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Photovoltaic industry research and strategy for the second half of the year: boom up, technological innovation

Photovoltaic industry research and strategy for the second half of the year: boom up, technological innovation

Volt installed growth pivot upward

The “14th Five-Year Plan” underpins the medium- and long-term growth expectations of the scenery

The “14th Five-Year” renewable energy development target is once again clear, and the policy underpins the annual installed capacity of PV and wind power to reach 100GW in 2022-2025. The “14th Five-Year” Renewable Energy Development Plan, in which, according to the task requirement that the proportion of non-fossil energy consumption reaches about 20% in 2025, further clarifies: 1) the responsibility weight of total renewable energy power consumption is increased from 28.8% in 2020 to 33% in 2025, and the proportion is 29.4% in 2021, i.e., it is increased by 0.9 pct in 2022-2025; 2) the consumption of non-hydroelectric renewable energy power is increased by 0.9 pct. (2) the weight of non-hydro renewable energy power consumption responsibility will be increased from 11.4% in 2020 to 18% in 2025, and the ratio will be 13.7% in 2021, i.e. an increase of 1.1 pcts in 2022-2025; (3) renewable energy power generation will be increased from 2.21 trillion kWh in 2020 to 3.3 trillion kWh in 2025, and the value will be about 2.49 trillion kWh in 2021. This value is about 2.49 trillion kWh in 2021, or a CAGR of about 7.3% from 2022 to 2025.

Based on the above target, if we assume that the incremental part of non-water renewable energy generation is basically contributed by wind power PV, then it is expected that the new installed capacity of domestic wind power PV in 2022-2025 should reach about 400GW, corresponding to an annual average installed capacity of about 100GW.

Domestic: distributed performance is bright, centralized momentum to be developed

It is expected that in 2022/23 the domestic PV installed capacity of about 75/110GW, distributed type this year to maintain high growth, next year centralized type is expected to recover. The domestic distributed PV project has a relatively low construction cost and rich revenue model for commercial and industrial projects, and still has a relatively significant project yield under the continuous rise in component prices. 23.71GW of new domestic PV installations were installed from January to May 2022 (+139% YoY), of which distributed accounted for nearly 70%. We expect the second half of the domestic distributed PV installation scale is still expected to maintain rapid growth, and the end of the ground power plant market part of the project is expected to achieve the installation of concentrated landing, is expected to reach about 75GW of domestic PV installation in 2022, of which the proportion of distributed or maintain about 2/3. In addition, in the case of abundant ground power plant project reserves, with the supply chain tension is expected to ease, the cost of accelerated decline, is expected to reach about 110GW of domestic PV installation in 2023, of which the proportion of ground power plant is expected to rise again to about half.

Global: Accelerate clean energy transition, PV installation growth accelerates

The Russian-Ukrainian conflict has exacerbated energy tensions, and high electricity prices are driving enthusiasm for household installations in Europe. In the past two years, as overseas economies recover and renewable energy supply is weak, natural gas prices have come out of a wave of upward trend, into 2022, the Russian-Ukrainian conflict caused by the gas supply cut-off, further pushing up the price of natural gas in Europe, which in turn makes the European electricity prices further soaring. Over the past two years, electricity prices in Europe have continued to rise, with an average increase of more than 50%. The one-year forward contract for electricity in Germany rose to 287 euros per megawatt hour on July 1, close to the peak seen before Christmas last year, further driving residential installation of residential energy storage. Europe to accelerate the energy transition process, the pivot of installed PV growth upward. At the same time, European countries to speed up to get rid of Russia’s oil and gas dependence, further accelerate the deployment of renewable energy. In particular, the overall target of renewable energy in the EU’s “55% carbon reduction” policy portfolio for 2030 has been raised from 40% to 45%; the “REPowerEU” bill proposes a cumulative PV installation target of 320GW by 2025 (double that of the end of 2021), which corresponds to a doubling of the installed capacity. The “REPowerEU” bill proposes a cumulative PV installation target of 320GW by 2025 (doubling from the end of 2021), corresponding to an average installation of over 40GW in 2022-2025, and 600GW by 2030, with an average installation of over 56GW in 2026-2030. We expect that the European PV installation in 2022 or close to 50GW, growth pivot significantly upward.

