China Renewable Energy_ Industry Expert Cautious of Polysilicon Production Capacity Cut from Electricity Consumption Cap

Summary of the Conference Call on China Renewable Energy Sector Industry Overview - Industry: China Renewable Energy, specifically the solar sector - Date of Call: November 14, 2024 - Speaker: Ms. Peng Peng, General Secretary at China New Energy Generation Investment and Financial Alliance Key Points Discussed Polysilicon Production Capacity - The potential cut in polysilicon production capacity due to an electricity consumption cap is not expected to be material. Tier 1 operators can meet the requirements outlined in the consultation paper, while cuts from 2nd and 3rd tier operators will be insufficient [2][4] - The Ministry of Industry and Information Technology (MIIT) is discussing potential policy settings regarding capacity cuts [4] - Current average utilizations for major polysilicon makers are: - Tongwei: 100% - GCL: 60-70% - Daqo: 30% - Xinte Energy: 20% [4] Market Mechanism Preference - The National Energy Administration (NEA) prefers that the supply-demand equilibrium be determined primarily by market mechanisms rather than regulatory measures [5] - The average electricity consumption for polysilicon production in 2023 was 57 kWh/kg-Si, a 5% year-over-year decrease, which meets the suggested requirement of 60 kWh/kg-Si [5] Module Pricing - The recommended module price floor of Rmb0.68/W by the China Photovoltaic Industry Association (CPIA) appears ineffective, as recent bids from JA Solar were below this threshold, indicating a lack of adherence to the price floor [2][10] Market Outlook - Global solar installation is projected to increase by 5-10% year-over-year in 2025, with a forecast of 500 GW of solar installations globally in 2024 [11] - In China, solar capacity addition is expected to reach 250 GW in 2024, a 16% year-over-year increase [11] US Market Challenges - The potential implementation of "Trump 2.0" could create additional challenges for Chinese solar equipment manufacturers in the US market, including higher customs taxes [12] - Trina Solar's decision to sell its US manufacturing operations to FREYR is viewed positively, as it may mitigate risks associated with the US market [12] Investment Ratings - Citi maintains a "Sell" rating on several companies including Tongwei, TBEA, LONGi, Trina Solar, and Flat Glass due to the current market conditions and outlook [2] Additional Insights - The speaker expressed caution regarding the ability of Chinese solar equipment makers to remain profitable in the US under the new political climate [12] - The polysilicon market prices are believed to have already bottomed out, indicating a potential stabilization in pricing [9] Conclusion - The solar sector in China faces significant challenges, particularly regarding production capacity, pricing mechanisms, and international market dynamics. The outlook remains cautious, with several companies rated as "Sell" by Citi Research due to these ongoing issues.