June 22, 2017 Source: Photovoltaic frontier

1. Bloomberg Industry Research: Overview of the Global Solar Industry

The proliferation of solar equipment sold in the market means that suppliers are facing a challenging operating environment in 2017, and demand growth in important markets such as the US, EU and China is slowing. Partly due to the impact of trade policy, solar manufacturing capacity increased in 2016. The profit margin of equipment manufacturers may then be squeezed. The industry may have to prioritize cost reduction initiatives in the use of raw materials. The trend to complete new machine installations with bidding and the reduction in subsidies for new energy sources may also put greater price pressure on the industry.

Performance and valuation

2, slow growth, fierce competition dragged down the performance of solar energy companies

In 2017, Bloomberg Intelligence's global large-scale solar benchmarking index fell 5.3%, worse than the MSCI ACWI Index, which rose 8.5% over the same period. German solar manufacturer SolarWorld filed for bankruptcy in May 2017, solar panel prices fell, while US residential solar growth is slow and pipeline projects are decreasing, all of which may hit industry sentiment. In addition, some of the impacts may continue throughout 2017: Sino-US trade relations have been tense; the growth target of China's 13th Five-Year Plan has also shown a downward trend; the slowdown in domestic demand has put pressure on Chinese equipment manufacturers.

3. Sino-US trade relations continue to be tight, and the solar sector is not performing well.

After the 52% drop in 2016, since the beginning of 2017, the benchmarks of solar benchmarking companies in BI industry research have fallen by 5%. Market sentiment may have been further due to tight trade relations between China and the United States (the EU will extend anti-dumping tariffs on Chinese-made solar panels for 18 months), international oil prices fell, and SolarWorld filed for bankruptcy (2017 stock price tumbled 49% in 2017). deterioration. First Solar and SunPower (2017 share price rose 9% and 7% respectively), such efforts by US solar companies to cut costs may ease market concerns about price cuts and overcapacity in the industry.

Industry valuation

4. Pressure on supply prospects, solar market sales rate decline

The median market value of global solar benchmarking companies researched by BI's industry dropped from 0.47 times in the fourth quarter of 2015 to 0.25 times, mainly due to the 54% drop in share prices of related companies. Before the end of June last year, the Chinese government began to slash new energy subsidies, the operating income of these benchmarking companies has increased significantly in the first half of last year. China's reduction in subsidies helped the market digest some of the excess supply of equipment suppliers. And due to the expected slowdown in global demand growth, capacity will pick up again, and the market has become more worried about product price cuts and shrinking producer profits in 2017.

Sustained oversupply

5. Outlook for 2017: Continuous supply of solar energy has constrained price increases

In 2017, the installed capacity of solar photovoltaic power generation may continue to increase, but the growth rate will slow down, and the situation of oversupply of equipment will deteriorate, and supplier competition may become hot. According to Bloomberg New Energy Finance (BNEF) estimates of market growth, suppliers' output in 2017 may be about 20% higher than market demand. This will result in the product always facing the pressure of price cuts, and equipment manufacturers will take a new round of actions to reduce costs and improve product functions, seeking to curb the decline in profits.

In addition to the expenses incurred by daily operations, equipment suppliers may also seek to reduce the input cost of materials such as silver paste. In 2016, the spot price of silver paste soared by 21%. In addition, the trend of silicon wafer manufacturers to switch from traditional cutting to diamond cutting may also reduce the consumption of polysilicon.

6, solar energy manufacturers' capacity accumulation has increased supply oversupply

As manufacturers explored markets outside of China, the situation of continued oversupply of solar equipment in 2016 deteriorated. Manufacturers are exploring the market in order to enter the US and EU for tariff-free imports of solar modules. The move also reflects that manufacturers are interested in generating revenue through large-scale production, hoping to use the most advanced technology to reduce costs and improve the function of solar panels. China's economic slowdown and high levels of solar equipment inventory may put more pressure on manufacturers to cut prices. The increase in demand in India may give the price a little support.

According to BNEF estimates, global solar demand in 2016 was about 70,000 megawatts, and by the end of 2016, the rated capacity was 160,000 megawatts. This year, large-scale solar panel suppliers will become the leader in capacity growth, including China Trina Solar Energy Co., Ltd., Canadian solar photovoltaic company Artes, China’s Jingke Energy Holdings Co., Ltd. and Jingao Solar Co., Ltd. Growth of 20%, 34%, 51% and 38%.

