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The Next Frontier for Solar-grade Wafer
The renewable energy across the globe enters into a new phase of growth by customer demand, competitive cost, and innovation, being the primary growth driver for the solar-grade wafer market in the coming few years. In this chapter, we elaborate on the evolution of solar-grade wafer, newcomer’s roadblock, and its opportunity and future.
Evolution of Solar-grade Wafer Industry
Solar-grade wafer originates from the semiconductor-grade wafer. Most of the players who are currently producing solar-grade wafers such as Longi and Zhonghuan (China), Sumco (Japan), and SunEdison (formerly MEMC Electronic Material, USA), started their business with semiconductors before 2010. As the photovoltaic market was small before 2010, Chinese cell and module producers integrated the supply chain by extending to wafer with small capacity.
As China’s solar market grew up, GCL-Poly Energy (“GCL”), the biggest polysilicon maker in China, extended to multi-wafer business. Their production dominated the market for a period until Longi, the afterward largest mono-wafer maker, brought in mono module products in 2015, showing the market mono-product was able to achieve higher conversion efficiency with the same level of unit cost. Then the downstream cell and module makers began to switch to the mono technology route.
Roadblock for Foreign Newcomers
Different from polysilicon, where non-Chinese companies were forced to exit in the long-term competition, Chinese wafer players took the growing part of the pie from the beginning of the solar industry booming. Solar supply chain in China, from silicon to end solar farms, provides local players with competitive advantages in cost, supply chain coordination, and collaboration, which left no room for overseas entrants.
Similar to the semiconductor-grade wafer, solar-grade wafer production is a fine manufacturing business with four key inputs: solar-grade polysilicon, equipment, and auxiliary materials (ingot furnace, cutting machine and diamond cutting lines), energy and labor. As we mentioned in the previous article (The Innovation Race: How China’s Polysilicon Industry Has Upped Its Game), China is the largest supplier of polysilicon and enjoys the lowest retail power cost and labor cost. Similar to the polysilicon industry, after domestic substitute of key equipment and auxiliary materials, Chinese players take all the competitive advantages in massive production. Being the biggest supplier of wafers, China enjoys the lowest cost with cheap logistics and less trading frictions, such as tariff and supply chain stability. It results in no overseas players being able to enter into this business.
Technological Drivers
Same as polysilicon, adequate liquidity, cash cost, and sale price are essential for players to determine to grow in the down cycle. Additionally, technology is another critical factor in determining success in the long run. Similar to semiconductor wafer business, downstream demand, equipment, and innovative production processes drive the development of wafer. Semiconductor wafer is different from the chemical business (polysilicon) in which technology is relatively stable. Technology innovations in cell and module propose new requirements on wafer size, thickness, and components, and so on, which further results in equipment adjustment and adaptation.
On the contrary, the innovations in equipment help with higher efficient products as well as cutting costs of wafer, cell, and module. Those who are not well prepared for new technologies will suffer ultimately. Once innovation goes to the end, the lower margin the industry has, the fewer new entrants there are. It is easy to figure out the consolidation landscape following each player’s capacity expansion plan. As the photovoltaic industry is still new, we shall keep an eye on technology changes at the moment.
The Roads of Tomorrow
Top five Chinese wafer producers take a total market share of over 70% in terms of capacity by the end of 2019. The top two wafer makers, Longi and Zhonghuan, have been working on aggressive capacity expansion since 2017. Until now, the soft demand is expected to result in oversupply, may stop other players’ new capacity plans, and consolidate the leading position of the first two players.
In the long term, manufacturing business offers a relatively stable margin. Leading players either focus on wafer business and grow up with the solar market or look for the second growth line, for example, integration into a cell, module, or even energy storage business. Before reaching a stable state, there are still some ways to cut production cost:
- enhance the efficiency of wafers and accordingly equipment innovation to reduce unit production cost;
- achieve economy of scale to lower fixed cost amortization;
- bring revolutionary changes to a silicon-based solar cell.
