L R AS Published on Tuesday 1 September 2020 - n° 329 - Categories:PV Watch
A look at the monopolistic concentration of manufacturers in the photovoltaic sector
It is interesting to examine the state of photovoltaic production and the market at this time of the year. The Covid 19 pandemic has in principle disrupted production and demand. What exactly is the situation? Who is particularly affected? Have prices fallen as a result of reduced demand? Or on the contrary a rise? In a word, how has the sector evolved after a complicated six-month period?
For quick reading
Silicon: the significant fall in prices in the first quarter was erased by the upturn from June to August. Production increased by 36% over the period and production is increasingly concentrated among a few players.
Wafers: two changes have been at work: the transfer from multicrystalline to monocrystalline has continued, and the size of wafers is still much debated, with a marked trend towards larger formats. Production increased by 19% over last year.
The cells: Manufacturers have been caught between price increases from upstream and the refusal of inflation from panel producers. The top five manufacturers already supply more than half of the cells. Concentration will continue because they are the only ones able to invest in larger wafer formats. These five are at the origin of the 16% increase in half-yearly production.
Panels: the manufacturers have come up against a slump due to the pandemic. They reacted by presenting increasingly larger panels (> 600 watts), and double-sided panels. Chinese production willsupply 85% of the world demand for panels in 2020. The ten main manufacturers will provide 85% of this production.
How will the market develop in the second half of the year? The Chinese authorities are optimistic, but suppliers still have room to increase production. The pandemic remains the great unknown of the last four months.
Silicon was a central and disruptive element during the first half of the year. According to official Chinese statistics (the CPIA), production reached 205,000 tonnes during the period, an increase of 32% over the first half of 2019, for a global (annual) production capacity of 543,000 tonnes. China has 85% of the world's capacity (and certainly at least as much in production) according to PV Magazine.
The disruption of the sector is manifested by the disappearance of many Chinese and foreign manufacturers, even well-known ones such as Hanwha Chemical or the Korean OIC factories. It is the consequence of the migration of production plants from the east of China to the west (Xinjiang in particular) where the cost of electricity is as low as 0.26 RMB/kWh ($0.038), which offers a competitive advantage as electricity accounts for 30% of silicon production costs. By locating in Xinjiang, the new production units achieve a silicon cost of 35-40 RMB/kg ($5.13 - $5.90). However, during thefirst quarter of 2020, the market price of silicon fell to 60 RMB / kg ($8.80). Many Chinese and foreign manufacturers had to stop production due to recurrent losses. Four manufacturers, Yongxiang, Daqo New Energy, TBEA and East Hope, now have 53% of the world's polysilicon production capacity. The production cost of their very modern and productive plants is less than 45 RMB / kg ($6.60). This is enough to eliminate many other manufacturers who do not have the same production cost.
The price of silicon rose sharply in June-July-August due to industrial accidents at two producers (Daqo and GCL Poly) according to the official version. pvXchange hypothesises that the units were closed due to the covid. This price increase is curious. It seems to challenge the official version of the increase in production volume during the half-year. On the one hand this increase of 32%, i.e. 50.000 extra tonnes of silicon is astonishing because the pandemic had to reduce the number of workers and a certain number of producers stopped production because of the low prices, even if we don't know the size of their production capacity. On the other hand, this increase in production, at a time when the global demand for panels is hampered by the pandemic, should have caused a collapse in prices and not 20% inflation.
PV InfoLink estimates that the price will return to 66 RMB/kg ($9.45) by the end of the year. This is likely.
The episode of soaring silicon prices has had an effect on the rest of the production chain. The price of wafers as well as the change from multicrystalline to monocrystalline (which will represent 80% of production in 2020) has passed on this inflation. It has been partly masked by the evolution of demand: the normal format in 2019 was a 156.75 mm wafer. It will be replaced in the firsthalf of 2021 by the 166 mm wafer (M6) which will become dominant. This will itself be replaced by the 210 mm (M12) format in the first half of 2022, as it is adapted to the large panel formats used in solar power plants. This change is gradual, as production equipment in the manufacturing lines and at the glass manufacturers' premises will have to be adapted.
This has not prevented wafer manufacturers, according to the CPIA, from increasing their half-yearly production by 19% to 75 GW.
In the middle of the PV industry, cell manufacturers have also suffered from the rising price of silicon, but they are also dependent on panel sales. These have been disrupted by the coronavirus, by the weakness of installations in China during the first half of the year (11 GW) and by the low demand in many confined foreign countries. The increase in cell prices reached 21% in two months at the end of June to the end of August). This sharp rise forced some cell manufacturers, as well as some panel producers, to cancel orders because contracts were concluded at below market prices, or to renegotiate contracts.
Yet, according to the CPIA, production increased by 16% to reach 59 GW. This progression was essentially obtained by the five main manufacturers: the n°1, Tongwei increased its production by 31%, the n°2, Aiko by 83%, Lu'an by 76%, Runergy doubled, ... without knowing the market share they represent.
These five manufacturers occupy an increasingly large place (without any known figures) in the volume produced, as they eliminate the rank 2 manufacturers because of their competitiveness in price and type of products. Moreover, they are the ones who are the fastest to set up production lines adapted to the largest sizes of inserts. They also have a strong distribution network in China and abroad. These manufacturers have benefited from the rise in cell prices in July and August: they reached almost the same level as at the beginning of January.
This price surge is expected to slow down due to the low demand for panels, which hinders any increase in cell prices.
Large panel assemblers are in direct contact with foreign countries. The pandemic has resulted in a stagnation of exports at 28 GW. The 11 GW facilities in China leave a shortfall of 14 GW compared to CPIA's estimated production. It established it at 53 GW for the first half of the year, an increase of 13%. This slump forces producers to avoid price increases that are difficult to pass on to their customers. They are therefore slowing down the cost increases coming from silicon through the cells.
The large manufacturers are gaining market share by adapting to the demand for larger cell and panel formats (units of more than 600 W were presented at the recent SNEC show in Shanghai, as well as double-sided panels, which are constantly increasing their market share; it will reach 30% of Chinese ground projects in 2020). This is reflected in the increase in their market share in the production of
Chinese production will supply 85% of the world demand for panels in 2020. The top ten Chinese manufacturers will provide 85% of this production.
How will the market develop in the second half of the year?
The CPIA estimates that Chinese demand will awaken due to the usual seasonality of the Chinese market; that there have been many plant commissioning delays; and that major construction programmes will be implemented this year and next. The Chinese official body evaluates installations between 35 and 45 GW in the country. The authorities want to support their industry.
pvXchange is in favour of stability or even a drop in demand, while stressing that the forecasts are contradictory. In Europe, photovoltaic installations are booming. Demand in Germany has picked up again since the removal of the 52 GW limitation benefiting from the EEG. In many parts of the world, however, the pandemic is slowing down installations and thus the demand for panels. This is disrupting companies. Installation volumes are lower than expected. American and Brazilian customers are delaying deliveries or cancelling orders. If this is reported by manufacturers, it is because the phenomenon is not marginal. To confirm this, pvXchange reports that manufacturers have no difficulty in accepting deliveries for the last months of the year. This makes it increasingly unlikely that the volumes planned for the year will actually be achieved. On the other hand, he notes a slight rise in prices in Europe, which is said to be the consequence of the tension that arose in the sector in the middle of the year.