7. Jinko Energy challenges Trina Solar and competes for the largest supplier of solar panels

Solar module manufacturers continue to increase production capacity. The top five solar module suppliers in the world in 2015 are expected to increase their supply of electricity to 7100 MW this year. This new round of growth is the driving force for China's strong domestic solar demand in the first half of this year, as well as the supply of products outside of China to obtain tax-free exports to the United States. The goal of Jinko Energy is to challenge Trina Solar and take the latter's position as the largest producer of rated capacity. Trina Solar's rated capacity in 2016 is as high as 6,500 MW.

Affected companies: Trina Solar, Artes, Jinko Energy, JA Solar and Hanwha Q CELLS, the world's top five solar panel manufacturers in 2015. Artes and Jinko Solar currently plan to further expand their production capacity based on the initial target set in 2016.

8. Although China's demand is stagnant, the overall demand for solar energy in 2017 may still grow brilliantly.

Although the growth in demand for new solar installations in the three major markets of China, Japan and the United States has stagnated, total global installed demand is expected to continue to increase in 2017. BNEF predicts that India, Latin America and Southeast Asia may bring new impetus to global demand in 2017, and total demand will increase to 78,600 megawatts, exceeding the estimated demand of 75,000 megawatts in 2016. In 2017, China plans to further reduce new energy subsidies in order to reduce the fiscal deficit caused by such subsidies. Therefore, after reaching a record high in 2016, the growth rate of solar demand may be suppressed.

Due to the fall in the negotiated price of buying computers, the growth in solar demand for utilities in the United States has slowed. This could affect companies with high exposure to US utility projects and block their chances of expanding their market share in 2017. Both First Solar and SunPower belong to such companies (such projects generate revenues of 85% of all US Solar revenues in 2016).

9, solar panel price reduction pressure may increase, the cost is highly concerned by enterprises

After falling by 35% in 2016, solar panels have fallen by 8% this year. Under the influence of the oversupply situation, prices will accelerate in the second half of the year. Part of the reason for the global overcapacity is the trade protection stance of the United States and the European Union. According to PVinsights, a solar quotation agency, the average market price of polysilicon solar panels this year is $0.35 per watt. The trend of price cuts has forced equipment suppliers to cut costs to keep profits. It can be expected that the competition will be more intense in the second half of this year.

Before the mid-year cut in new energy subsidies, China's continued demand has helped stabilize market prices in the first half of the year. Prices may fall even more in the second half of the year, especially as the price of polysilicon products sold as commodities. The price war in India may be more frequent, as local competition is fierce, prompting suppliers to cut prices.

Policy support reduction

10. Outlook for 2017: Trump's election and policy changes have weighed on the prospects for solar energy

Trump’s unexpected presidential election has increased the uncertainty of the US government’s support for renewable energy. At present, Trump has not introduced a large-scale tax reform, and the US solar investment tax incentives may not be affected. Trump's victory may mean that China and the United States are less likely to ease tensions in the solar trade. China may also further reduce new energy subsidies in 2017. The reduction in subsidies in the EU and other EU countries will lead to a slow increase in installed capacity. At the same time, in countries such as Germany that intend to cut costs, clean energy projects will shift to auctions.

11. Considering that solar energy involves a lot of employment, the Trump team may reconsider reform subsidies.

The United States has a large number of jobs directly related to the supply of solar energy, which may limit all existing federal government reforms related to tax incentives for solar investment. According to industry non-profit organization The Solar Foundation, in 2016, the solar industry provided 261,000 jobs for the United States. This reflects the labor-intensive nature of the industry, where employment accounts for more than half of the total employment. If the federal government's tax incentives are removed early, the state's stimulus policies may dominate. All large-scale tax reform actions may limit the financing of tax benefits.

In terms of employment and installed capacity, California is the largest solar market in the United States. Regardless of the federal government's policy changes that are not conducive to solar energy, state government support may offset this negative impact. California Governor Jerry Brown said the state will continue to fight climate change.

12. The withdrawal of the US agreement from Paris will affect the 2020 general election.

US President Donald Trump decided to withdraw from the Paris Climate Change Agreement, which in turn made the prospects for clean energy policies in the US solar and wind energy industries more uncertain. According to the plan, the time for the US to officially withdraw from the agreement is about 2020. Therefore, the withdrawal of the agreement may escalate climate change into an important issue for the 2020 US presidential campaign and promote political polarization. In the short term, state government policies and federal government tax incentives will support wind and solar demand.

