Jason Lu is Chief Strategy Officer for Ningbo Jinshi Solar Company, a Shanghai-based company that manufactures and sells photovoltaic (PV) solar modules for both on and off-grid power. As listed on Alibaba, Jinshi Solar produces 200 megawatts of solar panels annually, has over $100 million U.S. in revenue and operates in markets all over the world. Mr. Lu agreed to share his perspective and insights from within China’s solar manufacturing industry.
As a Chinese solar panel Original Equipment Maker (OEM), I witnessed the comedies and tragedies in Chinese solar industry throughout this decade.
Firstly, I would like to roughly divide Chinese solar photovoltaic (PV) production into three periods.
Period one, from 2004 – 2011, we can call the trading model. Thanks to German solar incentives as early as 2004, the entire Chinese solar industry was engrossed in a carnival of exporting. Chinese investors rushed to solar panel manufacturing, including my company, Jinshi Solar. Worse, the supply of raw materials, like poly-crystal silicon, solar cells and turn-key production lines, were dominated by German, Japanese and American businesses.
I started my solar career by importing solar materials from Europe and USA to resell in China. Without question, this simple manufacturing & trading structure was vulgar and precarious. Consequently, oversupply and low-margin were induced quickly in Chinese solar industry. Looking back, I am convinced that American anti-dumping investigations were a positive incentive: they just put an end to the wild and vulgar development of Chinese solar industry.
Period two, from 2011 to 2013, we see diversifying market basis. Confronted with trading-protectionism or conservatism of the U.S. and Europe, Chinese solar companies started to switch to the domestic market and world market other than Europe and U.S. We at Jinshi solar earned new market shares in Japan and Thailand during this period, while also winning OEM contracts for leading Chinese solar companies.
I think trading-protectionism is a double-edged sword: on one hand, it constrained the outlets of Chinese solar panels-for example, we have to provide a lot of paperwork and verifications to be approved as a member to export panels to the EU, where we have lost cost advantage to Korean solar businesses; on the other hand, these policies are also like poison to European and American solar businesses, in that they lost the biggest demand from China. Since 2011, you have heard of numerous reports of shutting-up of American and European solar businesses. The latest news said that Manz AG has been merged by one leading Shanghai-based Chinese solar company.
Period Three, from 2013 to now, is characterized by reshaping the Chinese solar market to be sustainable. After the wild growth before 2010, Chinese solar industries endeavored to shape a sustainable manner to nurture the Chinese domestic solar market! The fruit is that the total newly installed capacity of solar in the year 2015 reached 15.1 Gigawatt (GW), and the grand total capacity of solar energy has risen to 43.2 GW, surpassing Germany.
Q: From this third Period going forward into the future, what do you view as the major factors and changes shaping solar in China?
I would like to interpret Period Three from these angles:
Firstly, national strategic position. In the next 5 years, Chinese government will approve another 150 GW by the year 2020, with 70 GW ground-mounted solar plant and 80 GW distributed solar plant, like roof-mounted solar energy. Another fundamental revolution is that Chinese central government has liberated the electricity sales license, providing the platform that the customers can directly deal with the solar energy producers, while in the past, the electricity users must buy from National Grid. It is a revolutionary forward leap!
Secondly, oversupply must be addressed in a new macro national strategy: supply-side reform which Chinese president Mr. Xi Jinping proposed by the end of the last year. Overproduction eroded profit margin to be as low as 4.75% profit margin rate, last year. I believe that the Chinese solar industry will gradually shape a sustainable growth under this new macro condition through regulation, financing preference policies and tax rebating policies. It’s foreseen that Chinese solar industry will see more tycoons, like Trina Solar.
Thirdly, the conception of “Internet +” proposed by Chinese premier minister, Mr. Li Keqiang is a catalyst. “Internet + solar” is a very innovative strategy. Just looking at Huawei, Tencent and Alibaba, China is standing parallel to the USA in the new era of information and Internet of Things (IoT). Chinese government is eager to combine IT knowledge to optimize traditional manufacturing.
The most eminent phenomenon is that Huawei launched its solar division by demonstrating smart inverter and comprehensive smart technology, followed by other Chinese startups presenting their own smart solar technologies integrated with IoT. “Internet + Solar” could re-shape the production management of solar panels, too. Early this year, we Jinshi Solar expanded capacity again, and more automatic equipments and flexible lines were introduced. Precise data management must enable us to reduce cost to optimize quality standards.
