From 2006 to 2015, photovoltaics in China underwent a transformation from a laboratory to a production line, and with a total industry output value of 200 billion yuan, an average profit margin of 4.7%, and a cumulative installed capacity of 43.18 million kilowatts, it has become the world's largest market.
Behind the performance, practitioners have never stopped choosing routes, strategies, models, and technologies - whether it is through leveraging or self-reliance, distribution or concentration, polycrystalline or thin film, vertical or professional, the debate has never been answered.
The uncertain mainstream technology has also contributed to the rapid progress of China's photovoltaic industry in the past 10 years - centered around the two core contents of reducing photovoltaic conversion rate and photovoltaic cost, technological innovation is constantly emerging, and everyone hopes to see the mainstream as soon as possible, just like how fuel vehicles later unified the industry.
Perhaps it won't be long before this day appears, but I believe that at that time, people will miss the past decade even more, because as long as the answer is in the wind, the debate continues, the driving force for innovation will be endless, industry models can be innovated, and practitioners will become more rational.
Since that's the case, why bother arguing?
The Battle of Routes: Localization vs. Internationalization
As an imported product, the first problem with photovoltaics in China is not the technology, but the route.
In 2005, Shangde Group, which had decided to expand its production for the second time, held a board meeting to discuss the plan for listing on the New York Stock Exchange. Subsequently, the repeated questions from board members made Shi Zhengrong, who was originally confident, hesitate. After all, this is the first time that a Chinese photovoltaic company has proposed an overseas listing.
At that time, the Iraq War was still ongoing, and the global oil market entered the "era of high prices". During almost the same period, Germany, the United States, and Japan successively introduced laws and targets related to renewable energy. And photovoltaics has become one of the hopes to solve the serious dependence on oil.
In this situation, it is inevitable to seek support overseas. From 2005 to 2009, there have been criticisms that China's photovoltaic industry is "two-sided" - both raw materials and markets are heavily constrained by the international market. In fact, not only these two links, but also financing and team have a deeper overseas color.
Before the outbreak of the financial crisis, 10 Chinese photovoltaic companies had successfully gone public overseas, with a total market value of 25 billion US dollars at one point. Among them, the first investments of companies such as Changzhou Tianhe and Jiangsu Linyang also came from foreign investment banks.
In the teams of companies such as Yingli and Shangde, there are professional managers from the United States, Australia, Hong Kong, and other places. The most acclaimed example is Li Zongwei, who worked at PwC for 10 years and, as CFO, successfully pushed Yingli to enter the list of sponsors for the World Cup.
The utilization of overseas resources once brought an unforgettable good time to the photovoltaic industry. But after 2008, the overall global economic situation was sluggish, and Europe and America continued to have "double reactions" against Chinese photovoltaic companies. Products that were originally cheap and high-quality were no longer questioned. What's even more frightening is that the trend of excess cycles is irreversible, causing foreign investors and managers to lose confidence. The two most typical examples at that time were the sharp decline in the market value of Chinese concept stocks and the quiet departure of many international managers.
On the contrary, more local photovoltaic practitioners are rapidly rising. A typical representative of this, Jin Baofang, the chairman of JA Solar who was appointed in January 2009, recalled: "The 'double reverse' of American and European products has brought us a lot of pressure
Industry and people sometimes have the same principle. The biggest pressure for overseas returnees is often the inability to adapt to the local environment, and as a standard "imported product", photovoltaic practitioners are beginning to hope to take the "internationalization" route. But the measure of success in internationalization depends on whether it can be localized. If innovation cannot be digested and absorbed at the technological level, overseas resources will ultimately be difficult to turn into endogenous driving force, and external pressure cannot be avoided.
So, after the initial frenzy returned to rationality, Chinese photovoltaic practitioners began to expand their domestic market. Companies no longer simply imitated others, or even bought technology for processing, but learned and accumulated through the process of internationalization, stumbling to explore financing, research and development, and application markets. In 2014, some companies developing core technologies began new overseas initiatives. And this internationalization is different from the urgent avoidance of the "double reverse" policy in 2009, and also different from the pursuit of profit points in 2012. The goal of enterprises is not only to obtain the fastest return, but also to find themselves through imitation.