Trump may not re-negotiate the new US proposal for the Paris Agreement. Many countries have already begun to carry out major climate negotiations on the basis of the 1994 UNFCCC, and subsequently accepted the Kyoto Protocol and the Paris Climate Change Agreement.

13. The “201 clause” solar trade case brings good benefits to the US polysilicon trade.

US manufacturer Suniva filed a trade complaint using Section 201 of the 1974 Trade Act, alleging that the US-imported silicon-based solar panels were causing huge damage. This trade case may be used by the US government to help ease China's restrictions on the supply of polysilicon to the United States. If the US International Trade Commission determines that Suniva's complaint has legal effect, Trump will decide what final action to take. China's tariff on imported US polysilicon has curbed demand from US polysilicon suppliers such as REC Silicon and Hemlock Semiconductor.

US tariffs on imported Chinese solar panels have not caused domestic manufacturers to avoid competitive pressure from other parts of the world. Suniva has filed for bankruptcy before invoking the “Article 201” trade complaint. Polysilicon is the raw material for the production of solar panels, and China is the world's largest polysilicon market. The Sino-US dispute has put pressure on US polysilicon suppliers to make profits.

14. Europe cuts subsidies, and procurement methods change to auctions, and solar demand is cooled.

The reduction of subsidies in European countries is slowing the growth of solar installed capacity in 2017. After reaching its peak in 2011, Germany has been reducing tax support and shifting ground-mounted installations to power generation capacity auctions, thereby reducing the cost of solar energy for utilities. French President Emmanuel Macron, who has just taken office, may continue his current policy support. UK policy incentives will further tilt towards offshore wind energy, which is showing progress in reducing energy costs.

15. The current solar tariffs in the EU are powerless and need new countermeasures to save SolarWorld

Due to the continuous pressure of global price cuts, neither the tariffs imposed on Chinese solar modules nor the minimum import price mechanism reached with some manufacturers have failed to prevent SolarWorld, the largest solar manufacturer in the EU, from going bankrupt. SolarWorld and the EU solar industry association EU Prosun filed a tax application, but Chinese manufacturers either do business outside their home country or simply withdraw from the minimum import price mechanism, making SolarWorld's tax application far behind. To maintain European manufacturing, the EU needs to take new measures, such as developing an industry development strategy that focuses on clean energy.

Launched a local self-made rate requirement for overseas manufacturers as a mechanism to support local manufacturers. For example, on-grid tariff subsidies or competitive auctions may be more effective strategies to support the solar industry. Countries such as South Africa and Brazil have already attracted foreign investment to open production plants locally, proving the success of such strategies.

16. Due to the focus on cost control, Germany’s leading position in the solar field for 10 years has further declined.

Since 2005, the installed capacity of solar energy in Germany has been second to none in the world, and it was not until 2015 that China was replaced by a rapidly growing China. Due to the German government's control of cost-limited subsidies for on-grid tariffs and the shift of utility projects to power generation capacity auctions, Japan's installed capacity in 2016 may exceed Germany's, and the US may surpass 2017. In order to maintain market share, solar panel manufacturers SolarWorld and solar inverter manufacturer SMA Solar and other German solar companies are increasingly focusing on sales outside the EU, such as the United States.

According to BNEF data, the installed capacity of solar energy in Germany is expected to increase by about 1,500 megawatts per year, while the new installed capacity in the peak period of 2012 is about 7,600 megawatts. The stagnant growth of the domestic market may force German solar companies to increase sales and promotion investment in order to increase the growth of overseas markets such as India.

Focus on cutting costs

17. Outlook for 2017: Intense competition forces solar companies to focus on cutting costs

Faced with oversupply in the market, stagnant demand growth and price cuts, solar equipment suppliers have to cut costs to prepare for the tough business environment of 2017. Their annual energy should be focused on streamlining plant operations, focusing on core business, layoffs, limiting capital expenditures, and cutting raw material costs. The entire solar value chain provider, including REC Silicon, First Solar, SunPower and SMA Solar, has announced a cost control plan.

18. First Solar and SunPower have the highest investment in research before cost cutting

In the fourth quarter of 2016, both First Solar and SunPower became the highest investment in solar equipment, as the two companies worked hard to reduce costs and increase productivity in competition with their Chinese counterparts. Considering that the industry has introduced cost cutting