Leaping into the Future
In the next few years, it is believed the downstream demand for Solar grade wafer will keep increasing at high speed, driving the boom of the industry in the foreseeable future.
1 UBS research, March 2020.
Disclaimer
This document is intended for Hong Kong investors only. This material is neither an offer to sell nor solicitation to buy a security to any person in any jurisdiction where such solicitation, offer, purchase or sale would be unlawful under the laws of that jurisdiction. Investment involves risk.
The information in this material is based on sources we believe to be reliable but we do not guarantee the accuracy of completeness of the information provided. This material has not been reviewed by SFC and shall only be circulated in countries where it is permitted.
This material is intended solely for your private use and shall not be reproduced or recirculated either in whole or in part, without the written permission of Mirae Asset Global Investments. This document has been prepared for presentation, illustration and discussion purposes only and is not legally binding. Whilst compiled from sources Mirae Asset Global Investments believes to be accurate, no representation, warranty, assurance or implication to the accuracy, completeness or adequacy from defect of any kind is made. The division, group, subsidiary or affiliate of Mirae Asset Global Investments which produced this document shall not be liable to the recipient or controlling shareholders of the recipient resulting from its use. The views and information discussed or referred in this report are as of the date of publication, are subject to change and may not reflect the current views of the writer(s). The views expressed represent an assessment of market conditions at a specific point in time, are to be treated as opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. In addition, the opinions expressed are those of the writer(s) and may differ from those of other Mirae Asset Global Investments’ investment professionals.
The provision of this document shall not be deemed as constituting any offer, acceptance, or promise of any further contract or amendment to any contract which may exist between the parties. The issuer of this article is Mirae Asset Global Investments (HK) Limited (“we”) which we may or our managed funds may hold the mentioned securities. It should not be distributed to any other party except with the written consent of Mirae Asset Global Investments. Nothing herein contained shall be construed as granting the recipient whether directly or indirectly or by implication, any license or right, under any copy right or intellectual property rights to use the information herein. This document may include reference data from third-party sources and Mirae Asset Global Investments has not conducted any audit, validation, or verification of such data. Mirae Asset Global Investments accepts no liability for any loss or damage of any kind resulting out of the unauthorized use of this document. Investment involves risk. Past performance figures are not indicative of future performance. Forward-looking statements are not guarantees of performance. The information presented is not intended to provide specific investment advice. Please carefully read through the offering documents and seek independent professional advice before you make any investment decision. Products, services, and information may not be available in your jurisdiction and may be offered by affiliates, subsidiaries, and/or distributors of Mirae Asset Global Investments as stipulated by local laws and regulations. Please consult with your professional adviser for further information on the availability of products and services within your jurisdiction.
Hong Kong: This material is prepared by Mirae Asset Global Investments (HK) Limited (Mirae HK). Mirae HK is regulated by the SFC (CE reference: ALK083).
Australia: The information contained on this document is provided by Mirae Asset Global Investments (HK) Limited (“MAGIHK”), which is exempt from the requirement to hold an Australian financial services license under the Corporations Act 2001 (Cth) (Corporations Act) pursuant to ASIC Class Order 03/1103 (Class Order) in respect of the financial services it provides to wholesale clients (as defined in the Corporations Act) in Australia. MAGIHK is regulated by the Securities and Futures Commission of Hong Kong under Hong Kong laws, which differ from Australian laws. Pursuant to the Class Order, this document and any information regarding MAGIHK and its products is strictly provided to and intended for Australian wholesale clients only. By accessing this document and any information or content contained in it, you represent that you are a ‘wholesale client’ under the Corporations Act. This document is strictly for information purposes only and does not constitute a representation that any investment strategy is suitable or appropriate for an investor’s individual circumstances. Further, this document should not be regarded by investors as a substitute for independent professional advice or the exercise of their own judgement. The contents of this document is prepared and maintained by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Australian Investments & Securities Commission. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of MAGI HK. Copyright 2020. All rights reserved.
