Can Sustainability be Spearheaded through the Chinese PV Industry? – A Market Level Approach to Understanding the Potential for Sustainable Evolution

Authors: Niklas. K. Bruns, Tong Zhou


Key Points

  • Economies of scale in manufacturing and the rapid development of the domestic market for PV are China’s current most significant contributions to reducing climate change.
  • China is driven by wanting to show the world that it can improve its energy footprint and make its manufacturing activities environmentally friendly.
  • Being an innovator and a trailblazer could incentivize other emerging countries to move in this direction and set a trend for triple bottom line adherence.

(Reading time: 35 minutes)

1. STATUS QUO OF CHINA’S PV INDUSTRY

It is encouraging to see that China, the nation with the world’s largest population and carbon footprint, has committed to having CO₂ emission peak before 2030 and achieving carbon neutrality before 2060. China is focusing on photovoltaics (PVs) as a solution to renewable energy. Nowadays, China is not only one of the largest equipment producers but has also become one of the countries with the largest photovoltaic power generation. China has a global solar panel market share of over 50% and dominates more than 80 % of the world’s PV solar panel production[1], more than 95 % of the world’s silicon wafer production, nearly 80 % of the world’s PV cell production and more than 65 % of polysilicon production[2].

According to China’s National Energy Administration, the country installed more than 30.1 GW of photovoltaic (PV) capacity in 2019, bringing its total installed capacity to 205.2 GW, 27% of total global installations. According to Reuters China aims to install more than 30 GW of new energy storage capacity by 2025 to further boost its proportion of photovoltaic power generation[3].

Figure 1 shows China’s dominant share in all steps of solar panel production. Figure 2 shows Chinese firms’ prevalence among the top global PV manufacturers.

China Dominates All Steps of Solar Panel Production

Figure 1 China Dominates All Steps of Solar Panel Production – By country of company headquarters. Totals measured in tons (polysilicon), gigawatts (cells, modules) Source: Bloomberg NEF

Chinese Solar Panel Makers Dominate Top-10 List by Shipment Volume (in million kilowatts)

Figure 2 Chinese Solar Panel Makers Dominate Top-10 List by Shipment Volume – Data from 2018 with the exception of Sharp, which is a Nikkei estimate for the fiscal year ended March 2019, Source: IHS Markit

2. CRYSTALLINE SILICON VALUE CHAIN

Traditionally, Chinese PV companies have been active primarily in the production of PV cells and modules. However, since the Chinese government has been determined to develop the entire value chain for PV cells at home, Chinese companies have been successively incentivized to enter upstream (crystalline silicon production and silicon wafer production) and downstream segments (development of solar power projects), as well as related machinery and equipment markets.

Steps in the Crystalline Silicon Value Chain

Figure 3 Steps in the Crystalline Silicon Value Chain
Figure 3 Steps in the Crystalline Silicon Value Chain

1. Crystalline Silicon Manufacturing

In the most upstream value chain part of the photovoltaic industry, polysilicon is the name of the game. The polysilicon price significantly affects the price of photovoltaic products. Although silicon is the second most abundant element on earth, it is mainly present in the earth’s crust as silicon dioxide and a comprehensive purification process is necessary to obtain polysilicon. The trichlorosilane Siemens method and the silane fluidized bed method are the most far spread methods for polysilicon fabrication. 

Trichlorosilane Siemens Method for the Fabrication of Polysilicon

Figure 4: Trichlorosilane Siemens method – From Sand to IC Fabrication Source: Chiang Mai J. Sci. 2007

For the Trichlorosilane Siemens method, silicon dioxide is heated with carbon to remove oxygen atoms. In this process, liquid trichlorosilane reacts with hydrogen chloride gas so as to remove impurities by distillation. Subsequently, the purified material is heated to 1000 degrees to decompose trichlorosilane and obtain high-purity silicon[4].

The top three companies in this field are Tonguey, GCL-Poly, and Xinte Energy, which together control 58% of the market[5]. In the long run, experts predict that the price of polysilicon will decrease due to COVID-19 creating a supply crunch last year, where the polysilicon price has behaved opposite to the overarching trend; hiking 150% from the beginning of 2021 to the middle of 2021 (85 yuan/kg to more than 200 yuan/kg)[6].

