Next-generation battery technology competition, who will lead the trillion dollars photovoltaic industry?

2023-03-06


Photovoltaics (PV) is one of the hottest and competitive tracks at the moment.

Although China's photovoltaic industry has been developing for more than 20 years and has generated more than 130 listed companies, this industry is still as much pursued as a gold mine. According to PV industry statistics, from 2020 to date, the PV investment (including planning) has totaled over 2 trillion yuan, covering different sectors of the industry chain such as silicon, wafers, cells, modules, and systems.

Investors in the PV industry are not only old players who have been deeply involved in the PV industry for many years but also a wave of new players who have come from other sectors. Why is the PV industry so competitive? The macro background is that in the " Carbon peaking and Carbon neutrality" trend, photovoltaic is the future of the largest source of green electricity.

Cost reduction and efficiency enhancement is the ultimate goal pursued by the PV industry and is also the core logic of development. Around this logic, the PV industry has undergone a series of technological iterations in the past: monocrystalline instead of polycrystalline, diamond wire cutting rather than mortar wire cutting, and PERC cell technology instead of BSF cell technology...

In this series of technology iterations mainly around the battery, the cost of photovoltaic degrees of electricity fell by 90% (from the original 3 ~ 5 yuan per kWh, down to 0.3 ~ 0.35 yuan per kWh in the last two years) into the era of affordable prices.

In the future, further improving the efficiency of power generation and reducing the cost of electricity is still the core proposition of the photovoltaic industry. The key to solving the problem is still the continuous upgrading of battery technology.

Today, the new generation of cell technology path is in full swing; the future in which solar cell technology can lead the trillion PV industry is still uncertain. So, how should various market participants seize the bonus of the current wave of technology iteration?


1.Monocrystalline VS polycrystalline: technology is the key to success.


In the past 20 years, the most representative technology battle in the PV industry has been monocrystalline silicon cells vs polycrystalline silicon cells.

Photovoltaic cells (also known as solar cells) are divided into crystalline silicon cells and thin- layer cells. Among them, crystalline silicon cells occupy about 95% of photovoltaic cells and are photovoltaic cells with the highest level of industrialization and reliability. Crystalline silicon cells are divided into polycrystalline silicon cells and monocrystalline silicon cells.

The year 2008 was a significant turning point for Chinese PV companies.

Before that, China's PV industry had just started to take off and was still facing the dilemma of "three heads outside" (raw materials outside, market outside and equipment outside). In the case of supply and demand imbalance, the price of polysilicon inflated rapidly. To ensure corporate profits, many Chinese PV companies had to hoard polysilicon material in advance.

After the global financial crisis outbreak in 2008, China's primary export market for photovoltaic products - the European Union- almost reduced the support for the photovoltaic industry to zero. Without subsidies, the market demand for PV cells fell sharply, breaking the sales of Chinese PV products and triggering a plunge in the cost of polysilicon.

The price of raw materials has skyrocketed and plummeted, making the cost of raw materials for many Chinese PV companies much more expensive than others. This makes the processing and assembly-based Chinese photovoltaic enterprises very little profit. Some Chinese photovoltaic companies have paid a high penalty for early termination contracts with foreign silicon suppliers.

In 2011, a more significant crisis came quietly. The US launched anti-dumping and anti- subsidy investigation against Chinese PV companies, followed by the EU, which eventually imposed massive tariffs on most Chinese PV companies.

However, a wave of companies survived the downturn through technological breakthroughs. Among them, the most representative ones are GCL Group ("GCL") and LONGi Corporation ("LONGi"). Their primary research and development tracks are polysilicon and monocrystalline silicon, respectively.

The photovoltaic industry has long been a representative of high pollution, mainly because silicon tetrachloride, a by-product of polysilicon production, contains highly toxic and corrosive properties.

