerns

While PV development has yielded impressive results, concerns about fiercer competition and overcapacity loomed over 2023.

Wang highlighted a continuous decline in PV module prices since February, with several companies' bidding prices per watt falling below 1 yuan beginning in October.

"While the new energy industry saw continued high growth in 2023, it faced a series of challenges. Prices in the PV and energy storage industry chains were consistently decreasing, indicating periods of temporary overcapacity," said Zhu Gongshan, chairman of Golden Concord Holdings Ltd, a major solar power firm.

Experts said the primary reason for the price decline is the imbalance in supply and demand, together with market expectations of a reduction in silicon material prices. In addition, large global inventory stockpiles make it challenging for module prices to rise.

Under the low-price scenario, PV enterprises face considerable challenges. In the secondary market, the PV sector experienced a decline throughout the year. As of Dec 18, the total market value of the PV sector shrunk by nearly 1.2 trillion yuan. The largest PV exchange traded fund, Huatai-PineBridge CSI Photovoltaic Industry ETF, plummeted by over 40 percent, and nearly 30 stocks in the sector had seen declines exceeding 40 percent.

Longi's third-quarter report indicated that, despite year-on-year growth in production capacity and sales supporting revenue and net profit for the first nine months, the performance in the third quarter fell significantly below market expectations. The main reasons cited were reduced investment income, foreign exchange losses, increased inventory write-downs, and heightened research and development expenses, among other factors.

Liu Yuxi, the China region president of Longi, said last year's decline in module prices exceeded the company's earliest expectations, almost reaching a "panic drop". Liu emphasized that prices below 1 yuan/watt for modules would truly mean falling below production costs, indicating it may be difficult for some companies to make ends meet.

Industry insiders said the overall operating capacity of silicon wafer plants may be less than 80 percent at present, making destocking increasingly pivotal. Many manufacturers are eager to offload inventory at low prices, and the current price of silicon wafers has touched some companies' breakeven points. Although top-tier companies like Longi are less affected by declining operating capacity, the sustained low prices have squeezed bottom lines.

Experts said the industry has entered a restructuring phase, with old product inventories facing destocking campaigns, and sustained low prices testing companies' cash reserves.

Intensified efforts

Against this backdrop, PV companies are actively seeking innovative ways to reduce costs and improve efficiency. Liu of Longi said that the company is willing to focus more on exploring cutting-edge technologies in industrial development.

In its third-quarter financial report, Longi reiterated its strong commitment to developing back-contact structure crystalline silicon solar cell technology, aiming to enhance the production yields and conversion efficiency of hybrid passivated back contact products. With the in-depth R&D of efficient BC technology and advancing production capacity, higher-level performance HPBC Pro cells are expected to begin production by the end of 2024.

BC cells, promoted by Longi, are a general term for various back-contact structure crystalline silicon solar cells. They can be combined with various technologies such as TOPCon, HJT and tandem cells.

However, in the current competition for technological dominance among third-generation N-type cells, the TOPCon camp has shown a better performance.

According to recent financial reports released by major PV companies, the "flagship" of the TOPCon camp, Jinko Solar, saw an income of 85 billion yuan in the first three quarters, a year-on-year increase of 61.25 percent, and a net profit of 6.35 billion yuan, up 279.14 percent.

The company said that the increase in the proportion of N-type solar cell delivery is one of the main reasons for the net profit growth. TOPCon solar cells can be manufactured as N-type or P-type solar cells.

Another PV giant, Trina Solar, whose major products are TOPCon solar cells, also achieved a doubling of profit in the first three quarters to over 5 billion yuan.

It seems that although overcapacity is dragging down prices, profits for leading companies are still on the ascent.

Qian Jing, vice-president of Jinko Solar, said: "For any industry, the right amount of overcapacity and moderate competition are necessary to drive technological progress. Otherwise, there will always be a supply-demand mismatch, leading to corporate complacency. Efficient products are never sufficient, and inefficient overcapacity persists. This is the essence of the market."

Zhu of Golden Concord said: "Overcapacity is a natural phase in market economies. Facing competition while being prepared for potential elimination is an integral aspect of industry evolution."

Zhu said that as the renewable energy industry gears up for a shakeout, those hinged on specialized products and high-quality development driven by technological innovation will stand out, and enterprises hoping to survive, let alone thrive, should intensify research efforts.