The photovoltaic (PV) industry's supply landscape reshaping is expected to bring a dawn, and the industry chain is anticipated to usher in a turn for the better after adversity.

On May 17th, under the guidance of the Ministry of Industry and Information Technology's Electronic Information Department, the China Photovoltaic Industry Association organized a "High-Quality Development Symposium on the Photovoltaic Industry" in Beijing. Participants included some listed companies from the main photovoltaic industry chain, local governments, policy/commercial banks, and research institutions.

The meeting proposed six specific measures: optimizing the guiding role of photovoltaic manufacturing industry management policies on industry capacity construction, enhancing key technical indicators; standardizing the management of local government's investment attraction policies to establish a unified national market; adapting to the rapid iteration of photovoltaic technology by establishing effective intellectual property protection measures; encouraging industry mergers and acquisitions, and smoothing the market exit mechanism; strengthening the crackdown on malicious competition through sales below cost prices; ensuring the stable growth of the domestic photovoltaic market, exploring support for advanced technology applications through demonstration projects, and transforming the low-price bidding situation, etc.

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On May 21st, the China Photovoltaic Industry Association stated in a release that it encourages industry mergers and acquisitions and smooths the market exit mechanism; it also strengthens the crackdown on malicious competition through sales below cost prices.

The symposium emphasized the high degree of marketization in the photovoltaic industry, which is more suitable for resolving the current industry's difficulties through market-oriented means. However, it also highlighted the "visible hand of government" and proposed specific solutions. For instance, in terms of supply, it mentioned the guidance of key technical indicators on capacity construction, standardized management of local government photovoltaic investment attraction, and in terms of price, it cracked down on malicious competitive behaviors such as sales below cost prices. At the industry level, it encouraged mergers and acquisitions, which could accelerate the survival of the fittest in the industry.

The photovoltaic industry is facing tremendous pressure from oversupply, with continuous pressure on industry chain prices and profits. However, as industry expansion is limited and existing capacity is accelerated to clear out under the push of multiple factors, the reshaping of the industry's supply landscape is expected to bring a dawn. Against the backdrop of the clear "dual carbon" strategy and the rational adjustment of new energy development goals, the photovoltaic industry chain is expected to usher in a turn for the better after adversity.

Assisting the industry in developing in a healthy manner,

Currently, the supply-side issues in the photovoltaic industry are prominent, with oversupply and demand leading to irrational超跌 in prices. The price of silicon materials has basically penetrated the cash cost levels of enterprises in various tiers.

By the end of 2023, the nominal capacity of domestic photovoltaic silicon materials, silicon wafers, cells, and components has increased to over 900GW, far exceeding the global photovoltaic installation expectations for 2024-2025. Oversupply has led to a significant drop in the prices of silicon materials and silicon wafers since the second quarter of 2024, an increase in inventory cycles, and the industry is basically in a loss-making state.

According to the May 22nd quote from PVInfoLink, the price drop of multi-crystalline silicon dense material, 182mm P-type silicon wafers, 182mm PERC cells, and 182mm PERC double-glass modules compared to the high point prices of 2022 reached 86%, 84%, 77%, and 59% respectively. Hua Chuang Securities believes that this symposium guides the construction of new capacity from the policy end, smooths the exit mechanism of backward capacity, and at the same time cracks down on malicious competition, which is conducive to clearing the supply side and guiding the industry chain prices back to a reasonable level.Facing the risk of overcapacity, relevant departments and financial institutions have significantly tightened the review and control of photovoltaic (PV) expansion, essentially halting industry expansion. Currently, the industry can observe the termination of IPOs, refinancing, and expansion plans by multiple manufacturers. In September 2023, Tongwei Co., Ltd. announced the termination of a 16 billion yuan private placement plan; Shenzhen Stock Exchange issued a decision to terminate the review of GaoJing Solar's initial public offering and listing on the ChiNext board, leading to the termination of GaoJing Solar's IPO. In November 2023, Jingang Photovoltaic announced the termination of its 2023 private placement plan; and Daile New Materials announced the termination of the issuance of shares to specific objects through a simplified procedure. In April 2024, Zhonglai Shares terminated a 14 billion yuan silicon-based project; RuXing Technology's IPO was terminated. The tightening of financing, combined with the guiding role of this symposium on capacity construction, is expected to control the disorderly expansion of the industry, and the supply and demand pattern may be optimized.

In terms of pricing, the industry chain prices have reached the bottom, and the industry pressure has reached its lowest point. According to the statistics of WuXiang Securities, since October 2022, the price of components has fallen by nearly 60%, reaching the current price of 0.87 yuan/W, resulting in a loss-making state; according to the latest quotation of the Silicon Industry Branch, the current price of N-type polysilicon is 41,000-45,000 yuan/ton, and the price of P-type polysilicon is 34,000-39,000 yuan/ton, which has broken through the cash cost, and companies are mostly responding by maintenance. The comprehensive loss of the main industry chain will lead to an unexpected contraction of industry supply, support the improvement of the industry's supply and demand pattern, and corporate profits are expected to rebound.

The bottoming of silicon material prices may lead to the stabilization of the main industry chain prices. Under the current price, the silicon material link is already in a cash loss state for the entire industry, and some high-cost capacity has already started to stop production for maintenance. The China Photovoltaic Industry Association statistics show that the supply of silicon material in May may decrease on a month-on-month basis. At the same time, the current cost proportion of silicon material is relatively low, and further price drops have a limited impact on costs. As some capacities start to stop production, the price of silicon material may bottom out in May-June, leading to the stabilization of the main industry chain prices.