This conception of “Internet + solar” is also embodied in the innovations of finance and new business models in Chinese solar industry. Mr. Xiaofeng Peng, former founder of LDK Solar, launched P2P finance to invest in solar plants; referencing the sharing economy with Uber as the symbol, other Chinese startups created platforms to optimize the supply-demand relation between rooftop solar energy and end-users.
Fourthly, technology innovation. We witnessed new and positive changes along this value chain: poly-crystal silicon feedstock is mainly made in China, reaching 165,000 metric tons last year and the leading businesses, like GCL, have an advantage to challenge traditional western poly-crystal makers.
Furthermore, the turn-key production lines and advanced equipments, like plasma-enhanced chemical vapor deposition, have been dominated by Chinese equipment manufacturers. Leading solar companies have gained new breakthroughs in conversion efficiency of solar cells. Furthermore, other materials, like the back sheets of solar panels, are almost all dominated by local Chinese manufacturers. In my memory, we used to boast of adopting German materials or components decade ago, but now, the landscape has fundamentally changed, so that China dominates the entire value chain.
Looking back, in each period, various heroes or stars in this industry emerged, but some of them were like beautiful fireworks: splendid flash, but finally, only ash! Suntech and YingLi are the typical hero in period one; Rene Solar in period two, now, Trina Solar, CSI and Hareon Solar are new heroes in period Three.
Last but not least, I must acknowledge that the constraints on Chinese solar developments should be addressed, otherwise our ambitions will only be on paperwork and not in reality.
Governmental subsidies used to be delayed and delayed, leading to very challenging cash flow condition to each solar companies on this value chain. For example, subsidies to be paid to the solar projects that had been built since 2013 had not been addressed until the end of the last year. As a result, the solar panel manufacturers at the upper source along this value chain have headaches just to collect the outstanding money!
As well, the electricity generated from wind and solar plants was blocked by local utilities in Western China. For instance, 26% of electricity generated from ground-mounted solar plant in XinJiang was blocked out of the grid. Lastly, the segment of distributed solar energy is still in the nascent stage, without a sustainable mechanism like SolarCity.
Q: How do you experience these major trends and forces in the industry at Jinshi Solar?
About Jinshi Solar’s position as a manufacturing business, I feel that there are two extremes after the oversupply is curbed: one extreme is that domestic market is dominated by those big brands, like Trina Solar, as well as ultra huge state-owned-enterprises of energy industry.
China has shaped laws and acts to set up necessary quality and criteria to control the quality of solar plant. For example, the solar panel manufacturer must own sufficient R&D capital and production volume to be national accredited verified solar panel manufacturer, otherwise, the subsidies shall not be granted. We at Jinshi Solar are working hard to match those criteria to earn such membership. For time being, OEM for leading solar brands, such as Jinko Solar, is a necessary for smaller Chinese solar panel makers, like Jinshi Solar, partly because we really learn a lot from these leaders.
Another extreme is that low-quality and low-end panels are still rolled out from smaller companies which still export to rural areas like Africa in a restless manner. These low-quality solar panels not only damage the system reliability, but the confidence of local users. Therefore, I think it necessary for Jinshi Solar to enter the rural off-grid segment by offering higher-quality panels, since there are huge amounts of jobs to be done to improve those solar kits in rural electrification.
The latest research report, as you can check Bloomberg, the potential for off-grid solar amounts to be $3.1 billion by 2020. I think only solar power can play leading role in the rural electrification.
However, just as you said, whether the solar equipments can really reach the end users and whether the last-mile is covered depend on good policy/funding mechanisms, like micro-finance and Pay As You Go(PAYG)-driven model.
The traditional trading model has been obsolete: middle companies in Africa or Bangladesh imported low-quality and cheap stuff from China and re-sold in local markets. Months later, these middle companies disappeared, and no one could guarantee the warranty. Therefore, I liked the new “impacting concept” very much, such as PAYG-model, and its pilots, like Mobisol, M-kopa, Off-grid Electric, etc.