The U.S. announced a 2-year exemption from PV tariffs in Southeast Asia, leading module manufacturers to the U.S. shipments are expected to usher in the volume. early June, the Biden administration issued an executive order announcing that the U.S. will not impose any new tariffs on solar (8.110, -0.13, -1.58%) imports in the next two years, and to four Southeast Asian countries to provide a 24-month exemption from PV module import duties. This means that only single-sided PV production in Southeast Asia will be subject to the 15% 201 tariff in the next two years, and all other tariff risks may be eliminated for the time being. We expect 2022H2, especially Q4 U.S. market installed demand will usher in a recovery, the annual installed capacity is expected to remain relatively stable year-on-year, 2023 or welcome accelerated release, in Southeast Asia has a perfect production capacity layout, in the U.S. market has a channel and brand advantages of module leading enterprises, is expected to usher in the U.S. market to accelerate shipments. Overseas PV demand is strong and module export growth is accelerating. PV industry chain price increase has limited impact on overseas market demand such as Europe. According to Solarzoom statistics, from January to May 2022, China’s PV module export scale exceeded 65GW (+~90% YoY), of which May export scale exceeded 14GW, we expect the annual export scale will exceed 150GW (+~50% YoY), overseas installed demand is expected to usher in accelerated growth.

In 2022/23, the global PV installation is expected to reach 230/300 GW. We expect the domestic PV market to enter the peak season in 2022H2, European PV installation may maintain a high growth rate, the U.S. installation is expected to recover with the relaxation of policy, in addition, the Latin American market also has a rush to install the market in the case of policy retreat. In 2023, as the supply and demand pattern of the industry chain tends to loosen and the cost falls faster, it is expected that the global installed capacity will still maintain accelerated growth and is expected to reach about 300GW.

Tightening supply and demand, positive pattern

Tight supply is driving silicon prices higher. Due to the tight supply of silicon, the short-term difficulty in effectively releasing new production capacity, and the suspension of production capacity due to a leading manufacturer’s production line accident, silicon prices rose again to above RMB 280/kg at the end of June 2022 after a 10-year hiatus. In the short term, during the tight supply and demand phase of the industry, high-quality enterprises will reap significant excess profits and have high elasticity of earnings growth; in the long term, leading enterprises will lead the expansion of production capacity, and the advantages of quality, cost and scale are expected to continue to consolidate.

The annualized effective capacity of PV silicon is expected to be about 8.6/1.3 million tons in 2022/23, which is lower than the nominal capacity scale. According to the statistics of the Silicon Branch of the Nonferrous Metals Association and taking into account the rhythm of production expansion by major manufacturers, we estimate that the global PV silicon nominal capacity will be around 830,000 tons as of 2022H1, and the nominal capacity is expected to increase to 1.25 million tons by the end of the year as new production capacity is launched before the end of the year. In 2023, it is expected that the progress of capacity release will be further accelerated, and the nominal capacity will reach about 1.71 million tons at the end of the year, while the annualized effective capacity may reach about 1.3 million tons.

Silicon supply is still tight in 22H2, but may ease significantly in 2023. Based on our expectation of 230/300GW of new global PV installations in 2022/23, as well as the 1:1.2 capacity ratio and inventory ratio, we expect global module demand for new PV installations to be 276/360GW, with module production corresponding to silicon demand of about 730,000/920,000 tons. Combined with our estimate of effective silicon production capacity, we expect the global silicon supply/demand ratio to be between 1.1-1.2 in each quarter of 2022, with no significant relief of supply pressure in the second half of the year. At the same time, considering that the downstream wafer segment is in the midst of a more aggressive expansion wave, the demand for new wafer capacity to start production may amplify the demand for silicon procurement, so we expect that the supply of silicon will remain tight in 2022H2 and will not be significantly relieved until the end of the year or 2023.