The Next Frontier for Solar-grade Wafer
The renewable energy across the globe enters into a new phase of growth by customer demand, competitive cost, and innovation, being the primary growth driver for the solar-grade wafer market in the coming few years. In this chapter, we elaborate on the evolution of solar-grade wafer, newcomer’s roadblock, and its opportunity and future.
Evolution of Solar-grade Wafer Industry
Solar-grade wafer originates from the semiconductor-grade wafer. Most of the players who are currently producing solar-grade wafers such as Longi and Zhonghuan (China), Sumco (Japan), and SunEdison (formerly MEMC Electronic Material, USA), started their business with semiconductors before 2010. As the photovoltaic market was small before 2010, Chinese cell and module producers integrated the supply chain by extending to wafer with small capacity.
As China’s solar market grew up, GCL-Poly Energy (“GCL”), the biggest polysilicon maker in China, extended to multi-wafer business. Their production dominated the market for a period until Longi, the afterward largest mono-wafer maker, brought in mono module products in 2015, showing the market mono-product was able to achieve higher conversion efficiency with the same level of unit cost. Then the downstream cell and module makers began to switch to the mono technology route.
Roadblock for Foreign Newcomers
Different from polysilicon, where non-Chinese companies were forced to exit in the long-term competition, Chinese wafer players took the growing part of the pie from the beginning of the solar industry booming. Solar supply chain in China, from silicon to end solar farms, provides local players with competitive advantages in cost, supply chain coordination, and collaboration, which left no room for overseas entrants.
Similar to the semiconductor-grade wafer, solar-grade wafer production is a fine manufacturing business with four key inputs: solar-grade polysilicon, equipment, and auxiliary materials (ingot furnace, cutting machine and diamond cutting lines), energy and labor. As we mentioned in the previous article (The Innovation Race: How China’s Polysilicon Industry Has Upped Its Game), China is the largest supplier of polysilicon and enjoys the lowest retail power cost and labor cost. Similar to the polysilicon industry, after domestic substitute of key equipment and auxiliary materials, Chinese players take all the competitive advantages in massive production. Being the biggest supplier of wafers, China enjoys the lowest cost with cheap logistics and less trading frictions, such as tariff and supply chain stability. It results in no overseas players being able to enter into this business.
Technological Drivers
Same as polysilicon, adequate liquidity, cash cost, and sale price are essential for players to determine to grow in the down cycle. Additionally, technology is another critical factor in determining success in the long run. Similar to semiconductor wafer business, downstream demand, equipment, and innovative production processes drive the development of wafer. Semiconductor wafer is different from the chemical business (polysilicon) in which technology is relatively stable. Technology innovations in cell and module propose new requirements on wafer size, thickness, and components, and so on, which further results in equipment adjustment and adaptation.
On the contrary, the innovations in equipment help with higher efficient products as well as cutting costs of wafer, cell, and module. Those who are not well prepared for new technologies will suffer ultimately. Once innovation goes to the end, the lower margin the industry has, the fewer new entrants there are. It is easy to figure out the consolidation landscape following each player’s capacity expansion plan. As the photovoltaic industry is still new, we shall keep an eye on technology changes at the moment.
The Roads of Tomorrow
Top five Chinese wafer producers take a total market share of over 70% in terms of capacity by the end of 2019. The top two wafer makers, Longi and Zhonghuan, have been working on aggressive capacity expansion since 2017. Until now, the soft demand is expected to result in oversupply, may stop other players’ new capacity plans, and consolidate the leading position of the first two players.
In the long term, manufacturing business offers a relatively stable margin. Leading players either focus on wafer business and grow up with the solar market or look for the second growth line, for example, integration into a cell, module, or even energy storage business. Before reaching a stable state, there are still some ways to cut production cost:
- enhance the efficiency of wafers and accordingly equipment innovation to reduce unit production cost;
- achieve economy of scale to lower fixed cost amortization;
- bring revolutionary changes to a silicon-based solar cell.
