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 firms 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 firms play within the photo voltaic panel provide chain. For top-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 accordance with a late 2023 scores report. The identical report additionally indicated that Tongwei accounted for 13 % of worldwide photo voltaic cell manufacturing, the best of any firm for six consecutive years. LONGi is equally dominant in module manufacturing, the place they managed almost 19 % of worldwide 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 Worldwide Vitality Company (IEA) discovered that “China’s share in all of the manufacturing phases of photo voltaic panels (corresponding to polysilicon, ingots, wafers, cells and modules) exceeds 80 %.”
Even inside China, manufacturing is hyper concentrated in a couple of Western provinces. For instance, the IEA report held that in 2021, China was residence to 79 % of all world polysilicon manufacturing, 42 % of which was in Xinjiang alone. In Xinjiang, one single manufacturing unit was answerable for 14 % of all polysilicon manufacturing in 2021.
For LONGi and Tongwei, the first headwind is low costs for photo voltaic tools. Tongwei’s July report acknowledged that despite sturdy progress in exports and home photo voltaic set up, costs had 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 line with a LONGi investor presentation, the value of wafers and modules dropped 50 % in 2023, whereas costs for polysilicon and cells dropped by 66 % and 55 % respectively. The presentation claims that these developments have continued into 2024, with polysilicon and wafer costs dropping by an additional 15 % and module costs dropping by 5 %, whereas costs for cells have stayed degree for the primary half of 2024.
For firms the dimensions 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 atmosphere which may dissuade different traders from getting into the PV provide chain market.
Provide chain focus is dangerous for the power transition for a complete 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 laborious 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 degree, PV provide chain focus threatens market stability, which issues due to its affect on the quick and inexpensive rollout of unpolluted know-how. 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 weak 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 another form of localized disaster might hamstring manufacturing.
This vulnerability in the end interprets to increased costs downstream. Take for example the USA’ voluntary renewable power market. On this case, offtakers (normally massive 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 possible value of supplies months prematurely. Unstable costs which might be liable to spiking trigger the builders to construct the worst-case state of affairs into their pricing fashions, which leads to increased PPA prices.
For his or her half, Chinese language regulators usually are not resting on their laurels. In late June, the Nationwide Vitality Administration introduced that they’d take steps to gradual photo voltaic manufacturing progress by curbing “low-end” manufacturing capability additions. Extra not too long ago, the Ministry of Business and Data Expertise launched a draft coverage doc that acknowledged a need to restrict capability expansions and encourage PV producers to as a substitute concentrate on 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’d see extra decisive motion to restrict overcapacity and stabilize the market.