2. Silicon Wafer Production

There are two main types of silicon wafers: monocrystalline and polycrystalline, with the difference that monocrystalline silicon wafers possess higher photoelectric conversion efficiency. Monocrystalline wafers are more efficient because they are cut from a single source of silicon, but more expensive and less sustainable than polycrystalline wafers that are blended from multiple silicon sources. The global share of mono-crystalline technology is now about 84% of total c-Si production, compared to 66% in 2019[7] and in China, the trend of single crystal is especially pronounced as the market share of monocrystalline silicon wafers is currently at 90.2%, compared to 70.4% in 2019. As of today, Chinese wafer production amounts to 161.3GW annually and the market share of monocrystalline silicon wafers is expected to keep increasing in the future. In silicon wafer production a duopoly pattern can be observed in China with LONGi and Zhonghuan Energy as the two dominant players in this field, together accounting for about 56% of the market[8]

3. Cell Production

There are also two main types of photovoltaic cells: N-type and P-type. Every solar cell consists of a P-type layer and an N-type layer. A P-type solar cell consists of a thicker or equally sized P-type silicon layer over a thinner or equally sized N-type silicon layer. An N-type solar cell consists of a thin P-type silicon layer over a much thicker N-type silicon layer[9]. The term P-type refers to the fact that the cell is built on a positively charged (hence P-type) silicon base, doped with boron for conductivity. N-type solar cells are built the other way around, with the N-type side, doped with phosphorus, serving as the basis of the solar cell. The most powerful solar cells today available on the market are N-type solar cells due to their longer lifetime. N-type based technology is less prone to metallic impurities of the silicon and as a result less affected by light-induced degradation over time due to boron-oxygen defects[10][11]. There are only minor differences in the process to manufacture P-type and N-type solar cells, but the fewer process steps in manufacturing P-type cells and economies of scale effects resulting from the relative P-Type technology maturity and mainstream adoption play in favor of P-type solar cells[12]. The caveat is that P-type cells have reached their theoretical efficiency limit at around 22.8%, whereas N-type cells have the potential to further reduce electrical losses in photoelectric conversion and reach higher cell efficiencies of up to 28.7%. Today, Chinese cell output amounts to 134.8 GW annually, an increment of 22.1% from 2019, and P-type cells account for 86% of the market. The production volume of N-type batteries only accounts for 3.5% and has shown only a slight market share increase since 2019, but with the reduction of production costs and the increase in cell efficiency, N-type cells will become more attractive in the future. 

Schematic Representation of a Solar Cell

Figure 5: Schematic representation of a solar cell, showing the n-type and p-type layers, with a close-up view of the depletion zone around the junction between the n-type and p-type layers. Source: ACS Chemistry for Life

4. Module Production

Compared with other supply chains, module production is relatively simple. The shipments of the top five PV module manufacturers make up 86GW and account for 68% of the global PV installations. Today, photovoltaic module production in China amounts to 124.6GW annually, an increment of 26.4% from 2019. 

5. Downstream Supply Chain 

Photovoltaic power stations are the main customer of the photovoltaic factories. Like traditional power plants, photovoltaic power plants have centralized and distributed plants. 

Centralized large-scale grid-connected photovoltaic power stations use a large number of photovoltaic arrays in uninhabited areas, such as deserts or hills. The power generated in a centralized photovoltaic power station is directly integrated into the public grid and then connected to high-voltage transmission systems to supply long-distance loads. 

Distributed photovoltaic power stations refer to smaller power stations constructed by using open spaces or building surfaces, such as factory buildings and roofs of public buildings. Distributed photovoltaic power plants are a smaller investment, constructed faster and display a smaller footprint. Most distributed photovoltaic power stations are located on the user side and thus also reduce citizens’ dependence on the power grid and line losses. 

In terms of market share, centralized large-scale ground power stations account for roughly 70% of the market and distributed power stations account for roughly 30% of the market[13].

6. Recycling & Aftermarket

If not recycled properly, solar panels will cause severe environmental pollution. A typical crystalline silicon PV module is composed of glass (75%), polymers (10%), aluminum (8%), silicon (5%), copper (1%), silver, tin, lead, and several other metals and components[14]. Lead and tin from solar panels disposed of in landfills can leach into soil and groundwater and can pollute environmental ecosystems.