Strategic Debate: Integration vs. Specialization
On June 21st, Tesla announced the acquisition of SolarCity. The intention revealed in the announcement is not, as many people speculate, that the "big brother" wants to pull the "little brother", but is full of Musk's ideal - to establish a one-stop store where customers can seamlessly access solar energy solutions. For the future SolarCity, Musk emphasized that it will be the "only vertically integrated energy company" in the world.
But in China, the concept of "vertical integration" is already familiar in the photovoltaic industry. When the industrial chain is first established, the choice between "integration" or "specialization" becomes a question.
Initially, specialization prevailed - Luoyang Zhongsi and Xinguang Silicon Industry focused on silicon raw materials, Zhejiang Yuhui and Saiwei LDK produced silicon rods and wafers, and Wuxi Shangde and Zhongguang Photovoltaic focused on solar cells. Due to different layouts and plans, the patterns are very clear. More importantly, this clear division of labor has left a good impression that the photovoltaic industry has many virgin lands and equal opportunities, which in turn has triggered more people to follow up.
Soon, the industry began to lean towards "vertical integration", and the direction of integration was also very single - extending upstream vigorously.
To be precise, this change began in 2006 and reached its peak in 2008.
At that time, Peng Xiaofeng, who ranked sixth on the Forbes China Wealth List, took out half of his net worth and rushed to Suzhou to quickly bring Baishide Solar Energy under the umbrella of Saiwei LDK; Li Xianshou, Chairman of Yuhui Sunshine, has shown the daring and daring side of Zhejiang businessmen, investing 2.6 billion yuan to start a polycrystalline silicon project with a production capacity of 3000 tons in Sichuan.
The most direct factor driving expansion is undoubtedly price. In 2003, the average selling price of polycrystalline silicon was about $25/kg, but over the next five years, the price continued to rise and by 2008, it had reached over $400/kg.
Another reason comes from investors. After a year of the wave of photovoltaic companies going public in the United States, it has been found that vertically integrated companies are more favored by overseas investors to some extent compared to specialized enterprises.
New energy industry analyst Zhou Tao pointed out that integration has solved the problem of purchasing price risk and inability to start production caused by the tight supply of polycrystalline silicon. At the same time, when the integration scale reaches a certain level, the overall cost can also be significantly reduced.
But Zhou Tao did not point out another key point: the prerequisite for vertical integration is industries with high industrial concentration. If this requirement cannot be met, it will be impossible to achieve higher production efficiency, which will make integrated enterprises pale in comparison. Once faced with price drops and industry downturns, enterprise profits will actually be affected.
In 2011, Miao Liansheng, the chairman of Yingli Group, a proponent of "integration", was recruited. At that time, he reluctantly reduced his holdings in "69 Silicon Industry" by nearly 2.3 billion yuan, and was seen by the outside world as a model of survival by cutting off his arm. Subsequently, some companies also began to reduce their attention and investment in upstream projects.
In fact, in the past decade, there has been a reshuffle in both the IT and consumer electronics fields that follows the pattern of "separation after division and separation after division". For example, Microsoft became a major player in the software industry after separating Windows from computers. However, as software profits gradually declined, Microsoft decided to re-establish the "software hardware integration" model - returning to device manufacturing through the home gaming console Xbox360.
The reason for this situation is that the industry has shifted from fanaticism to rationality, with dividends turning into meager profits. Guo Guangchang, Chairman of Fosun Group, once said that in the era of low profits, enterprises can survive, develop better, and be more competitive because they must do solid work and have tangible things to make money.
For photovoltaic enterprises, instead of being fixated on integration or specialization, it is better to focus on more solid refinement - transforming the old extensive management mode, discovering and excavating fragmented profit margins in the industry chain, accumulating small gains and deepening from shallow to deep.
