China's photovoltaic industry chain dilemma: dim under the glaze

Behind the glamorous Chinese PV companies is the “two-outside” industrial chain. As a post-entertainer of the market, how can China's PV companies break through?

As a clean energy source for sustainable use, solar energy has enormous potential for development and application. Through the promotion of solar photovoltaic technology, we can gradually improve China's energy consumption structure and ensure energy security to a certain extent. However, as the world's largest producer of solar cells and modules, China's photovoltaic industry is facing the dilemma of “two heads outside, subject to people”. Facing the aggressive situation of foreign-funded enterprises, how to seek development in a congenital and unfavorable situation for Chinese enterprises as market entrants is an important issue related to the optimization of China's photovoltaic industry structure.

Industry chain dilemma: dim under the glare
Since 2007, China's solar cell production has leapt to the top in the world. In 2009, it accounted for 40% of the total global solar cell production. However, manufacturing a big country is not the same as an industrial power. Just as steel production ranks first in the world, it cannot hide the overall collapse of Chinese companies in iron ore pricing power; the world's first car production has not cultivated China's Volkswagen and Chrysler. Under the fascinating surface of China's photovoltaic industry, it is the industry chain's dilemma and the helplessness of enterprises.

The solar photovoltaic industry chain can be roughly divided into five links. From top to bottom, it is: solar-grade silicon material, silicon ingot silicon wafer, battery, component, system integration, and finally acts on the market side to realize photovoltaic power generation. In the entire industrial chain, the upstream crystalline silicon preparation and slicing technology has the highest technical threshold and the highest profit return, while the downstream battery and component manufacturing links have lower technical thresholds and less profit returns. Especially in the component link, the cost competition is the most intense, and the company's ability to resist risks is also the lowest.

However, Chinese enterprises are precisely the battery and component manufacturing links concentrated in the middle and lower reaches of the industrial chain. The upstream crystalline silicon material is mainly monopolized by the traditional seven major manufacturers in Europe, America and Japan. In 2008, it accounted for more than 70% of the global supply of polysilicon materials. The downstream photovoltaic power generation market is mainly concentrated in Europe, and its installed capacity of photovoltaic systems accounts for nearly 80% of the global total. It can be seen that for China, the so-called "photovoltaic powers" are only "manufacturing and manufacturing countries", and if they are more accurate, they are only "big countries in battery and component manufacturing." In such an emerging industry, China still has not been able to get rid of the role of the "world factory." Strategic highs such as capital, technology, and market have remained overseas, and low-value-added downstream product manufacturing has been introduced to China.

"Two ends out": hardship in dilemma
The dilemma of the upstream crystalline silicon material and the downstream power generation market “two heads out” has made China's photovoltaic industry form a “double low” situation of “low bargaining power” and “low risk resistance”.

Looking upstream, crystalline silicon material suppliers, led by seven traditional foreign manufacturers, have more bargaining capital in the face of numerous battery and component manufacturers. Despite the collapse of the financial crisis, the situation of “the silicon is king” has not changed the crystalline silicon preparation process in essence, and it is the dominant position in the photovoltaic industry chain. The availability of a stable supply channel for silicon wafers has become a core concern for many battery and component manufacturers.

Looking downstream, in recent years, although China's photovoltaic power generation market has accelerated its development speed, the world's major markets are still distributed in Europe, the United States and Japan. The sharp shrinking of the Spanish market and the cooling of German policy this year have directly contributed to the slowdown in the growth of the global photovoltaic power generation market. This first affects the components and battery manufacturing sectors with the fierce competition and the lowest technical threshold in the industry chain. In the financial crisis a year ago, a large number of PV module manufacturers in China collapsed.

Post-entrant strategy: the breakthrough path for Chinese companies
When China's PV industry seeks development, it has to optimize its industrial structure. The optimization of its industrial structure must rely on enterprises as its entity. As a post-entertainer of the market, China's PV companies mainly optimize the industrial chain layout through three strategic models.

First, the capital-driven model. Some enterprises with strong capital strength, with a large amount of capital to enter the photovoltaic industry, can focus on all aspects, to simultaneously invest in multiple links, in a relatively short period of time, to create a relatively complete photovoltaic industry chain, shaping corporate competitiveness and resistance Risk ability. Most of the companies adopting this model have already formed superior strengths in a traditional industry, have stable cash flow, and supply photovoltaic services to mature businesses. It is mainly represented by Baoding Tianwei Group and Shenzhen CSG Group.

Second, the cost-driven model. Although the battery and component links have the most competitors and the lowest profit level, for the growth companies, this is also the lowest barrier in the PV industry. With this entry point, the development gradually seeks to expand the upstream crystalline silicon material and downstream system integration, which can bring stable raw material supply and market demand to the enterprise. Enterprises adopting this model are mostly growth-oriented enterprises with a photovoltaic business as a single main business, and lack the support of traditional businesses. Mainly represented by Wuxi Suntech Company and Changzhou Tianhe Company.

Third, the process drive mode. The so-called "process-driven" refers to cutting through the manufacturing process of crystalline silicon industry equipment, and through small-scale production of silicon ingot silicon wafers through experiments and demonstrations on various industrial equipments such as single crystal furnaces, polycrystalline furnaces, and square cutting machines. At the same time of sales of equipment, through long-term accumulation of process parameters, continue to improve product stability, and gradually expand the scale of production, from equipment testing, demonstration, to the large-scale production of silicon ingot silicon wafers, from the top down to achieve industrial chain extension . The biggest difference between the two models is the minimum entry from the side of the industrial chain. In the early stage, the capital requirements of the enterprise are relatively low, especially for traditional precision machining enterprises, and the transformation is realized on the basis of the original technology. China's two major crystalline silicon industry equipment manufacturers - Jiangsu Huasheng Tianlong, Beijing Jingyi Century, previously belonged to the traditional mechanical processing enterprise category. This model is mainly represented by Beijing Jingyi Group.

Overall, the characteristics of the three strategic models are compared, as shown in the table below.

Therefore, the capital-driven model is suitable for the financial strength. Before entering the photovoltaic industry, it has at least one traditional advantage business, which can provide continuous capital supply, or an enterprise with outstanding external financing ability and capable of obtaining considerable financing scale. The cost-driven model is suitable for enterprises with strong cost control capabilities and high capital utilization efficiency. The process-driven type is most suitable for enterprises with the foundation of precision machinery manufacturing, and realizes industrial transformation by introducing high-end technical talents. Especially for risk-averse enterprises, this model can achieve capacity sharing between photovoltaic industry equipment and traditional precision machinery equipment. During the industry shock period, product switching can be completed quickly, reducing the negative impact of the external environment.

Although the starting point and development path of the three models are different, the premise is to focus on the integration of the industrial chain, improve the competitiveness of enterprises and the ability to resist risks. In the end, with the gradual clarification of China's renewable energy medium- and long-term development plan and the implementation of the on-grid tariff subsidy policy, the role of China's photovoltaic industry from “two-outside” and “world factory” will be realized, and “internal and external repair” and “portrait” will be realized. The leap-forward development of integration.

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