Climate issues are expected to become an even higher priority in mainland China's new five-year plan following the pledge by president Xi Jinping for the country to be carbon neutral by 2060. That implies stronger growth rates in non-fossil fuels, especially solar and wind. However, challenges such as the grid’s capacity for integrated renewables will limit progress for the near term.
Carbon neutral means offsetting the country's emissions through carbon sinks such as forestry but it also bodes well for solar energy longer term.
Consultation papers may be circulated within the power sector in November after the plenary session of the 19th party meeting discusses the five-year plan, but there are suggestions that the plan could set bullish goals, including annual installation targets for solar and wind of about 100GW by 2025. Since 2016, installation has been 54GW to 68GW a year.
With the phasing out of subsidies, cheap cell and module prices are a prerequisite for demand growth and recent price hikes in solar products could discourage demand. However, polysilicon prices have surged 60 per cent since July 2020 because of rising demand and production disruption, including an explosion at one major supplier. Given supply tightness, single-crystal silicon module prices have risen by up to 6 per cent over the summer, and even after production resumes following the explosion, global polysilicon capacity will still be tight.
We thus believe about 5GW of installations may be delayed into 2021 and expect this year’s installations to be just 40GW as operators are hoping module prices will retreat after the recent spike. As a result, installations in China could be delayed because of low profitability at solar-equipment companies.
Margins for wafer manufacturers are under pressure because of high polysilicon costs and aggressive capacity expansion plans in 2020-21. At current prices, cell and module producers are earning thin margins so we see limited upside to the prices of wafers, which make up about 70 per cent of a cell's cost.
First published 10 October 2020.
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The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Evan Li
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