In the next two years, silicon may still be the least elastic part of the main industry chain. 2022Q4 may usher in a small peak in silicon production expansion, but as PV installations enter peak season, the actual supply of silicon is expected to remain tight, and silicon price reductions will be relatively limited. 2023 will see a concentrated release of silicon capacity, but considering the release of nearly 200GW of new capacity in the wafer segment, as well as the increase in terminal capacity, we expect silicon prices to remain tight. However, considering the release of nearly 200GW of new capacity in the wafer segment, the increase in capacity ratios in the end stations, and the purchase of inventory, the downstream capacity of silicon is expected to be enhanced. In the next two years, silicon will remain the most limited supply and least elastic part of the main PV industry chain, and is expected to maintain high returns at stable prices.

High-purity quartz sand supply bottleneck appears, wafer pattern earnings or better than expected

Monocrystalline silicon wafer industry ushered in a wave of expansion, the risk of nominal overcapacity increased. In the case of accelerated upgrade of large size and flattening of industry technology and cost curve, the monocrystalline wafer sector will see accelerated expansion in 2022, with nominal capacity of monocrystalline wafers expected to exceed 620/790GW by the end of 2022/23, 0.37%), JingYunTong (8.680, -0.10, -1.14%), GaoJing Solar, ShuangLiang Energy (17.620, 0.07, 0.40%) and other new silicon wafer power.

High-purity quartz sand in short supply, or become another bottleneck limiting the release of new production capacity of silicon wafers. High-purity quartz sand is the main raw material for quartz crucibles in PV wafers, and is also used in quartz tubes and boats in cell production. With the rapid growth of PV installations and the significant expansion of wafer production, the supply of high-purity quartz sand continues to tighten and the pressure of shortage is gradually increasing. Based on a conservative estimate of global PV wafer production of 276/360GW in 2022/23, the demand for high-purity quartz sand for PV wafer production is expected to reach 6.2/7.5 million tons, of which the demand for higher quality inner layer sand will reach 2.4/2.6 million tons, respectively. The supply side of high-purity quartz sand is relatively rigid, and only Quartz (144.520, -0.71, -0.49%) is accelerating the expansion of production among the major manufacturers, and the total supply of high-purity quartz sand is expected to be only 6.3/7.9 million tons in 2022/23, corresponding to a supply-demand ratio of less than 1.1, and the supply of inner layer sand is still mainly dependent on Unimin and TQC, and the supply may further tighten.

The tight supply of quartz crucibles may help optimize the supply pattern of the wafer industry and drive better-than-expected earnings for the top companies. Driven by the short supply of quartz sand, the price of quartz crucible has also increased significantly recently, raising its share in wafer cost from around 1% to 2%, but it is still at a low level and has little impact on wafer earnings volatility. As for the output of silicon wafers, TCL Central, Longi Green (58.270, 0.19, 0.33%) and other silicon wafer head enterprises have made a good layout of high-purity quartz sand products in advance by virtue of their supply chain advantages; some small and medium-sized manufacturers have also responded by increasing the proportion of domestic sand usage and the use of relatively low-quality crucibles, but this will also have a negative impact on crucible life and replacement frequency. Overall, the supply bottleneck of high-purity quartz sand may restrict the expansion plans and new production capacity release of some wafer companies (but is expected to be weaker than the restrictive effect of silicon materials in the past two years), and the supply pattern of the wafer industry is expected to be better than expected in the next two years. Therefore, for the head wafer makers with strong quartz sand supply support capabilities, the impact of supply chain restrictions and new entrants will be relatively small, and wafer earnings are expected to remain relatively stable.