These new innovative dealing mechanisms blocked out companies who only wanted to make “quick money” by supplying low-quality and cheap products. Furthermore, micro-finance or PAYG model really decrease the upfront capital pressure on the end-users, with only 20% upfront payment and then paying the amount like leasing, without any reason to breach the contract, because the traditional kerosene lights are dangerous and costlier!
As well, more employment can be produced in this new innovative financing model. For example, local women can play a very active role in collecting money from the end-users and system operation. On one hand, women form a natural network to save cost for the sponsors to build a professional sales network, and on the other hand, it brings about good returns to these hard-working women.
I wonder if there is more room for Uber-like solar start-ups active in rural electrification. A new and interesting topic is how to utilize sharing-economy model here, and I believe impact businesses should have advanced a bit in this direction. My other observation is that much fewer Chinese solar companies launch similar PAYG-model in rural areas, and this segment seems dominated by European and American investors again!
Returning to the fundamental level in the rural electrification in production design, in the last summer, I spent time studying SHS to find that there are a lots of jobs to be optimized. The SHS which is popular in those rural electrification is really low-grade-to exaggerate it is only a solar-powered torch-without any aesthetic merits.
Worse, those products wear a label of “destitute”, so low end is the product that the users will have a feeling that “I am poor”. European and American investors are experts in introducing solar electricity to rural areas, but they are not experts in solar energy or LED lighting, both of which should be optimized by professional manufacturers. Therefore, the product design, aesthetic merits, function durability and innovative business models must be optimized again. I also want to join with local social businesses to re-shape the product design.
In China, the distributed solar energy of the year 2015 actually dropped by 32% to only 1.4 GW, among the total capacity 15.1 GW of the year 2015. In the near future, distributed solar energy can hardly be boosted up, like ground-mounted, utility-scale solar plants, until a good policy/funding mechanism is found.
The innate problems of roof-top solar energy in China have to be addressed:
Firstly, property ownership. 90% of city citizens in China live in condominiums, without individual roofs to mount solar panels and complicated property right distribution is a big problem. Thus, existing roof-top solar energy in China is mainly on industrial working plants roofs and agricultural applications, like on greenhouses and fishing ponds.
Secondly, stable ROI and poorer credit are big uncertainties. Whether the roof owners can eventually join with solar plant operators throughout 25 years is a big uncertainty. In China, roof-top solar energy policy is self consuming and self-generation with the remaining energy fed into grid, and central and local government will provide subsidies for the solar electricity for 3-5 years.
If the roof owner met operation problems, they could shut down its production without the need to consume the electricity, and the profit margin to the solar energy operator would be largely diminished. Regarding third-party financing companies, there are a few Chinese financial bodies providing such services, but the effects are still to be observed, since Chinese financial institutions have been very conservative in distributed solar energy, just for the risks and uncertainties cited above.
Still, I hold the forward perspective. The Chinese government has developed some innovative policies, similar to Bangladesh’s micro-finance. In Chinese countryside areas, residents generally live in their own houses, and government encourages solar developers to lease the roof-top solar array to the local poor residents, and the return can be shared by the developer and residents.
Solar energy is an appealing segment, as it is a material-intensive industry, in which various innovations can find breakthroughs. However, my principle is that silicon-based crystal solar panels remain popular and mainstream, and the key is to increase the conversion efficiency and enhance the reliability to withstand power degradation. This is what Jinshi Solar R&D is doing. Another area for technology improvement is how to optimize SHS design to provide aesthetic, functional and durable SHS kits.
As I said above, OEM for leaders is such a good opportunity for us to sharpen our technology and R&D. We keep pursuit to the latest technology development in this industry: micro-grid and energy-storage, which must be a new hot topic within the following 10 years!
BIPV is a viable and hot topic, and the product durability problem is being addressed, like double-glass laminated solar modules. I have seen the increasing adoption of BIPV in commercial buildings in Shanghai and Suzhou, China.
Regarding perovskite cells, I think it could be a star in another 10 years, after technical and commercial-scale problems are solved. For example, perovskite solar cells are very vulnerable to water, and it is a challenge to protect perovskite solar cells in harsh natural condition. As I said above, I am always interested in new solar cell technologies.
Jason Lu can be reached at:
Mobile: 86-137 6102 0269