Is it time for change?, Integration of China's Photovoltaic Export Chain to the United States | Southeast Asia | United States

The Wuhu photovoltaic project integrated by GCL was put into operation at the end of July.

This is a new example in the wave of photovoltaic expansion in China. After China's photovoltaic cell production accounts for 90% of the global market share, the manufacturing focus of the industry is still further gathering in China.

In the past two decades, China's photovoltaic industry has flourished and formed a market pattern with China as the manufacturing base and supplying the world. Investing in China is the most efficient choice for photovoltaic companies. But now, globalization is undergoing a reversal, and this industrial chain may need to be adjusted. The United States and Europe have successively introduced policies to attract new energy companies to land. In addition to investing in Southeast Asia, companies such as Longi Green Energy and Jingke have also sought directions in the United States by building small-scale factories. At the same time, some photovoltaic companies have concerns about investing in the United States and Europe.

Gathering in China

On July 28th, the first battery was produced in the first phase of the Wuhu Bay Power Plant project integrated by GCL. In the second half of the year, the production capacity of the 10GW project will continue to climb, and GCL Integrated is expected to reach production in the fourth quarter.

This will enhance the upstream and downstream integration capabilities of GCL Integration and strengthen the supporting industrial chain. GCL Integrated has large component bases in Hefei, Anhui and Funing, Jiangsu, but the supporting batteries required for these two bases cannot be self-sufficient, and a large proportion of them now need to be purchased externally.

"We attach great importance to the production of Wuhu batteries from top to bottom," said Jiang Weipeng, CEO of GCL Integration, in an interview with First Financial News. "It has two meanings for us. The first is to make up for the shortcomings of batteries, and the second is that after the expansion of batteries, it will still be more advantageous for our market competitiveness."

The planned total investment for the Wuhu project integrated by GCL is 8 billion yuan, and the first phase of 10GW will be put into operation, followed closely by the second phase of 10GW. This project is also an opportunity for GCL Integrated to quickly enter the N-type battery market.

"Now, PERC batteries have encountered a bottleneck in efficiency and cannot truly break through. After the elimination of PERC, TOPcon is a very cost-effective product. From the silicon end to the terminal connection, it is still relatively cost-effective, and no product can currently compare with TOPcon." Jiang Weipeng told reporters from First Financial News. The TOPcon battery produced by the Wuhu project integrated by GCL is a major development direction for N-type batteries.

When the power generation efficiency of traditional P-type batteries approaches its peak, it has become an industry consensus to switch to N-type batteries with higher power generation efficiency. Currently, China's photovoltaic industry is in a period of continuous expansion of battery and module production capacity, and various enterprises are rapidly moving towards the transformation path towards N-type batteries.

In 2022, a new energy plant has built a production capacity of 20GW of high-efficiency batteries and 20GW of module production, and may expand production to 30GW of high-efficiency batteries and 30GW of module production by 2023; The 10GW battery cell and 30GW module project invested by Jingke Energy with 8 billion yuan has started construction in Yuhuan, Zhejiang; The Longji Green Energy Ordos 30GW N-type TOPCon battery project will begin equipment entry at the end of May 2023, and is expected to start production in August 2023

According to Jiang Weipeng's estimation, the shipment volume of N-type batteries in the overall photovoltaic market this year accounts for about 30%, and may further increase to over 50% next year.

At the same time as China's rapid transformation of photovoltaics, production capacity continues to gather in China, which strengthens the global supply pattern led by Chinese enterprises.

According to data disclosed by the China Photovoltaic Industry Association, in 2022, China's polysilicon production accounted for 86% of the world's total, silicon wafer production accounted for 97%, battery cells accounted for 90%, and modules accounted for 85%. "In 2022, except for the global proportion of silicon wafer production capacity, which is basically the same as last year, the production capacity and output of other links in the manufacturing sector have achieved varying degrees of growth in the global proportion." Cao Renxian, Chairman of the China Photovoltaic Industry Association, stated at the 2023 Photovoltaic Industry Supply Chain Development Forum on July 19 that in 2022, the focus of the photovoltaic industry will further shift to China.

The momentum of vigorous progress continued into 2023.

