China's New Energy Industry Sub-sectors Outlook - Photovoltaics and Energy Storage

Kefei Liu

Portfolio Manager

CCB Principal Asset Management (Hong Kong) Co., Limited

Key takeaways

Photovoltaics: The ongoing advancements in high-efficiency batteries and breakthroughs in N-type battery technology will stimulate demand and foster further development of various sub-sectors within the photovoltaic industry chain. This includes inverters, photovoltaic films, photovoltaic glass, silver paste, photovoltaic junction boxes, and ribbon welding.

Energy Storage: In 2023, prices of lithium carbonate and silicon materials have fallen, leading to lower prices of battery packs and photovoltaic components, which means a reduction in the cost of developing energy storage businesses. Furthermore, the increasing gap between peak and off-peak electricity prices, along with the implementation of the two-part electricity pricing system, has substantially enhanced the profitability of commercial and industrial energy storage this year.

Amid rising global concerns over energy security and the exacerbation of climate change, the new energy industry continues to present opportunities. Due to supportive policies, China's photovoltaic industry has achieved notable success globally after developing for many years. Alongside the progress in the photovoltaic industry, China's energy storage sector has also witnessed significant growth. As we look ahead, what development trends can we expect in photovoltaics and energy storage? And where do the opportunities lie within these sub-sectors?

Photovoltaics

The continued rise in demand for high-efficiency photovoltaic cells reinforces the dominant position of N-type cells with TOPCon applications. Currently, market penetration of N-type cells stands at 25% to 30%, and it is projected to increase to 65% to 70% by 2024. The shift toward N-type cells has created a strong demand for higher-quality N-type silicon materials that require more advanced technological capabilities. On the other hand, P-type silicon materials face overcapacity, and their prices have dropped to RMB 60,000 per tonne. The supply is expected to increase further by 2024, which means prices shall remain low in the long-term. Currently, the selling price of N-type silicon materials is RMB 8,000 higher per tonne than P-type silicon materials. It is anticipated that the price difference between these two will further widen in the second half of 2023 and the first half of 2024, providing better earnings prospects for companies with N-type silicon material production capabilities.

Notably, the production of photovoltaic silicon materials depends on a key consumable - quartz crucibles. At present, there is a shortage of quartz crucibles as high-purity quartz sand, the raw material, has continuously increased in price. Additionally, the trend towards thinner N-type silicon wafers has elevated technical barriers, and variations in product sizes and performance of different suppliers have resulted in large variations in earnings of individual companies. There is an overcapacity issue in the silicon wafer market, and by the end of 2023, it is expected that silicon wafer capacity will exceed 900 GW. This oversupply will intensify competition and lead to a decline in earnings of the industry as a whole. However, leading companies still exhibit relatively strong resilience in terms of earnings.

In the second half of 2023, we expect further reductions in prices of silicon materials, which will drive down prices of photovoltaic components and earnings of silicon material companies. However, due to the increasing adoption of N-type cells, expansion into overseas markets and premium commanded by long-established brands, it is expected that leading photovoltaic component companies may have relatively stronger earnings.

Other segments of the photovoltaic industry chain:

Inverter: Energy storage inverters and batteries are crucial components of household energy storage systems. It is anticipated that the destocking process in the European household energy storage industry will be completed in the latter half of the year. Moreover, the demand for household energy storage in Asia, Africa and Latin America is expected to rise, improving the demand for inverters. Furthermore, the higher-than-expected number of bids for energy storage installations in mainland China and the increased economic benefits of commercial and industrial energy storage businesses, and the expanding price difference between peak and off-peak electricity rates, will contribute to the growth momentum of overall energy storage installations. Consequently, this will generate an increased demand for inverters.

Photovoltaic films: Intensified competition in the first half of this year has put pressure on corporate earnings. However, with the growth in sales of N-type cells in the second half of the year, there is a potential for a structural improvement in earnings as the proportion of POE-type films in total sales is expected to increase.

Photovoltaic glass: Capacity management has become stricter. This year, earnings of photovoltaic glass companies are expected to rebound due to the increased demand for ground-mounted photovoltaic power plants in the second half of the year and the growing market penetration of double-glass photovoltaic modules.

Silver paste: Silver paste is used for manufacturing metal electrodes in solar cells. With the increasing penetration of TOPCon cells, volume of demand as well as profit margin of silver paste required for producing solar cell wafers will increase. It is expected that the overall shipment volume and profit margin of the silver paste industry will experience significant growth.

Photovoltaic junction boxes: The primary function of photovoltaic junction boxes is to connect and protect solar photovoltaic modules. They enable transmission of electrical power generated by solar cells to external circuits and facilitate the flow of current. As the sales proportion and market share of innovative products like chip junction boxes continue to grow, it is anticipated that leading companies will experience an increase in sales volume and earnings.

Photovoltaic ribbon: It is employed for interconnecting solar cell wafers within photovoltaic modules. In the second half of this year, the demand for SMBB photovoltaic ribbon is expected to increase rapidly alongside the growth in demand for N-type cells. This new product has promising earnings prospects and shall contribute to the structural improvement of earnings of ribbon manufacturing companies.

Energy Storage

In 2023, prices of lithium carbonate and silicon materials have fallen, leading to lower prices of battery packs and photovoltaic components, which means reduction in the cost of developing energy storage businesses. Furthermore, the increasing gap between peak and off-peak electricity prices, along with implementation of the two-part electricity pricing system, has substantially enhanced the profitability of commercial and industrial energy storage this year. We expect the demand for additional energy storage capacity in mainland China to reach 43 GWh in 2023 and 129 GWh in 2025, indicating a 1.8x annual growth in 2023 and an expected compound annual growth rate (CAGR) of 103% from 2022 to 2025.

This year, the commissioning of grid-connected energy storage projects in the US was slightly delayed. However, several favourable factors are expected to drive continued increases in installed energy storage capacity in the US over the coming quarters. These include the continuous increase in electricity prices, smooth customs clearance of photovoltaic components exported from China to the US, availability of tax incentives for investing in solar energy in the US, as well as poor grid coordination between different regions and frequent power outages in the US. The projected additional capacity demand for 2023 and 2025 is estimated to be 25 GWh and 69 GWh, respectively, indicating an 80% annual growth in 2023 and an expected CAGR of 72% from 2022 to 2025.

In Europe, the urgency for energy storage capacity has decreased significantly due to a major decline in natural gas prices this year. As a result, European distributors of energy storage systems have built up higher inventory levels and are currently undergoing destocking efforts. However, we expect inventory will decrease to low levels, leading to a recovery in purchases of energy storage systems by distributors. In the long term, we believe that natural gas prices in Europe will gradually rise and this, coupled with significant reliance on imported energy sources, will drive the development of other energy supply options in Europe. Currently, penetration of household energy storage equipment is low, indicating significant growth potential, while the commercial and large-scale energy storage markets are also growing rapidly. We project that the demand for additional capacity for energy storage in Europe will be 12 GWh and 29 GWh in 2023 and 2025, respectively, indicating a 47% annual growth in 2023 and an expected CAGR of 53% from 2022 to 2025.1

Amidst the global trend of energy transition, China's new energy industry has entered a phase of rapid development. China's global competitiveness in the photovoltaic and energy storage sectors has increased. As the global demand for these technologies continues to rise, various related sub-industries are poised to have significant opportunities.

  1. 1. As of 11 July 2023. Source: Soochow Securities. Energy Storage Strategy Report 2023.

Unless otherwise specified, all estimates or forecasts in this article are provided by CCB Principal Asset Management (Hong Kong) Co., Limited.

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