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China Clean Energy: Q4 2022 Review
The sector’s attention weakened last quarter as the market became more focused on China’s macro and reopening trend. The revision of global energy prices drove less excitement about the clean energy sector than in the first three quarters of 2022. On fundamentals, we saw signs of polysilicon price correction in December, which could be a tailwind to solar installations in 2023. We also saw record-high wind tendering, which could start turning into actual installations after the recent reopening disruption. Looking ahead, we expect utility companies’ project returns to be favorable in 2023, as raw material costs will no longer be the main drag.
- Year-to-November solar demand growth globally was very solid, even as polysilicon prices stayed high. We started to see signs of polysilicon price correction, which could be a tailwind to solar installations in 2023.
- We see a continued focus on solar cell technology innovation to achieve better conversion efficiency and hence superior returns.
- Despite record-high new orders in 2022, reopening disruption slowed wind power installations in the recent quarter, but should pick up meaningfully in 2023.
Strong Global Demand Despite High Polysilicon Prices; Signs of Price Correction Starting December
Solar product prices have remained elevated for the majority part of 2022. Nevertheless, global solar power installation remains very resilient. In particular, China’s year-to-November installation was 66GW (+89% yoy), mostly led by strong residential and commercial projects.1 However, there were delays to China’s large-scale solar farm projects as they are more economically sensitive. Brazil contributed a lot, at 22GW (+83% yoy).2 India and some European countries, including Germany, Spain, and Italy, are also fast growing. The US market recorded 17GW by this September (-3% yoy) due to investors’ concerns from antidumping and countervailing duties (AD/CVD) investigation.3
Polysilicon shortage remains the key bottleneck for faster and more economical solar project installations. As new polysilicon supply began to come out in recent months and demand is soon entering a low season, we started to see signs of a polysilicon price correction in December. We saw successive prices cut along the solar value chain, starting from wafer, to cell, to modules, and finally to polysilicon. Solar module prices have dropped to a relatively low 12-month range of RMB 1.84 to RMB 1.90 per watt in December.4 Polysilicon prices dropped to RMB 240/kg by the end of 2022, with the lowest price quote dropping to RMB 185/kg.5 Hence, supply chain players are generally in a wait-and-see sentiment and face destocking pressure on concerns of a potential inventory impairment amid falling polysilicon prices. Industry channel checks suggest the supply of major raw materials along the solar supply chain should be sufficient next year. Thus, we believe polysilicon shortages will no longer be the main drag in 2023.
We are bullish on China’s demand uptick after solar panel prices decline. The large-scale solar projects, which are sensitive to project returns, should be most supported by the recent polysilicon price correction. Regarding the overseas market, the US government made a policy U-turn on solar panels in the middle of 2022 that should help boost future demand. It suspended tariffs for two years on solar panel imports from four Southeast Asian countries (Cambodia, Malaysia, Thailand and Vietnam) in which Chinese solar companies hold manufacturing capacity. This is to ensure that US consumers have access to a sufficient supply of solar modules to meet domestic electricity generation needs. We expect US solar demand may double in 2023 and maintain at high levels for a few years on the back of Biden’s supportive policies on US clean energy development.
Solar Cell Technology Innovation and Iteration Continues
With many different routes of solar technology being pursued by top solar makers, TOPCON technology commercialization was the clear outperformer in 2022. More company participation in TOPCON reinforces this trend and the research and development efforts. Ample equipment new orders have been placed for capacity expansion next year. Despite being on track for further cost reduction, HJT’s progress was considered to be falling behind as TOPCON efficiency improvement was beating expectations. We believe it is still early to determine which technology could be the dominant one to fully replace PERC. The most likely solution, in our view, is for cell makers to diverge in solar cell technologies for years before seeing significant conversion rate improvement and cost cuts in the mass production of some products. In addition, the current PERC capacities are quite new and concentrated in a few big solar companies, which are incentivized to fully utilize their PERC capacities before moving on to the next generation of technologies, even if they’re already ready.
Strong Wind New Order Appetite; Actual Installations Delayed due to Reopening
China’s 2022 wind project new order growth was exceptional. Full-year tendering volume for wind projects could reach 100GW, which was a record-high number, compared to just 65GW in 2019.6 Among these, 15GW comes from offshore wind projects. Despite the strong new order growth, actual installations in 2022 have yet to pick up, causing major disappointments in recent quarters, partly due to lockdown disruptions and design optimization to cater to larger-sized wind turbines. Q4 was often the strongest season for installations in the past, but this year, installations could be delayed to 2023 due to China’s reopening disruption in November and December. With record-high new orders growth, we expect installations to pick up meaningfully in 2023.
From a profitability standpoint, we believe the correction in container freight rate and raw material costs to be a positive tailwind for the wind supply chain in 2023. These help alleviate cost pressures and improve the margin outlook of the whole wind supply chain. This, together with strong new orders, leaves a higher profit pool to the market players and hence relatively less intense price competition. The upcoming installation acceleration is a positive catalyst, particularly favoring component suppliers whose profits depend on volume delivery and capacity utilization.
Staying Ahead with Mirae Asset’s Latest Insights
Source 1: Haitong, December 2022
Source 2: Ibid.
Source 3: Ibid.
Source 4: UBS, December 2022
Source 5: UBS, December 2022
Source 6: Credit Suisse, December 2022
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