Thin wafer + fine line process accelerated, high-quality diamond wire supply is tight

The trend of wafer thinning + large size is accelerating. With high silicon material costs, wafer thinning is accelerating, with raw material costs falling by 2.5% for every 10um reduction. In addition, the large size of silicon wafers also help to improve production and reduce costs, thin non-silicon costs and improve the module power, according to the Central share of calculations, 210 than 166 in the power plant construction process to save 12% of the BOS cost. According to PVinfoLink, the large size of M10 and G12 products will increase to more than 40% in 2021 and is expected to further increase to about 80% in 2022.

Wafer specification upgrade accelerates the demand for diamond wire. High silicon prices directly drive the process of diamond wire thinning, which helps to save silicon costs by reducing cutting losses and better matches the thinning of silicon wafers. At present, the mainstream diamond wire wire diameter is 36/38μm, which has been decreasing by 2μm every quarter for the past year. The thinner the wire diameter, the lower the breaking tension (for every 2μm reduction in wire diameter, the breaking tension decreases by about 0.5N), making it more difficult to slice and consume more. For simplicity’s sake, we use 155μm wafer thickness as a benchmark and project that with silicon material prices above RMB 98,000/ton, it is expected that thinning wires will have a positive effect on slicing cost reduction. Therefore, with silicon prices expected to remain relatively high in the next two years, the process of slimline is expected to continue.

The supply of high-quality diamond wire is tightening, and the focus of competition will be on fine wire and scale growth. Assuming that the global PV installation in 2022/23 is 230/300GW respectively, considering the capacity ratio, fine wire and other factors, it is expected that the demand for diamond wire will reach 160/230 million km, growing significantly faster than the PV installation, and the trend of product upgrade is clear. Current industry production capacity of about 170 million km, the supply is tight; industry production capacity is expected to increase to nearly 300 million km in 2023, but taking into account the production climbing progress and some of the backward production capacity of coarse lines face elimination, the actual capacity utilization rate needs to be discounted, the supply is expected to remain relatively tight, with scale and product structure advantage manufacturers are expected to fully benefit.

The supply of high-quality diamond wire is tightening, and the focus of competition will be on fine wire and scale growth. Assuming that the global PV installation in 2022/23 is 230/300GW respectively, considering the capacity ratio, fine wire and other factors, it is expected that the demand for diamond wire will reach 160/230 million km, growing significantly faster than the PV installation, and the trend of product upgrade is clear. Current industry production capacity of about 170 million km, the supply is tight; industry production capacity is expected to increase to nearly 300 million km in 2023, but taking into account the production climbing progress and some of the backward production capacity of coarse lines face elimination, the actual capacity utilization rate needs to be discounted, the supply is expected to remain relatively tight, with scale and product structure advantage manufacturers are expected to fully benefit.

Technological innovation leads to cost reduction and efficiency increase, demand upgrade triggers incremental market

TOPCon starts the first year of industrialization, and the demand for battery equipment continues to expand

The advantages of TOPCon cells are reflected in three aspects: excellent surface selective passivation ability to enhance cell conversion efficiency, the current industry mass production efficiency of 24.5%-25%, the future industrialization of efficiency has more room for improvement; with low attenuation, high double-sided rate, low temperature coefficient and other advantages to enhance the module power generation gain; TOPCon and PERC production line compatible, equipment transformation and upgrade can achieve cost reduction. TOPCon is compatible with PERC production line, and the cost reduction can be achieved by equipment renovation and upgrading, and the silver paste cost reduction brought by the ultra-fine grid process can give TOPCon a greater competitive advantage. The latter two have performed well in recent industrialization verification data and have room for further cost reduction and efficiency improvement, and are expected to open industrialization applications in the second half of the year.