As of today, the recycling rate of waste photovoltaic modules in some countries has reached 95%, but in China at present recycling of waste photovoltaic modules is basically still blank in terms of policies and standards[15]. One of the important obstacles to recycling is the high cost and low profit. As waste glasses are not very valuable and only the waste modules’ silver components are of any significant value when recycling, the solar panel raw material value cannot outweigh its recycling costs. PV modules are expected to operate properly and not burden the environment for at least 20 years[16], but China’s PV module after-market still has a long way to go. In China, the total revenue generated by a photovoltaic module is 56.53 yuan, but the recycling cost of each module is about 75 yuan[17] and adding to the recycling challenge, a large proportion of China’s built PV projects are not constructed on the ground and many times in the remote northwest areas, which will lead to increased logistics costs at the end of the panels’ lifetime. Besides the good intentions behind recycling efforts, the potential for a PV aftermarket needs to be understood. When a panel reaches this warranty lifespan it doesn’t necessarily mean it can’t produce energy anymore and needs to be disposed of. Indeed, there is the problem of degrading efficiency, but used panels can still be installed elsewhere on volunteer projects where any amount of energy helps[18].

3. CHINA’S PV INDUSTRY PROTAGONISTS

China’s PV industry is extremely competitive. In the following part, we spotlight some of the leading companies in the different parts of the PV value chain.

Upstream Players:

Tongwei Solar 
Tongwei Solar (stock ticker: 600438 Shanghai) was created in 2009 and began producing solar cells on a large scale in 2013, but the company got its start back in 1983[19]. It is now the world’s leading crystalline silicon solar cell enterprise. It has four manufacturing bases in Hefei, Shuangliu, Meishan and Jintang, with more than 12000 employees. The existing crystalline silicon cell production capacity is 45GW. In 2023, Tongwei Solar will form a production capacity of 80-100GW, with an output value of more than 80 billion yuan. According to PV InfoLink report, Tongwei Solar’s total shipments has ranked first and lead other manufacturers since 2017[20].

GCL-Poly
GCL-Poly (stock ticker: 3800 SEHK), founded in 1996, is a green energy supplier in China, providing power and heat via cogeneration, incineration and wind power. As of 2009 it was the largest supplier of polysilicon in China, and is also a supplier of electronic wafers for the solar industry. It has established R&D centers and incubators in Japan, Israel, the United States, Shanghai, Nanjing, Xuzhou, and Suzhou in China. Moreover, its clean energy business covers North America, Europe, Asia, Oceania, Middle East and other regions. In 2020, it provides green energy 60 billion KWh which reduces 50 million tons of carbon dioxide emissions[21].

Zhonghuan Energy
Zhonghuan Energy (stock ticker: 002129 SZSE), founded in 1958, is one of the most innovative silicon wafer producers in China. A government-controlled tech enterprise, Zhonghuan Energy owns ten research centers with more than 10000 employees.  The firm has a leading position for silicon wafers, with a foreign market share of over 18% and a domestic market share of over 80%. The company has gradually developed high-efficiency N-type silicon wafers, which have a conversion efficiency of more than 26%. Looking ahead, Zhonghuan Energy will continue to innovate and strive to provide more efficient energy solutions to the public[23].

Xinte Energy
Xinte Energy (stock ticker: 1799 SEHK), founded in 2008, is one of the largest Polysilicon production enterprises with a production capacity of 80,000 tons of high-purity crystalline silicon. It has successively built more than 5,000 off-grid and grid-connected new energy power stations, with an installed capacity of more than 18GW. The scale of photovoltaic grid-connected installed capacity has ranked first in the world for three consecutive years. Up to now, it has obtained 574 authorized domestic and international patents, and it is the enterprise with the most independent intellectual property rights and patented technologies in the Chinese PV industry. Its vision is to build China’s Silicon Valley and illuminate the future with renewable energy[22].

Midstream Players:

Jinko Solar
Jinko Solar (stock ticker: 688223 Shanghai) is one of the biggest PV makers in China. The firm produces silicon wafers, PV cells, and PV modules. At present, JinkoSolar’s products serve more than 3,000 customers in more than 160 countries and regions around the world and have ranked first in global module shipments for many years. The cumulative module shipments have exceeded 160GW in 2021 and the firm has domestic production facilities in Jiangxi, Zhejiang, and Xinjiang Provinces. Jinko Solar’s international production facilities are in Malaysia, Portugal, and South Africa and it has 16 other overseas subsidiaries in Japan, Singapore, Turkey, Germany, Italy, India, Switzerland, and Spain[24].

Trina Solar Limited

Trina Solar Limited (stock ticker: 688599 Shanghai) is based in the province of Jiangsu in China and it has several branches in the United States, Europe and Asia. Founded in 1997 Trina Solar has been world’s largest solar panel maker after it surpassed its rival Yingli. Trina Solar’s list of services includes the production of ingots, wafers and cells to the assembly of high-quality modules and an integrated supply chain[25].