In 2006, Sinochem Hualu Corporation ("Hualu") conquered the cold hydrogenation technology. This technology allows silicon tetrachloride to be converted at low temperatures and high pressure into silicon trichloride, an essential raw material for polysilicon.

By cooperating with Hualu, GCL's polysilicon cost dropped from US$40/kg in 2009 to US$25/kg in 2010. This secret weapon allowed GCL to resist the anti-dumping and anti- subsidy investigation from Europe and the United States.

After the investigation crisis in 2013, China increased its subsidies to the PV industry. However, as the cost of photovoltaic power generation declined, China proposed the "PV Leader Program" in 2017, requiring the photovoltaic conversion efficiency of polycrystalline silicon cell modules and monocrystalline silicon cell modules to reach 18% and 18.9% or more to receive subsidy support.

This plan has marked a significant reversal in the PV cell industry regarding mono- polycrystalline technology.

Although the photoelectric conversion efficiency is higher than polysilicon, monocrystalline silicon is not favored by the industry because the cost of slicing monocrystalline silicon is much higher than polysilicon.

Before 2012, monocrystalline silicon had been cut using mortar. However, the raw material for this cutting technology is very complex, and there is less room for cost reduction.

Li Zhenguo, the founder of LONGi, discovered that if monocrystalline silicon pillars were cut with diamond wire, it would be faster and increase the machine's productivity by three times. However, at that time, the diamond wire-cutting technology needed to be more mature and was in the hands of a few manufacturers in Japan and other countries.

In 2012, LONGi switched from mortar cutting to diamond wire cutting. Under LONGi's leadership, other polysilicon companies used diamond wire cutting technology in large quantities. The popularity of this technology has not only allowed Longi to take the initiative to overtake but also reduced tens of billions of costs for the PV industry every year. In addition to diamond wire cutting technology, LONGi also launched monocrystalline PERC cells in 2015, which further widened the efficiency gap of mono-polycrystalline cells.

With these technological advantages, shipments of monocrystalline solar panels surpassed the shipment of polycrystalline silicon for the first time in 2017.

Looking back, the factors that brought considerable changes to the PV industry are mainly policy, economic and technological iterations. Only technological innovation can make the industry turn around when the policy bonus is gone, and the financial crisis comes.



2.N-type efficient era opened, new technology cross-competition


The battle between monocrystalline silicon and polysilicon photovoltaic cells is over, and the battle of "PN" substitution is at the right time.

It is known that crystal silicon cell technology uses silicon wafers as the substrate and differentiates into P-type cells and N-type cells according to the difference in silicon wafers. There is no essential difference in the power generation principle between the two types of cells; both are based on PN junction for photogenerated carrier separation.

A solar cell in which the element phosphorus (Phosphorus, element symbol P) is diffused on a P-type semiconductor material to form an n+/p-type structure is a P-type cell.

A solar cell with a p+/n-type structure by injecting boron (element symbol B) into an N-type semiconductor material is called an N-type cell.

Regarding preparation technologies, the leading preparation technologies for P-type cells include BSF and PERC. In comparison, the top preparation technologies for N-type cells include TOPcon, HJT, IBC, etc.

Before 2015, BSF cells accounted for 90% of the total market and were mainstream. However, by 2020, PERC cells will have accounted for more than 85% of the global market, and BSF cells will be eliminated. During this period, the conversion efficiency of P-cells has increased from less than 20% to more than 23%.

The passivated contact technology of N-type cells significantly reduces the contact compound between metal electrodes and cells, achieving higher conversion efficiency than PERC cells.

China PV Industry Development Roadmap (2021 Edition)" predicts that by 2030, the market share of N-type monocrystalline silicon wafers will be close to 50%. This means that the era of N-type cells is getting closer and closer.

From the industrialization landing situation, PERC battery industrialization support is mature and still the most economical battery technology at this stage.

Among the N-type battery technologies, TOPcon was the first to land, the most planned, and the most capacity under construction and in production.


3.Behind the technology iteration, how to find the next Big Thing?