From the cost side, the wafer cost is higher than PERC by $0.03/W, mainly due to the high price of N-type silicon, the progress of thinning and the high non-silicon cost; the cell cost is higher than PERC by $0.05/W, mainly due to the depreciation cost of N-type equipment and the increase of silver paste consumption. The cost of non-silicon cost is expected to decrease with the decrease of silver paste price and the popularization of SMBB technology; the non-silicon cost is expected to decrease by 0.03 Yuan/W due to the improvement of module efficiency; the cost of auxiliary materials such as adhesive film, glass, frame and solder tape related to module area can be decreased with the increase of unit area wattage. In the short and medium term, the cost advantage of TOPCon is significantly higher than that of HJT, as the production cost of TOPCon is $0.03/W higher than that of PERC and $0.07/W higher than that of HJT.

The improvement of module efficiency brings area-related BOS cost dilution, and there is still room for TOPCon module premium to increase. With the same footprint, N-type TOPCon modules have higher power generation than PERC modules, which can effectively reduce the unit investment cost related to area, such as land, bracket, construction and cable. Theoretically, for every 0.5% increase in efficiency of TOPCon modules, the area-related BOS cost will drop by $0.03/W. Currently, the efficiency of TOPCon modules is nearly 1% higher than that of PERC modules, and it is expected that the premium brought by the efficiency increase is about $0.05/W on average. TOPCon modules can bring a premium of more than 0.13 Yuan/W, and are highly competitive in the market. From the bidding results of domestic terrestrial power plant projects in the first half of 2022, the average premium of N-type TOPCon modules over PERC modules is over 0.11 Yuan/W, which further verifies the market’s recognition of N-type modules, which also indicates the path for TOPCon companies to achieve profitability improvement and competitiveness enhancement. With the continuous improvement of TOPCon cell conversion efficiency, it is expected that the market competitiveness of modules will be further enhanced.

Leading companies have mass production capability and are expected to realize TOPCon industrialization in 2022. Leading battery companies led by JinkoSolar (18.610, 0.22, 1.20%) and Zhonglai are the first to lay out N-type TOPCon capacity. According to our incomplete statistics, as of the end of May 2022, the market has put into production more than 24GW of TOPCon cell capacity, of which JinkoSolar has put into production 16GW and Zhonglai (19.780, 0.23, 1.18%) (V.I.P.) has put into production 3.5GW, The industry is planning to produce more than 80GW of TOPCon, and mainstream manufacturers such as Trina Solar (84.000, 1.18, 1.42%) and JA Technology (75.020, -0.97, -1.28%) have pilot lines and are expected to start production in the second half of this year. In addition, TOPCon technology can accommodate PERC production lines to the greatest extent, and the production difficulty is much lower than other N-type technology routes. Among the 300GW PERC lines in the industry, we believe that at least half of the production capacity can be upgraded to TOPCon, and we expect TOPCon cell production capacity to exceed 50/80GW in 2022-2023.

The investment in TOPCon equipment is expected to be over 24 billion RMB in 2025, and the total investment for four years is over 70 billion RMB. At this point in time, TOPCon already has obvious power generation efficiency improvement (1.5%-2.0%) compared with PERC, and the cost advantage is expected to appear in the coming year. According to the investment plan of domestic and foreign battery manufacturers, TOPCon is expected to enter the capacity explosion period from 2022.

Focus on the expansion of TOPCon capacity in the second half of the year, the demand for core equipment is good for the leading enterprises. As mentioned above, the leading battery component companies are actively laying out the N-type battery technology route, and the TOPCon battery capacity is entering a period of rapid expansion. In the TOPCon battery equipment, the choice of deposition equipment has been the most concerned direction of the market. On the one hand, some leading manufacturers have already adopted LPCVD equipment in mass production; on the other hand, PECVD is expected to be verified gradually after half-year trial. We believe that both LPCVD equipment and PECVD equipment will be the choice for TOPCon cell capacity expansion, and PECVD equipment has advantages in terms of disturbance problem solving and cost.

 


Post time: Aug-10-2022