Yingli
Officially known as Yingli Green Energy Holding Company Limited (stock ticker: YGE NYSE), the firm was founded in 1998. It is one of the largest solar panel manufacturers in the world with a photovoltaic module capacity of 4 GWs. Headquartered in Baoding in China, Yingli has over 30 regional branch offices and subsidiaries. It has distributed more than 15 GW of solar panels to its customers across the globe. Notably, Yingli Green Energy began production of PV modules in 2003. It is pertinent to note that Trina Solar is the top shipper of solar panels, followed by Yingli Green Energy[26].

Motech Solar
Motech Solar (stock ticker: 6244 TPEX) is a subsidiary of Motech Industries Inc with its headquarters in Tainan, Taiwan. It was founded in the year 1981 as a designer and manufacturer of test and measurement instruments before it went on to become a pioneer in manufacturing polycrystalline silicon solar cells. The firm is currently ranked one of the top 10 solar cell makers in the world. It is engaged in the manufacture of solar cells, PV modules, PV inverters, and PV systems[27].

Suntech Power
Founded in 2001, Suntech Power Holdings Co Ltd (stock ticker: STP NYSE) has its roots In Wuxi, in Jiangsu. The firm claims to develop, manufacture, and deliver the world’s most reliable and cost-effective solar power solutions. Suntech Power has so far supplied photovoltaic panels to over thousands of customers in at least 80 countries. Despite having had its performance peak in 2008 and seen a stage of decline since the wake of a glut in the market for solar power products, Suntech is one of the top 10 PV module manufacturers based on module production and shipments[28] and has been repeatedly ranked in the “Global Top 20 Companies On PV” in 2020 and 2021[29]. Suntech Power has been a supplier of solar modules for several solar energy plants and systems around the globe.

Vertically Integrated Players:

LONGi Solar
Among the listed companies in the photovoltaic industry, LONGi (stock ticker: 601012 Shanghai) is the company with the highest revenue in the photovoltaic business (54.58 billion yuan). Founded in 2000, LONGi Green Energy Technology Co., Ltd. aims to become the most valuable solar technology enterprise in the world. LONGi is the largest company in China’s energy and chemical manufacturing industry and focuses on monocrystalline silicon wafers and PV modules. But LONGi is more than a product supplier; it also offers project consultation, design, installation, procurement, commissioning, operation & maintenance and financing expertise. Moreover, LONGI is a leading player in innovation, employing 800 researchers and owning 1001 patents. LONGI is at the forefront of cell innovation and pushes forward novel solar cell developments like Heterojunction technology (HJT), a panel production method mixing three layers of photovoltaic material by utilizing until the fringe amorphous thin-film silicon technology in tandem with the established crystalline silicon technology for increasing efficiency and power output to levels of 26.30%. In the past, LONGI has already been successfully spearheading the commercialization of new technology, like being a first-mover in adopting the Czochralski process that lowered production costs by casting more monocrystalline silicon in a single crucible[30].

Integrated Downstream Players:

JA Solar
JA Solar Technology Co., Ltd. (stock ticker: JASO NASDAQ) develops, manufactures, and sells solar equipment and is also engaged in the development, construction and operation of solar photovoltaic power plants. The company’s main products are solar modules, including polycrystalline silicon solar modules and monocrystalline silicon solar modules. Its silicon wafers include monocrystalline silicon wafers and polycrystalline silicon wafers. The Company conducts its businesses in domestic and overseas markets and is engaged in the research, development, production, and sales of silicon wafers, solar cells, and solar modules. JA’s electricity from photovoltaic power plant operations is distributed to grid companies [31].

Downstream Players:

SFCE Solar
SFCE Solar Group (stock ticker: 01165 HKEX) is the market leader in solar energy generation in China and has established solar power stations in areas including Shaanxi, Hebei, Gansu, Ningxia, Xinjiang, Hainan, Inner Mongolia, and Tibet. SFCE Solar aka Shunfeng International Clean Energy aims at creating a low-carbon environment through its integrated photovoltaic services and solar power station constructions and operations. SFCE Solar has been historically also engaged in research development and manufacturing of solar power products and as solar energy storage, but is since a strategy shift in 2015 exclusively pursued the PV service business with a low capital base (solar power generation, solar project development, engineering, procurement & construction and operation and maintenance businesses)[32].