In the first five months of this year, the production of polycrystalline silicon, silicon wafers, battery cells, and modules in China increased by over 60% year-on-year; The total export value of photovoltaic products in the first five months was 24.4 billion US dollars, reaching a historic high.

Choosing Southeast Asia

Ten years ago, photovoltaic companies in Europe, America, Japan, and South Korea were able to compete with Chinese companies back and forth. Today, these foreign-funded enterprises are no longer able to compete with Chinese enterprises.

According to InfoLink Consulting's 2022 global component shipment ranking, eight out of the top ten are Chinese companies, with Longi Green Energy, Jingke, and Tianhe in the top three; The two foreign-funded enterprises on the list are First Solar, an American solar company ranked eighth, and Korean company Hanhua Q cells, ranked ninth.

The top five battery manufacturers listed by InfoLink Consulting for 2022 are all occupied by Chinese companies such as Tongwei Group, Aixu Group, and Runyang Group.

"From a global perspective, their ranking in shipments is still far behind that of our top Chinese companies," Qin Zhongyi, a senior executive of a photovoltaic company, told First Financial. "Multinational enterprises are not a threat to Chinese photovoltaics. Although Mayerberg is doing heterojunctions, Sunpower is also doing heterojunctions, and Han Hua has had relatively little voice in the industry in the past two years." Mayerberg is a Swiss based photovoltaic equipment company that is undergoing a transformation from an equipment provider to a manufacturer of photovoltaic cells and modules. Sunpower is an American photovoltaic company.

The Chinese photovoltaic industry, like a robust machine, pumps products that cover local demand and also flow to the global market. From the end demand side, Europe and the United States are of utmost importance.

In addition to directly exporting components, a group of Chinese companies have established production bases in Southeast Asia.

Longi Green Energy's manufacturing bases in Southeast Asia are distributed in Malaysia and Vietnam, with Malaysia being its base for silicon wafers and single crystal batteries, and Vietnam having production capacity for single crystal batteries and modules. In 2022, Longi Green Energy will complete the capacity transformation and improvement of its Vietnam base; JA Solar has established photovoltaic bases in Southeast Asian countries such as Vietnam and Malaysia. As of the end of 2022, the engineering progress of JA Solar's annual production of 3.5GW high-power modules and 3.5GW batteries in Vietnam has exceeded 98%; Jinko Energy is currently promoting its 8GW battery and 8GW module projects in Vietnam; Trina Solar has invested in solar cell and module manufacturing bases in Thailand, Vietnam, and other regions. Its recent move is to build a 6.5GW annual single crystal chip project in Anping Industrial Park, Taiyuan Province, Vietnam, further bringing the upstream links of the photovoltaic industry chain to Vietnam.

These overseas layouts have changed China's photovoltaic export structure. According to the China Photovoltaic Industry Association, the export proportion of silicon wafers and battery cells has increased in the first half of this year, while the export proportion of modules has decreased.

These manufacturing bases radiate the Southeast Asian market and serve as a springboard for exports to Europe and the United States. But this export link may have reached the time for adjustment.

In March 2022, the US Department of Commerce launched an anti circumvention investigation into photovoltaic products from four countries: Vietnam, Malaysia, Thailand, and Cambodia. Three months later, the US government granted a 24 month tariff exemption for solar panels purchased from Cambodia, Malaysia, Thailand, and Vietnam.

The limited exemption policy only delays, not eliminates risks. At least two senior executives of photovoltaic companies have expressed concerns about the fluctuating US policies of First Financial, believing that Southeast Asia is no longer a very safe investment destination.

"There are significant risks for Chinese photovoltaic companies investing in Southeast Asia," Qin Zhongyi said. "In the future, the United States will oppose Southeast Asia. If I invest in Southeast Asia, it would be better to invest directly in Europe or the United States."

CITIC Bo is a listed company that specializes in photovoltaic tracking brackets and fixed bracket systems. When considering overseas investment, it also skipped Southeast Asia and directly considered the United States.

"The tracking bracket system market in Southeast Asia is not as strong as the Middle East and the United States," Zhou Shijun, Senior Vice President of CITIC Bo, told First Financial reporters that "Made in China" can fully cover the demand in the Southeast Asian market. If a factory is established in Southeast Asia to export to the European and American markets, although there may be some cost savings in terms of shipping costs, these cost savings can be achieved by expanding the scale economy of domestic production bases.