Changjiang Securities also stated that the irrational decline in prices has solidified the industry's bottom. In the short term, the sector has been adjusted under the influence of Sino-US trade tariffs, and photovoltaic companies have expected this. The main industry chain has now entered a comprehensive cash loss level. Considering that the industry's capital expenditure has significantly slowed down, the supply clearance of second and third-tier companies has accelerated. Combined with the good terminal demand and cost-end support, the industry chain profits are expected to gradually warm up. Looking ahead, the export data of components and inverters are expected to constitute a catalyst.

Raise the industry entry threshold

According to the disclosure of the China Photovoltaic Industry Association, since 2023, the association has actively supported the work of the competent ministries and commissions, assisted in revising the "Standard Conditions for the Photovoltaic Manufacturing Industry," and significantly improved the technical indicators related to products. China Everbright Securities believes that the new version of the "Standard Conditions for the Photovoltaic Manufacturing Industry" may further raise the industry's new project and industry operating standards in terms of: polysilicon reduction electricity consumption, comprehensive electricity consumption; average conversion efficiency of photovoltaic cells; average conversion efficiency of photovoltaic components, etc., to promote the high-quality development of the photovoltaic industry.

The previous version of the "Standard Conditions for the Photovoltaic Manufacturing Industry" was released in 2021, which clearly defined the conditions that photovoltaic manufacturing products needed to meet at that time, the conditions that new construction and expansion capacities needed to meet, and the regulatory requirements for electricity consumption.

In the past, the "Standard Conditions for the Photovoltaic Manufacturing Industry" only served as a guiding document to encourage and guide the industry's technical progress and standardized development, and did not have the pre-emptive and mandatory nature of administrative approval. However, China Everbright Securities believes that under the current relatively severe photovoltaic supply and demand relationship, various ministries and commissions may jointly introduce policies to standardize the healthy development of the industry.

On August 17, 2022, in the case of violent fluctuations in the prices of some photovoltaic industry chain products, the Ministry of Industry and Information Technology, the State Administration for Market Regulation, and the National Energy Administration jointly issued the "Notice on Promoting the Coordinated Development of the Photovoltaic Industry Chain and Supply Chain." It clearly stated that the Ministry of Industry and Information Technology, the State Administration for Market Regulation, and the National Energy Administration will timely report key work, timely talk to and warn places and enterprises with problems, carry out law enforcement inspections on enterprises that violate laws and regulations, and strengthen the promotion of good experiences and practices. Although the "Standard Conditions for the Photovoltaic Manufacturing Industry" does not have the mandatory nature of administrative approval, it has important guiding significance for the industry and is also expected to promote the clearance of inefficient capacities in the industry.

China Everbright Securities stated that the Ministry of Industry and Information Technology guides the high-quality development of the photovoltaic industry and may introduce a new version of the "Standard Conditions for the Photovoltaic Manufacturing Industry" to raise the industry's entry and operation thresholds, and enhance its influence on the industry. Companies with cost and technical advantages in silicon materials, cells, and integrated components are expected to benefit.PV Installation Growth Expected to Continue

According to the National Energy Administration, from January to April 2024, China added 60.11GW of new photovoltaic (PV) installations, a year-on-year increase of 24%. In April alone, 14.37GW of new PV installations were added, marking a 2% year-on-year decrease but a 59% increase compared to the previous month. The monthly demand for new installations in China has shown a significant improvement on a sequential basis. Huachuang Securities stated that for the full year of 2024, the industry chain prices are expected to remain at a low level, with improved terminal installation costs and enhanced project returns stimulating downstream installation demand, which could lead to a continued growth in new PV installations in China.

On May 29th, the State Council issued the "Energy Conservation and Carbon Reduction Action Plan for 2024-2025," which includes several key points related to photovoltaics: scientifically and reasonably determining the scale of new energy development, with the utilization rate of new energy in regions with good resource conditions potentially reduced to 90% under the premise of ensuring economic viability; enhancing the capacity to absorb renewable energy, accelerating the construction of large-scale wind and PV base transmission channels, improving inter-provincial and inter-regional power transmission capabilities, and enhancing the load-bearing capacity of distributed new energy; new polysilicon projects must achieve industry-leading energy efficiency, strengthening the connection between renewable energy green power certificate trading and energy conservation and carbon reduction policies, with the goal of achieving full coverage of green certificate issuance by the end of 2024.

Huafu Securities noted that the relaxation of the new energy utilization rate to 90% (previously 95%) confirms the news in March that the new energy absorption red line is expected to be relaxed. The expected decrease in utilization rates could significantly increase the absorption space for photovoltaics, alleviating the absorption bottleneck in the short term and potentially increasing the volume of installations. Additionally, the action plan clearly proposes to enhance the capacity to absorb renewable energy, pointing out the acceleration of the construction of large wind and PV base transmission channels and the enhancement of the load-bearing capacity of distributed new energy. This top-level design document provides a clear direction and determination. The company maintains its expectation of over 250GW of new PV installations in China for 2024, with the second half of the year expected to usher in a peak season for new PV installations.

Changjiang Securities also believes that for the industry as a whole, positive factors are evident in 2024. On the demand side, under a neutral expectation, global PV installations in 2024 are expected to be around 540GW, growing by about 30% year-on-year, with highlights in domestic and non-European overseas markets, and Europe returning to a normal growth rate after inventory reduction.

On the supply side, although the annualized capacity of each segment in 2024 is relatively sufficient, considering the delay in production (market-driven self-regulation + tightening financing) + the delay in reaching full production capacity (slow ramp-up by new entrants), the actual supply and demand are expected to be better than current expectations. Moreover, with diversified technology routes and a globalized capacity layout, the supply side can avoid homogeneous competition.