Development Debate: Policy Dividends vs. Value Investing
Photovoltaic industry researcher Hong Wei once published an article titled "Where is the Hope of Photovoltaic Grassroots", in which a sentence left a deep impression - obtaining financing is not the ability, obtaining sustained and large-scale low-cost financing is the ability. The implication is that although the photovoltaic market is no longer a blue ocean, as long as there is a reliable business model, even grassroots can make a comeback.
In the search for business models, the early experiences of the Internet and photovoltaic are quite similar.
On July 12, 1999, China.com was listed on NASDAQ in the United States. The following year, Sina, Sohu, and NetEase were successively listed on NASDAQ. Shortly after, the NASDAQ crash, copying foreign models and relying on the United States for capital, immediately entered the winter for Chinese Internet enterprises.
This situation also occurred in photovoltaic companies that encountered "double reverse". At that time, some early entrants in the photovoltaic industry chose to fade out or retire because they could not see a reliable profit model. For example, Lin Yonghua, who founded Lin Yang New Energy, was a contract manufacturer for Q-cells, the world's largest solar cell manufacturer at the time. Even in August 2010, when many companies needed to expand their operations, Lin Yang New Energy's quarterly revenue could easily increase by 105%. However, at this time, Lin Yonghua unexpectedly sold his shares, transforming Lin Yang New Energy into a Korean enterprise.
It is not difficult to see that Lin Yonghua is not optimistic about the singularity of the OEM model. The biggest problem with this model is its deep connection with policy dividends - from relying on the policy market in Europe and America at the beginning, to later relying on national projects such as "Golden Sun" and "Photovoltaic Poverty Alleviation" in China, the means of profit have never been separated from government projects.
Those who are optimistic about policy dividends point out that as long as projects similar to photovoltaic poverty alleviation can be effectively promoted, which is conducive to the development of enterprises and the increase of income for poor households, it will be a win-win situation.
However, based on the information conveyed by actual participants, there are difficulties in promoting a "win-win" situation. Some media reports indicate that subsidies for certain projects are in arrears. Dong Wenbiao, a capital operation expert and chairman of China Minsheng Investment Corporation who has invested in multiple photovoltaic power plants, also believes that the application, approval, and distribution cycle of renewable energy subsidies for enterprises should be shortened as soon as possible.
Unlike photovoltaic, China's Internet has not found a road to policy promotion from the beginning.
In 1996, when Zhang Chaoyang and others began to explore the establishment of the first batch of Internet companies, the national science and technology department still paid more attention to high-tech projects such as the "863 Plan". After being cut off from the "milk source" by overseas capital, the Internet has not received much support, but fortunately, it has found a new blood making way - Internet application service providers, and directly cooperated with the communication industry to expand mobile Internet, online games, e-commerce, online advertising and other businesses. The huge popularity quickly boosted the revenue of the IT industry to over 100 million in the following two years.
PV is different from the Internet. The gene of specialization and niche determines that it cannot quickly gather hundreds of millions of audiences. Similarly, this gene also implies that policy dividends are indispensable in the short term, but with the introduction of market-oriented measures, it should gradually melt like the tip of an iceberg and ultimately give way to market mechanisms.
From current attempts, it is evident that many companies are not adequately prepared for weaning. The "630" rush to install in 2016 is an example. Due to the decrease in photovoltaic grid connected electricity prices and subsidies, companies concerned about cash flow shortages quickly launched their projects. In the first quarter of 2016 alone, the country's newly installed photovoltaic power generation capacity reached 7.14 million kilowatts.
In any market, consumers, purchasing power, and purchasing desire are like the three points that make a triangle stable, all of which are indispensable. The price of photovoltaics has been continuously decreasing due to technological advancements, and purchasing power is no longer a problem. The problem that has always plagued the photovoltaic industry is how to gather and expand more consumers, and stimulate their purchasing desire? That is to say, after installing so many photovoltaic panels, how can we make it easier for the public to understand and accept?
