In early July, Tongwei and LONGi, two of the world’s largest producers of high-purity silicon and monocrystalline silicon wafers, launched monetary statements for the primary six months of 2024. The statements point out that each corporations suffered substantial losses, with Tongwei incurring a 3 to three.3 billion yuan loss and LONGi seeing a 4.8 to five.5 billion yuan loss in the identical interval.
That is vital due to the dominant position that these two corporations play within the photo voltaic panel provide chain. For prime-purity polysilicon, a key uncooked materials in photo voltaic panel manufacturing, Tongwei managed greater than one-fourth of the worldwide market share in 2022, in keeping with a late 2023 ratings report. The identical report additionally indicated that Tongwei accounted for 13 p.c of worldwide photo voltaic cell manufacturing, the very best of any firm for six consecutive years. LONGi is equally dominant in module manufacturing, the place they managed practically 19 percent of global market share in 2023.
That is illustrative of a broader development in photo voltaic manufacturing: Provide chains are overwhelmingly concentrated in China. A 2022 report from the International Energy Agency (IEA) discovered that “China’s share in all of the manufacturing phases of photo voltaic panels (comparable to polysilicon, ingots, wafers, cells and modules) exceeds 80 p.c.”
Even inside China, manufacturing is hyper concentrated in a couple of Western provinces. For instance, the IEA report held that in 2021, China was dwelling to 79 p.c of all international polysilicon manufacturing, 42 p.c of which was in Xinjiang alone. In Xinjiang, one single manufacturing unit was accountable for 14 p.c of all polysilicon manufacturing in 2021.
For LONGi and Tongwei, the first headwind is low costs for photo voltaic tools. Tongwei’s July report said that despite sturdy development in exports and home photo voltaic set up, costs have been negatively impacted by provide chain focus. LONGi additionally cited overcapacity and low costs as the rationale for his or her losses within the first half of 2024.
In keeping with a LONGi investor presentation, the value of wafers and modules dropped 50 p.c in 2023, whereas costs for polysilicon and cells dropped by 66 p.c and 55 p.c respectively. The presentation claims that these traits have continued into 2024, with polysilicon and wafer costs dropping by an extra 15 p.c and module costs dropping by 5 p.c, whereas costs for cells have stayed stage for the primary half of 2024.
For corporations the scale of Tongwei and LONGi, these kinds of downturns within the enterprise cycle are painful however endurable. For smaller producers, although, they are often deadly. Additionally they create a hostile setting which may dissuade different buyers from coming into the PV provide chain market.
Provide chain focus is unhealthy for the power transition for an entire host of causes. The primary motive is that focus of PV provide chains in a single nation poses a risk to power safety in different nations. It isn’t arduous to think about that China might discover itself in a dispute with one other nation and use entry to PV merchandise as leverage.
On a extra basic stage, PV provide chain focus threatens market stability, which issues due to its affect on the quick and reasonably priced rollout of fresh expertise. When a lot manufacturing capability is concentrated in a single nation, not to mention one province and even one manufacturing unit, that makes the entire provide chain actually susceptible to native crises. Think about what would occur to PV costs if there was a pure catastrophe in western China. Political unrest, energy shortages, or every other form of localized disaster might hamstring manufacturing.
This vulnerability finally interprets to greater costs downstream. Take for example the USA’ voluntary renewable power market. On this case, offtakers (often huge companies) signal a Energy Buying Settlement (PPA) with a renewable power developer to buy the clear energy from an influence plant earlier than the photo voltaic arrays are constructed. In that contract, they specify the pricing parameters for the price of the electrical energy. That implies that the developer wants to cost within the probably price of supplies months upfront. Risky costs which are liable to spiking trigger the builders to construct the worst-case state of affairs into their pricing fashions, which leads to greater PPA prices.
For his or her half, Chinese language regulators usually are not resting on their laurels. In late June, the National Energy Administration announced that they might take steps to gradual photo voltaic manufacturing development by curbing “low-end” manufacturing capability additions. Extra just lately, the Ministry of Business and Info Know-how launched a draft coverage doc that said a want to restrict capability expansions and encourage PV producers to as an alternative deal with analysis and improvement.
These coverage paperwork aren’t binding, however they’re an indication that alarm bells are beginning to ring in Zhongnanhai, and we would see extra decisive motion to restrict overcapacity and stabilize the market.