4. MARKET LEVEL ANALYSIS OF THE CHINESE PV INDUSTRY

Past studies have arrived at the conclusion, that the success of China’s PV industry cannot be exclusively explained by high investments in R&D and superior innovation performance[33][34] and point to the importance of technology acquisition and international technology transfer along the PV value chain as a critical success factor[35]. To discover the secrets behind the success of the Chinese PV industry in the global market, we will apply Porter’s Diamond Model, a model that helps to explain why certain industries within a particular geographical environment are more competitive internationally. The model includes four main dimensions of analysis: factor conditions, demand conditions, firm strategy, structure and rivalry and related and supporting industries and evaluates those against the external influencing forces of government and chance.

Porter’s Diamond Model of National Competitive Advantage

Figure 6: Porter’s Diamond Model: Why Some Nations Are Competitive And Others Are Not. Source: business-to-you, 2022

Factor Conditions 

Factor conditions are special resources that are available in the nation such as natural, capital, and human resources. China is vast in territory and rich in natural resources with an area of 9.6 million square kilometers, accounting for 7% of the world’s total land area. China can provide enough land for the development of solar photovoltaic projects and has rich natural resources that are required for solar module manufacturing. It is estimated that the total annual solar radiation in Northern Ningxia, northern Gansu, southeastern Xinjiang, western Qinghai, and western Tibet is 7000~8000MJ/m2, putting it head to head with Europe’s sunnier regions such as Spain (8100MJ/m2) and Italy (7200MJ/m2)[36].

China’s vast mineral resource reserves in silicon, one of the most important raw materials in the PV industry, help the country gain a competitive advantage. The middle kingdom is the world’s largest silicon producer, with a production volume of six million metric tons in 2021[37]

Besides that, labor costs in China are lower compared to western countries. Chinese average income in 2021 was 4246$, while US average income was 25332$[38]

An additional factor condition in favor of China is infrastructure. Stretching 140,000 kilometers, China’s highway mileage is second to none. It exceeds the second-ranked United States by more than 40,000 kilometers and has more high-speed rail mileage than other countries in the world combined[39]. Overall, China is ranked 22nd in the world for “most developed infrastructure”[40] and its well-developed networks provide a solid foundation for the development of the photovoltaic industry. 

Demand Conditions

According to the information from the National Bureau of Statistics of China, in 2021 China’s GDP has increased by 8.1%[41]. China is developing so fast that conventional power cannot meet the growing power demand which stimulates the rapid development of photovoltaic power generation. China has added 54.88 GW of new solar power into operation in 2021 and is expected to add 75 to 90 gigawatts (GW) of solar power in 2022[42]. According to the International Renewable Energy Agency (IRENA), the China solar energy market is expected to grow at a CAGR of more than 14.5% during the forecast period 2022-2027. Figure 6 shows the growing domestic PV demand. 

Installed Capacity of Solar Photovoltaic (PV) in MW in China in 2013-2020

Figure 7: China Solar Energy Market – Growth, Trends, trends, Covid-19 and Forecast China Solar Energy Market  – Growth, trends, Covid 19 Impact and Forecasts (2022 – 2027). Source: International Renewable Energy Agency

Next to domestic demand, international demand accounts for the majority of China’s PV demand. Chinese photovoltaic products are exported all over the world. According to the latest statistics from the China Photovoltaic Industry Association, China’s photovoltaic product exports amounted to USD 20.78 billion and newly installed capacity of overseas photovoltaics measured 85 GW in 2021[43]. Looking from the international perspective, figure 7 shows historical PV installations demand. Europe had the largest PV installation growth demand until 2011. After that, China has gradually developed and became the largest market. It can be observed that there is strong growth momentum in the domestic as well as the international PV market.

Global Market demand for solar PV installations

Figure 8: Market demand for solar PV installations (represented by annual PV capacity additions). Source: IEA 2016

Firm Strategy, Structure, and Rivalry

China’s photovoltaic industry has clear goals to promote the achievement of carbon peaking in 2030 and carbon neutrality in 2060. According to the five-year horizon Smart Photovoltaic Industry Innovation and Development Action Plan made by the Chinese government, the photovoltaic industry will integrate with the new generation of information technology to accelerate the realization of intelligent manufacturing, – application, – operation, – maintenance and – scheduling. By 2025, the level of intelligence in the photovoltaic industry is therefore expected to be significantly improved. The industry is expected to expand its supply chain for silicon materials, silicon wafers, equipment, materials, and devices[44]. Central to the five-year plan is the promotion of intelligent manufacturing of photovoltaic basic materials, solar cells and components, as well as realizing “green development” of the supply chain.