Leaping into the Future
In the next few years, it is believed the downstream demand for Solar grade wafer will keep increasing at high speed, driving the boom of the industry in the foreseeable future.
1 UBS research, March 2020.
Disclaimer
This document is intended for Hong Kong investors only. This material is neither an offer to sell nor solicitation to buy a security to any person in any jurisdiction where such solicitation, offer, purchase or sale would be unlawful under the laws of that jurisdiction. Investment involves risk.
The information in this material is based on sources we believe to be reliable but we do not guarantee the accuracy of completeness of the information provided. This material has not been reviewed by SFC and shall only be circulated in countries where it is permitted.
This material is intended solely for your private use and shall not be reproduced or recirculated either in whole or in part, without the written permission of Mirae Asset Global Investments. This document has been prepared for presentation, illustration and discussion purposes only and is not legally binding. Whilst compiled from sources Mirae Asset Global Investments believes to be accurate, no representation, warranty, assurance or implication to the accuracy, completeness or adequacy from defect of any kind is made. The division, group, subsidiary or affiliate of Mirae Asset Global Investments which produced this document shall not be liable to the recipient or controlling shareholders of the recipient resulting from its use. The views and information discussed or referred in this report are as of the date of publication, are subject to change and may not reflect the current views of the writer(s). The views expressed represent an assessment of market conditions at a specific point in time, are to be treated as opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. In addition, the opinions expressed are those of the writer(s) and may differ from those of other Mirae Asset Global Investments’ investment professionals.
The provision of this document shall not be deemed as constituting any offer, acceptance, or promise of any further contract or amendment to any contract which may exist between the parties. The issuer of this article is Mirae Asset Global Investments (HK) Limited (“we”) which we may or our managed funds may hold the mentioned securities. It should not be distributed to any other party except with the written consent of Mirae Asset Global Investments. Nothing herein contained shall be construed as granting the recipient whether directly or indirectly or by implication, any license or right, under any copy right or intellectual property rights to use the information herein. This document may include reference data from third-party sources and Mirae Asset Global Investments has not conducted any audit, validation, or verification of such data. Mirae Asset Global Investments accepts no liability for any loss or damage of any kind resulting out of the unauthorized use of this document. Investment involves risk. Past performance figures are not indicative of future performance. Forward-looking statements are not guarantees of performance. The information presented is not intended to provide specific investment advice. Please carefully read through the offering documents and seek independent professional advice before you make any investment decision. Products, services, and information may not be available in your jurisdiction and may be offered by affiliates, subsidiaries, and/or distributors of Mirae Asset Global Investments as stipulated by local laws and regulations. Please consult with your professional adviser for further information on the availability of products and services within your jurisdiction.
Hong Kong: This material is prepared by Mirae Asset Global Investments (HK) Limited (Mirae HK). Mirae HK is regulated by the SFC (CE reference: ALK083).
Australia: The information contained on this document is provided by Mirae Asset Global Investments (HK) Limited (“MAGIHK”), which is exempt from the requirement to hold an Australian financial services license under the Corporations Act 2001 (Cth) (Corporations Act) pursuant to ASIC Class Order 03/1103 (Class Order) in respect of the financial services it provides to wholesale clients (as defined in the Corporations Act) in Australia. MAGIHK is regulated by the Securities and Futures Commission of Hong Kong under Hong Kong laws, which differ from Australian laws. Pursuant to the Class Order, this document and any information regarding MAGIHK and its products is strictly provided to and intended for Australian wholesale clients only. By accessing this document and any information or content contained in it, you represent that you are a ‘wholesale client’ under the Corporations Act. This document is strictly for information purposes only and does not constitute a representation that any investment strategy is suitable or appropriate for an investor’s individual circumstances. Further, this document should not be regarded by investors as a substitute for independent professional advice or the exercise of their own judgement. The contents of this document is prepared and maintained by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Australian Investments & Securities Commission. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of MAGI HK. Copyright 2020. All rights reserved.