How to invest in the United States

Both the United States and Europe hope to attract photovoltaic companies to land.

The United States issued the Inflation Reduction Act in 2022, providing tax credits or production subsidies to photovoltaic companies investing in the United States. The European Union issued the Net Zero Industry Act earlier this year to encourage local manufacturing in fields such as photovoltaics and wind turbines.

Chinese photovoltaic companies are beginning to explore the manufacturing ecosystem in the United States and Europe with relatively small-scale investments.

Zhou Shijun told First Financial reporters that CITIC Bo's US market layout is advancing, and the project is planned to operate in a light asset manner. JA Solar announced in January this year that it has selected a site in Phoenix, Arizona, USA and invested $60 million to form an annual production capacity of 2GW of components. Longi Green Energy is preparing to collaborate with American clean energy developer Inenergy to invest in the construction of a 5GW photovoltaic module plant in Ohio, USA. Jinko Energy has also announced a $52 million expansion plan for its US factory, prior to which it already had a 400MW component factory in the United States.

The pace of Chinese photovoltaic companies investing in Europe is slower. Recently, Li Zhenguo, CEO of Longi Green Energy, told German media that he is preparing to build a factory in Germany. If this project can be implemented, it will be one of the few investments made by Chinese photovoltaic companies in Europe in recent years.

These overseas investments do not prioritize efficiency.

"The reason why photovoltaic companies are going overseas now is to solve trade barriers, mainly due to this factor." Jiang Weipeng told First Financial reporters that all of the current production capacity of GCL Integrated is in China, and for the construction of production capacity in the United States or Europe, "it is also being evaluated now."

Since the trade friction between China and the United States, the export of photovoltaic bracket systems to the United States has been subject to a 25% tariff. Zhou Shijun told First Financial reporters that the profits of Chinese companies exporting bracket products to the United States have been squeezed. Some photovoltaic bracket companies in the United States and Europe previously entrusted their manufacturing process to Chinese companies for outsourcing. Now, some outsourcing processes have been transferred, and American companies are starting to expand their production capacity in their local areas.

There is no complete ecosystem for the photovoltaic industry in the United States or Europe. This will greatly drag down the investment efficiency of Chinese enterprises and prolong their investment recovery cycle.

"All the supporting materials are not available. If you want to build a factory in Europe now, you can only build it in Germany or near Germany. The supporting facilities in that area are relatively good, but various factors will hinder the development of the enterprise." Qin Zhongyi has some concerns about this.

In terms of project construction alone, the construction period in Europe and America will also be longer.

The Wuhu Bay Bridge project integrated by GCL started construction in February this year and the first phase was put into operation in July, taking only 5 months. During the construction process of the project, the local government of Bayang has done a lot of work in project approval and land connectivity and equality.

For China's photovoltaic industry, many local governments are like the Bay Area. The combination of local governments that value manufacturing and efficient enterprises in a fiercely competitive environment has achieved "China's speed".

"If a battery factory is built in China within 5-6 months, the entire industry will not differ significantly," Jiang Weipeng told reporters. "If we go to the United States or Europe to build a factory, I think efficiency needs to be greatly discounted.".

CITIC Bo did not choose to build its own factory in the United States, but is considering cooperating with American companies. According to Zhou Shijun, CITIC provides technology patents and brands, while American companies provide factories and manufacturing capabilities. Under this cooperation model, CITIC Bo cannot receive subsidies for the manufacturing process, but it maintains the convenience of being able to advance, attack, and retreat.

"Southeast Asia is no longer competitive. These two places are not so friendly to Chinese companies." Qin Zhongyi believes that adjustments need to be made to the photovoltaic industry chain. For the United States and Europe, "it may be a good way for everyone to collaborate and invest, and for photovoltaic companies to land overseas, it would be a better way."

In the past two decades, China's photovoltaic industry has formed a market pattern with China as the manufacturing base and supplying to the world. But now, globalization is undergoing a reversal, and industrial chains need to be adjusted. Whether Chinese photovoltaic companies can maintain success in the new era depends in part on whether they can take the path of internationalization well.