Moreover, due to the huge production capacity, the photovoltaic industry is highly competitive. In the past ten years, the cost of solar photovoltaic power generation has dropped more than 90 percent. Although the decline in cost is mainly due to the reduction of panel prices and system ancillary costs[45], companies need innovation to remain profitable. For example, for upstream silicon production, the modified Siemens method can produce high-purity crystalline silicon in a more efficient, stable, and safe way. Companies like Tongwei that use this modified Siemens method can dominate the market. As N-type cells have a higher conversion rate than P-type cells, companies that are capable of mass-producing N-type cells while controlling costs will achieve success. 

Furthermore, the risk of changing interest rates will affect the future photovoltaic industry. Considering that the photovoltaic industry requires long-term investment and returns, decision-makers in this industry will be discouraged in regions with relatively high-interest rate risk for financial institutions. As China is still suffering from the Covid-19 pandemic, the central bank interest rates are still at a relatively low level. 

Related and Supporting Industries

Although China is far behind industrialized countries in the upstream segments of the photovoltaic industry, China has become the world leader in the production of PV cells and modules. This is due to various clusters in the Chinese market that interchange expertise at an accessible level. China’s photovoltaic industry has formed the world’s most complete industrial chain with independent intellectual property rights and a strong flow of affordable talent. Among the five most important photovoltaic supply chains of polysilicon, silicon wafers, cells, modules, and inverters, 34 Chinese companies rank among the top ten in the world in output[46]

The Role of the Chinese Government

The Chinese government is investing in scientific research and technology to promote Chinese PV industry innovation. Although the Chinese PV sector had initially focused on technological learning from more advanced countries, the government has successively strengthened indigenous innovation, which has resulted in a rapid rise of academic publications and patents for local PV technology. Despite those improvements, the Chinese PV sector is still far from the goal of attaining innovation leadership.

China is still lagging behind Japan and the USA in terms of patent performance because most of the leading Chinese PV companies invest only a small fraction of their sales in R&D. Nevertheless, the first generation of PV is technologically relatively mature and the reluctance of Chinese PV companies to match wester R&D spending will not threaten their industrial leadership in the short term if business continues as usual.

As the PV industry has been identified as a strategic emerging industry by China’s State Council (Wang et al. 2014), it has received a lot of encouragement from national and provincial government levels. Important policy-making actors in this context are the Ministry of Industry and Information Technology (MOIIT), which is responsible for industrial policy, and the Ministry of Finance (MOF). 

Most photovoltaic products, or solar panels, are being installed in remote areas by giant solar farms that sell the energy to utilities. Satellite imagery shows the incredible growth of these enormous solar farms that continue to pop up all-over China.

China’s drastic increase in solar power stems from the nation’s desperate need for electricity and its severe air pollution crisis. While some nations have curbed incentives to install solar panels, China’s government is aggressively encouraging financial institutions to give incentives for solar installations.

Sustainability-oriented regimes in developed countries influenced transitions in emerging economies, such as China[47], and today China’s government and cheap labor enable the country to produce and sell panels for far less than anyone else can produce them. Transnational linkages had a strong influence on the development of the Chinese competitive position[48] and the development of China’s domestic market could further strengthen the performance and further increase Chinese global competitiveness. 

As a high technology industry, government subsidies are an important motor for China’s PV industry growth trend as the solar industry benefits from tax reductions. China holds a dominant position in the upstream supply chain and currently billions of dollars are supporting the solar industry expansion[49]. These investments help China retain a chokehold on the industry.

5. INDUSTRY TRENDS

China’s primary energy demand is projected to grow much slower through 2030 than the overall economy. This is mainly the result of efficiency gains and a shift away from heavy industry. A transforming energy sector leads to rapid improvements in air quality. Solar is expected to become the largest primary energy source by around 2045. Demand for coal is expected to drop by more than 80% by 2060, oil by around 60%, and natural gas by more than 45%. By 2060, almost one-fifth of electricity is used to generate hydrogen.

The level of investment required for China to achieve its goals is well within its financial means. Energy sector investment is expected to climb in absolute terms but will fall as a share of overall economic activity. The total annual investment is predicted to reach USD 640 billion (around CNY 4 trillion) in 2030 – and nearly USD 900 billion (CNY 6 trillion) in 2060, almost a 60% increase relative to recent years. Annual energy investment’s share of GDP, which averaged 2.5% in 2016-2020, drops to just 1.1% by 2060.

Solar Surge – Panel-making capacity has soared in China while languishing in the U.S.