Disclaimer & Information for Investors
No distribution, solicitation or advice: This document is provided for information and illustrative purposes and is intended for your use only. It is not a solicitation, offer or recommendation to buy or sell any security or other financial instrument. The information contained in this document has been provided as a general market commentary only and does not constitute any form of regulated financial advice, legal, tax or other regulated service.
The views and information discussed or referred in this document are as of the date of publication. Certain of the statements contained in this document are statements of future expectations and other forward-looking statements. Views, opinions and estimates may change without notice and are based on a number of assumptions which may or may not eventuate or prove to be accurate. Actual results, performance or events may differ materially from those in such statements. In addition, the opinions expressed may differ from those of other Mirae Asset Global Investments’ investment professionals.
Investment involves risk: Past performance is not indicative of future performance. It cannot be guaranteed that the performance of the Fund will generate a return and there may be circumstances where no return is generated or the amount invested is lost. It may not be suitable for persons unfamiliar with the underlying securities or who are unwilling or unable to bear the risk of loss and ownership of such investment. Before making any investment decision, investors should read the Prospectus for details and the risk factors. Investors should ensure they fully understand the risks associated with the Fund and should also consider their own investment objective and risk tolerance level. Investors are advised to seek independent professional advice before making any investment.
Sources: Information and opinions presented in this document have been obtained or derived from sources which in the opinion of Mirae Asset Global Investments (“MAGI”) are reliable, but we make no representation as to their accuracy or completeness. We accept no liability for a loss arising from the use of this document.
Products, services and information may not be available in your jurisdiction and may be offered by affiliates, subsidiaries and/or distributors of MAGI as stipulated by local laws and regulations. Please consult with your professional adviser for further information on the availability of products and services within your jurisdiction. This document is issued by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Securities and Futures Commission.
Information for EU investors pursuant to Regulation (EU) 2019/1156: This document is a marketing communication and is intended for Professional Investors only. A Prospectus is available for the Mirae Asset Global Discovery Fund (the “Company”) a société d'investissement à capital variable (SICAV) domiciled in Luxembourg structured as an umbrella with a number of sub-funds. Key Investor Information Documents (“KIIDs”) are available for each share class of each of the sub-funds of the Company.
The Company’s Prospectus and the KIIDs can be obtained from www.am.miraeasset.eu/fund-literature . The Prospectus is available in English, French, German, and Danish, while the KIIDs are available in one of the official languages of each of the EU Member States into which each sub-fund has been notified for marketing under the Directive 2009/65/EC (the “UCITS Directive”). Please refer to the Prospectus and the KIID before making any final investment decisions.
A summary of investor rights is available in English from www.am.miraeasset.eu/investor-rights-summary.
The sub-funds of the Company are currently notified for marketing into a number of EU Member States under the UCITS Directive. FundRock Management Company can terminate such notifications for any share class and/or sub-fund of the Company at any time using the process contained in Article 93a of the UCITS Directive.
Australia: The information contained in this document is provided by Mirae Asset Global Investments (HK) Limited (“MAGIHK”), which is exempted from the requirement to hold an Australian financial services license under the Corporations Act 2001 (Cth) (Corporations Act) pursuant to ASIC Class Order 03/1103 (Class Order) in respect of the financial services it provides to wholesale clients (as defined in the Corporations Act) in Australia. MAGIHK is regulated by the Securities and Futures Commission of Hong Kong under Hong Kong laws, which differ from Australian laws. Pursuant to the Class Order, this document and any information regarding MAGIHK and its products is strictly provided to and intended for Australian wholesale clients only. The contents of this document is prepared by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Australian Investments & Securities Commission.
Copyright 2021. All rights reserved. No part of this document may be reproduced in any form, or referred to in any other publication, without express written permission of Mirae Asset Global Investments (Hong Kong) Limited.