ELECTROCHINA (Intro): Current Trends in Photovoltaics
Recent changes and an overview of the photovoltaic sector
Dear reader,
After few consideration I decided curate “ElectroChina” using English language. If you have any suggestion or recommendations do not hesitate to reach on the below comment section.
I introduce myself:
graduated in 2023 from the Department of Journalism and Communication at Xiamen University in China. After graduation, I chose to focus on renewable energy and started working in a leading Chinese company in the photovoltaic sector.
With a solid foundation in Chinese and a lot of creative enthusiasm, I decided to put some thoughts and notes on paper regarding the renewable energy sector, especially in photovoltaics. This gave birth to 'ElectroChina.'
Introduction:
China is often portrayed as one of the world's most polluting countries, ranking among the top nations globally in terms of greenhouse gas emissions. However, simultaneously, China is also the country that invests the most in innovation in the field of renewable energy, including wind parks, hydroelectric power, and especially photovoltaic installations. This dual status as a polluting country and a nation dedicated to renewable energy is not always fully understood and requires in-depth study and analysis. The ongoing innovation and rapid changes demand constant cataloging and tracking. ElectroChina aims to bring innovations and developments in photovoltaic technology to the public's attention, with a focus on China.
Focus on China
Current Trends:
The year 2023 marks a shift in energy policies. Photovoltaics, like many other sectors of renewable energy, are beginning to find their space and significance in China's energy economy. The strong support and competitive pricing for photovoltaic energy by the government are gradually diminishing, giving way to free and fierce competition. In China, this is already a reality. After years of state-led technology adoption and learning that made the current business model sustainable, a market is emerging where the price of solar energy is effectively competitive with fossil fuel energy.
This is excellent news concerning the energy transition goals on various government agendas. The technology is now easily adoptable, and consequently, prices have dropped. However, there are still many obstacles to overcome, and from a certain perspective, this is where the crisis in the manufacturing sector could begin. Photovoltaics enter an era where the market, not state planning or subsidies, is at the center of business changes and choices. As a result, innovations, successes, and failures in this sector will be increasingly tied to the volatility and real conditions of the economy and finance.
China, being the world's largest production scale chain, is already at the threshold of this new era. The direction that photovoltaics take in the East will be decisive for the rest of the world and will profoundly influence the energy transition.
What is changing in the industry?
Due to various factors such as 1) increased production capacity, 2) a slowdown in demand following the growing inflation of 2020, 3) the increasing efficiency of solar cells in terms of conversion; the price of polysilicon has plummeted by 75% from 2020 to 2022. It has decreased from around $35/kg to the current approximately $12/kg. Silicon is the foundational material for solar module production, and its purity in terms of chemical structural composition determines its price and range of use.
With the decrease in silicon prices (including processing and drawing to obtain monocrystalline silicon), the production cost of solar panels has also declined. This, in turn, has led to an automatic increase in the overall production of modules, resulting in an oversupply. The oversupply has caused the modules themselves to cost even less.
The price of silicon forms the foundation of the industry, yet, concurrently, it is susceptible to industry influences.
Recently, the cost (without considering incentives) per watt produced by photovoltaic cells is around €1,30/W, which is very low considering the selling prices. Module manufacturers are finding it challenging to further reduce production costs. Typically, production costs include electricity, labor, maintenance costs, and material costs. That's why it's essential to work on the production chain in terms of efficiency; avoiding waste during production can reduce costs and consequently increase profits.
So, the natural question arises: what kind of learning curve exists in the construction of photovoltaic panels? In other words, what maneuvering space is possible in the production of photovoltaic panels to lower the prices of the end product and achieve a margin capable of sustaining production?
In the manufacturing of photovoltaic panels, there is a learning curve that reflects the relationship between production experience and the reduction of production costs. As manufacturers gain experience and implement improvements in the production process, they become more efficient, leading to cost reductions. This learning curve effect is known as the "experience curve" in the solar industry.
The space for maneuvering in production costs lies in optimizing various aspects of the manufacturing process. This includes improving the efficiency of the production line, enhancing automation, minimizing waste, and negotiating better deals on raw materials. Additionally, advancements in technology and innovations in the production of solar panels can contribute to cost reduction.
By continuously refining the manufacturing process and benefiting from economies of scale, solar panel producers can lower their production costs, potentially allowing for a more competitive pricing strategy. However, it's important to balance cost reduction efforts with maintaining product quality and meeting industry standards.
Challenges and Strategies in the Photovoltaic Sector:
According to the International Technology Roadmap for Photovoltaic (ITRPV), the Average Selling Price (ASP) of photovoltaic modules has been declining annually. This trend is influenced by factors such as the accelerated and accessible learning of production processes and a substantial increase in the total installed solar modules, leading to a significant decrease in photovoltaic energy prices.
Major factors influencing electricity prices from solar modules include government renewable energy policies and the increasing efficiency of solar modules over time, resulting in higher energy production per cell.
Focusing on the learning curve and efficiency methods in solar panel production, the majority of production costs are now dominated by raw materials, primarily silver and glass, as opposed to the polysilicon production stage.
In 2023, the efficiency improvement curve from silicon ingots to modules continues to decline. However, the decreasing price of polysilicon, coupled with monocrystalline silicon production costs, may not be sufficient to cover production costs relative to the declining final product prices, posing a risk of losses.
The final question is how to further minimize the production cost of photovoltaic panels to recreate profit margins, as companies face ongoing margin contractions? In 2024, companies may potentially encounter a negative balance, challenging to sustain amid oversupply.
Possible Solutions:
Chinese companies renegotiating solar prices below $0.5/Watt: This could induce sudden demand elasticity, especially in the private and residential sectors. However, this is considered unlikely, as demand fluctuations are believed to be more dependent on government policies and capital interest rates than panel prices themselves.
Producing at a loss: Companies may choose to operate at a loss to keep facilities open and compete until only the major competitors remain.
Production incentives (e.g., IRA, Inflation Reduction Act): This could aid some US companies in purchasing low-cost photovoltaic cells from the Asian market. However, it may not be a favorable long-term business model.
Winners and Future Trends:
Panel producers seldom own or utilize solar facilities after production, often selling them to entities like EPC (Engineering Procurement Construction) for immediate profits. Managing solar stations is considered a segment with potentially positive margins. Buyers of solar modules, such as private individuals or private entities, are also expected to benefit as prices continue to decrease.
The market has shifted from a "Selling market" to a "Consumer market" in a few years. Companies with a forward-looking and strategic vision in the photovoltaic sector may enjoy maximum market and investor benefits when profits rebound.
It is suggested that this period is a golden opportunity for innovators rather than mass production. European companies are urged to seize the opportunity to develop an independent photovoltaic panel system, less reliant on Chinese scale production, and highly focused on innovation and efficiency.
What are you though on Chinese photovoltaic industry for 2024? Let us know that in the comments!
Umberto Damasio