Figure 9: Panel-making capacity has soared in China while languishing in the U.S. Source: BloombergNEF

New environmental regulations and the enforcement of the Paris climate goals are becoming more intense, and companies are now increasingly accountable for their downstream supply chain. A controlled CO₂ footprint during the production and the recyclability of materials has become a requirement for suppliers involved in trade with European Union countries[50]. These competitive forces also increasingly apply to other parts of Chinese manufacturing value chains and established Chinese companies need to take action before their current supplier contracts expire. While the Chinese industry landscape has recently been shaken by the November 2021 Personal Information Protection Law and the local market experiences unprecedented levels of volatility and valuation spreads[51], sustainability is also beginning to shape demand and change many traditional industry structures[52].

The enormous challenges in the market overall create three main sources of uncertainty: 1. How fast will technology provide solutions? 2. Will consumer behaviors and preferences change? 3. How will governments act? 

Just like the car disrupted the horse and carriage business and digital streaming disrupted music publishing, firms that don’t “jump” the S-curve may be left behind by those who adopt the new ways of doing things[53][54]. Chinese companies need to be hedging against alternative futures where what has been envisioned does not pan. In this situation, Chinese players do not only need to try to become “greener” by exploiting win-win effects between sustainability and savings and reap the benefits of Chinese tax benefits for sustainable business practices, but also hedge against disruption by leveraging sustainable entrepreneurship innovation power.

6. THREATS TO THE CHINESE PV INDUSTRY

Impacted by the US Financial Crisis and the European Debt Crisis, one of the most significant threats to the Chinese PV industry is the overcapacity of PV products such as silicon, polycrystalline silicon, solar cells, and PV modules. Although the industry uses the domestic PV market to absorb the overproduced PV products, still it has the risk of shrinking demand.  

Although solar energy has the advantages of being inexhaustible and pollution-free, it has some drawbacks. There are issues such as large fluctuations in power generation which are affected by weather and seasons, unfavorable grid stability, and difficulty in grid connection. Furthermore, there is a mismatch between supply and demand as the solar energy-enriched area (northwest) is far away from the power load area (southeast coast). 

The third threat that hinders the further development of the PV industry is the high cost. Although the photoelectric efficiency of photovoltaic equipment can reach a level exceeding 40%, which is nearly twice that of the current mainstream batteries, this technology is not commercially viable. Stacking performance exponentially increases production costs and finding the most cost-effective combination of continuous advancement of technology and scale is the best choice for PV companies.

7. POTENTIAL FOR ENTREPRENEURSHIP IN THE PV INDUSTRY’S FUTURE

The PV industry developments can be split into four potential scenarios. Those alternative scenarios highlight the ways in which the future may be quite different from the past and may provide a basis for potential new ways of market competition and dynamics. A scenario analysis method shall be applied when thinking about the future by systematically considering the uncertainties and assigning probabilities to each of the defined scenarios. 

Potential Scenarios in the PV Industry 

– based on Degree of Disruption and Degree of Control

Figure 10: Scenario Analysis based on Degree of Disruption and Degree of Control
Figure 10: Scenario Analysis based on Degree of Disruption and Degree of Control

I. “Status Quo”

Business as usual is as it sounds: sustainable productions remain expensive and  there is no significant innovation. In this scenario, Chinese companies continue investing in non-renewable sources of energy and keep sustainable investment to the obliged minimum.

II. “PV Development”

Innovation forces incumbents to invest in sustainable practices at the risk of being driven out of business and regulatory action. Investments in renewable innovation will see an increase and has a positive return on investment (ROI) in this future. An especially promising new technology with major potential for disruption in the PV industry is perovskite thin-film solar cells. The new technology could rebalance market power and revive the currently marginalized thin-film technology in a revised format that could reach price parity due to streamlined production and higher efficiencies compared to the established monocrystalline and polycrystalline structures[55]. Sustainable development is the best-case scenario for sustainable entrepreneurship as mature industry firms become at risk of “disruption” when new technologies and new business models emerge to satisfy customer needs more effectively. Firms that don’t “jump” the S-curve may be left behind by those who adopt the new ways of doing things[56]. A need to respond to the problems is created by this future and an increasing number of current PV players along the value chain may be at risk of disruption. This scenario has the consequence of market structure restructuring as successful new ventures capture market share and challenge power dynamics. 