There is no industry consensus on which technology will win out in the future.

As a result, companies behave differently in their technology routes. Some companies bet on multi-technology routes, while others focus on a single route.

LONGi is a typical company betting on multi-technology routes. In June 2021, LONGi announced the conversion efficiency of its monocrystalline bifacial N-type TOPcon cells, monocrystalline bifacial P-type TOPcon cells and monocrystalline HJT cells had broken three world records.

In addition to LONGi, JA Technology, Tongwei, and Dongfang Risheng are also betting on multi-technology routes.

JD Capital has observed that betting on multiple technology routes requires a high level of integration for the companies. Therefore, most of these companies are mature large enterprises. In the primary market, more companies are based on their accumulated technological advantages to make a push on a specific mainstream technology route.

In summary, companies need to have several competitive attributes to compete in this round of PV cell technology iteration.

First, the company has a high level of technical strength. For example, its technical leader and core members from the industry's leading research institutes or in the photovoltaic industry has at least ten years of experience in industrialization.

Second, management has a strategic vision ahead of time. The ability to bet on the right technology route directly determines the life and death of the enterprise. And technology iteration has a specific window period, and companies need to grasp the technology line expansion progress.

Third, the company has solid financial strength or higher financing ability. Zhong Baoshen, Chairman of LONGi, has said that behind any technology route to form an essential judgment and run the results is up to about 600 million yuan of investment (including the input of other accompanying technology routes). This includes a complete set of hardware facilities for the new technology route and 3-4 years of operation, personnel costs, etc.

Fourth, the company has more substantial brand power and customer resources. Photovoltaic products are relatively standardized industrial products, but the enterprise's market share and higher brand awareness are obviously more advantageous. In particular, the brand effect of household PV is more prominent. Similarly, companies with more robust customer resources also have better development potential.

From the perspective of the various PV cell industry chain segments, we believe that the cell equipment side has strong "first-mover advantage" characteristics. In the early stages, when technology is not mature, equipment companies need to work with downstream customers for continuous processes.

Take HJT as an example. Compared to the PERC process, due to the difficulty of the HJT single process step and the higher cost of initial R&D investment, when the industry enters maturity, it may be similar to the semiconductor equipment industry, with 2-3

manufacturers that achieve the ultimate in equipment efficiency + cost occupying most of the market share.

JD Capital estimated that by 2025, the market space of HJT equipment is expected to exceed RMB 20 billion, and the compound annual growth rate (CAGR) from 2020 to 2025 is expected to reach 79%. On the equipment side, the new round of technology iteration will also bring very promising market space and growth rate.

Overall, the Chinese PV industry is not what it used to be.

More than ten years ago, China's photovoltaic industry was "three heads outside"; the whole industry is basically in the "big international cycle" state. Therefore, the Chinese photovoltaic industry is starved after encountering investigations in Europe and the United States.

Today, China's photovoltaic industry has achieved remarkable results in the "internal cycle", realizing several records such as the world's first photovoltaic manufacturing industry in China, the world's first installed photovoltaic power generation capacity in China, and the world's first photovoltaic power generation capacity in China.

Although they are no longer under the control of others, they should not be blindly confident. Companies hoping to rise through the new round of battery technology iteration must not expand too fast.

In the future, with the industrialization process of each cell technology path, the PV industry is bound to usher in a new round of reshuffling, and investment opportunities will mainly arise in the change of the competitive landscape brought about by technology iteration.

The fast pace of technology iteration in the PV industry also brings about the characteristics of significant changes in the competitive landscape and the strong cyclicality of enterprises. For investment institutions, it is essential to seize the investment opportunities at the low point of the industry cycle as much as possible and select the head enterprises with more mature technology lines.

With a large amount of capital coming into the photovoltaic industry, we should always adhere to our investment logic and investment value judgment, not venture boldly. The core of crossing the cycle is to stay in the ability circle