At present, some photovoltaic enterprises hope to solve this problem with the help of the Internet. The most typical ones are Peng Xiaofeng and Green Energy Bao who have returned. In 2015, many PV+Internet platforms appeared, but at present, most of the platform functions are in the initial stage. In terms of scale, there is no such hot scene as consumer goods, and the effect is obviously not obvious.
But in the eyes of industry insiders, this is a necessary process. Chen Jilin, the director of the photovoltaic investment department of "Guanghe Lianmeng", believes that photovoltaics need to be experienced, and as long as there is no personal experience, it is impossible to cultivate an understanding and feeling of this field. But once you enter, you will truly start paying attention with awareness. And popularity is gradually cultivated through attention, only then can new scenes and features have room for imagination.
Future Controversy: Manufacturing Companies vs. Technology Companies
On October 19th, at the Beijing New International Exhibition, the 2016 China Photovoltaic Conference held a forum called "Looking Back on the ups and downs, Forgetting the Jianghu". Li Junfeng, Shi Zhengrong, Qu Xiaohua, Gao Jifan, Cao Renxian and several other "big names" sat under the backboard with the words "The world is so big, I want to go and see", facing the largest number of audience that day, and wrote their entrepreneurial aspirations on the question board.
The question board is displayed, with different answers. But after a brief summary, it can be found that the reasons why most big names enter the industry can be summarized into two categories: one is to support their families and earn a little money, and the other is due to their profession and interests.
It can be seen that most practitioners did not expect a new thing to become so hot later on. It is precisely because of lack of preparation that the booming photovoltaic industry, like an acceleration, wraps them into a spiral of "repeated expansion and rapid growth". So, big goals of billions of yuan and tens of thousands of kilowatts kept emerging.
Wang Jianlin said that we need to set a achievable small goal first. This sentence may be more applicable to China's photovoltaic industry, which is characterized by manufacturing. The first step in setting a high goal is to expand production. Expanding production is easy, but it comes at a high cost - a one-time fixed investment and huge maintenance costs will make companies hesitant to reduce production, otherwise the marginal gross profit margin will not be enough to support the survival of the enterprise.
Another drawback of the manufacturing industry has also been fully exposed with the strong attack of information technology. In May 2016, rumors of Foxconn Group's "machine swapping" were still circulating, but shortly thereafter, Foxconn installed 40000 robots at its production base in China and was accused of indirectly causing 60000 workers to be laid off at its Kunshan factory. According to Foxconn's plan, more and more robots will replace human labor.
It can be seen that the strategy of automation and intelligence is gradually becoming mainstream and unstoppable. In order for photovoltaic companies to have the possibility of a new round of growth, they may need to start divesting their supplies and light equipment, turning "outsourcing to others" into "letting others do outsourcing", and transforming traditional manufacturing enterprises into light asset technology companies.
The prerequisite for doing so is first to master sufficient core technologies. First Solar, based in the United States, remained one of the top ten photovoltaic module companies in the world after the 2012 power outage, but it immediately decided to transform and enter India. The reason for daring to make such a decision is not unrelated to the exclusive technology it possesses. This cadmium telluride patented technology not only allows for greater solar power generation, but also has lower production costs. In contrast, there are still relatively few enterprises in China that hold similar industrial patents, and those that can develop disruptive technologies first are even more numerous.
The next step for becoming a technology enterprise is for the company to become an investor, for example, following Fosun's investment platform model, which does not directly invest in actual production lines and factory projects, but actively seeks enterprises with complete full industry chain capabilities in the investment location to invest, produce, and sell, turning "outsiders investing in remote projects" into "locals investing in local projects" and becoming higher-level investors.
To become a qualified investor, photovoltaic practitioners need more sensitivity and composure. These two psychological states may seem contradictory, but they are both indispensable. Especially since the mainstream market has never settled, in such a situation, whether decision-makers can maintain a keen sense of smell will determine where the enterprise moves, how it enters, and how much it gains.
I hope that one day, when a special material appears and revolutionizes the photovoltaic conversion rate, the general public in the photovoltaic industry will no longer only have heavy factories and power stations. What they can be proud of is their unique technology, investment vision, and sprint strength.