III. “Sustainable Boom”

This future describes a world in which sustainable products become the norm. Renewables are a serious threat as they reach price parity through innovative practices and/ or subsidies and capture market share at an exponential speed. In this world, consumers actively punish non-sustainable alternatives and there is a business case for investing in sustainable innovation. Companies need to ask themselves whether there are already scalable solutions that can be adopted and implemented, or whether it is necessary to invest resources in researching and testing new answers to old questions in order to grow with the boom. R&D costs need to be budgeted by incumbents and companies need to see the business case in first-mover advantages and take risks to exploit patent opportunities.

IV. “Cash Cow”

Incumbents are able to capitalize on past investments in current PV technology. They save money as little new investments are necessary for the near future and as they can utilize economies of scale and learning to increase their bottom line. This is a grey sky scenario case for small companies and entrepreneurship as there is no product vacuum to capitalize on in the sustainable innovation space. The problem with leaving sustainable change in the hand of big corporations is that few shareholders really live up to the credo “Educate leaders who will make a decent profit, decently.” Good people are rare as life is short and people want to profit as much as possible and push decadence to new levels, outperforming our average ancestors from the Victorian age and living like kings and queens like there is no tomorrow. Most shareholders and managers are driven by greed, just like the Spanish conquistadors when they invaded and exploited Latin America and decency is rare at the top of the big corporations. Large corporations don’t have enough incentives to act alone and unless there must be a guiding hand that forces them to stop environmental exploitation, the incumbents will exclusively follow economic rationale and milk their cash cows through optimizing operations and purchasing power with scale.

The Chinese PV enterprise landscape is subject to a different degree of external influences in each of the four futures. In the sustainable development future, the enterprise landscape is changed the most. As new PV products outperform current cell technology and industry best practices are revised according to millennial generation standards, incumbent players have to also innovate current PV technology and digitize to stay competitive with emerging innovation-driven startups. In this case, many opportunities are created for entrepreneurial disruption and power redistribution within the market. Incumbents’ bargaining power is reduced the most in this potential future.

For Chinese players, it is important to realize that European companies are increasingly replacing products with large CO₂ production footprints in their supply chains and countries such as Australia and Canada currently have large raw material reserves and a greener energy economy than China. Hence, Chinese PV upstream supply chain companies need to take action before their current supplier contracts expire while hedging against startup disruption risks. Industries need to be hedged against alternative futures where what has been envisioned does not pan out in the exact same way as planned and the monocrystalline silicon PV technology-dominated Chinese industry needs to change soon through sustainable entrepreneurial innovation power to prevent the happening of a major foreign driven disruption.

8. CONCLUSION

China is currently leading the battery revolution and also the people’s republic wants to show the world that it can improve its energy CO₂ footprint and make its manufacturing activities environmentally friendly. In this context, it is important to note that even a single company can be an ambassador and shape the world of tomorrow. One single entity can, for instance, create best practices and sketch roadmaps for tangible improvements. Being an innovator and a trailblazer can incentivize other players to move in this direction. These trailblazing actions will lead to the result that “lazier” incumbent companies face fewer regulatory roadblocks on the path to creating their own business case for sustainability in their supply chain. Also, setting the standard can impact the vertical supply chain partners as well and set a trend for triple bottom line adherence. It will not be easy for a single company to create meaningful change, but regulations and reporting need to be in place to support and reward those companies who are willing to change for the better. One should not forget that there are a lot of risks associated with the movement to new technology and routines away from the “never change a winning team” paradigm. There is a lot of resistance and also R&D costs are a significant hurdle to overcome. 

Until now the most significant contributions of China to the global fight against climate change seem to be the reduction of technology cost due to economies of scale in manufacturing and the rapid development of the domestic market for PV.

Despite China’s support of local renewable companies with large subsidies[57], it needs to be considered that for instance countries such as Australia and Canada can match the middle kingdom’s large raw material reserves, while offering “greener” energy economies.

That said, it is positive that the local Chinese innovative culture has created a fertile ground for sustainable entrepreneurial activity. Market formation, resource mobilization and creation of legitimacy have reached a virtuous cycle and create synergetic benefits in the Chinese home market environment and as China is on a trajectory from production to innovation within the photovoltaics sector[58], the future PV industry indeed leaves room for leading entrepreneurship.

About the Authors:

MSc. Niklas Kimo Bruns: Chinese Alpha Senior Equity Analyst – LinkedIn

BSc. Tong Zhou: Guest Author


Disclaimer: Our content is intended to be used solely for informational and educational purposes, and not as investment advice. Always do your research and consider your personal circumstances before making investment decisions. ChineseAlpha is not liable for any losses that may arise from relying on information provided.

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