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To be or not to be, this is the question for all new players in the photovoltaic industry.
Perception determines destiny, especially in the photovoltaic industry, which has experienced great ups and downs. In an era of uncertainty, people are always divided about the future. Some people think that this round of capacity reduction is drastic but short-lived, while others think that this round of reshuffle is different from the past, dangerous and long-lasting.
Since the beginning of this year, Gantanhao has visited many photovoltaic companies, including old players and newcomers, and consulted entrepreneurs and experts in various links of the industrial chain, trying to find an answer that is closest to the truth. Now, of course, the situation has become clearer and clearer. This is a long tug-of-war.
What makes Gantanhao somewhat admire is that Hong Kong listed company "Central New Energy Holdings Group" (stock code: 01735.HK) is one of the very few new players that gave the correct answer at the beginning of this year. In fact, as early as the fourth quarter of last year, this company firmly believed that this photovoltaic elimination competition was destined to be tragic and long.

01The Newbie’s Counterattack

There are many cross-border photovoltaic companies, most of which focus on batteries. In this round, which company's TOPCon really stands out and enters the purchase list of leading companies?

Zhonghuan Low Carbon New Energy is one of the few companies that have done so. This is why the Gantanhao team has spent more than half a year tracking it. A person in charge of a leading TOPCon company confirmed to us: "Zhonghuan Low Carbon New Energy's TOPCon has indeed come out."

Since the fourth quarter of last year, the photovoltaic industry has entered its darkest hour. The industry is generally under-operated, corporate balance sheets are under pressure, and many cross-border companies have withdrawn midway or even gone bankrupt. How did Zhonghuan Low Carbon New Energy survive the winter?

According to Dr. Liu Zhifeng, Vice President of Zhonghuan New Energy Holding Group and General Manager of Zhonghuan Low Carbon, as early as the beginning of this year, Zhonghuan Low Carbon New Energy signed 2024 supply agreements with three of the TOP4 leading companies (JinkoSolar, LONGi, and JA Solar), two of which had annual procurement volumes exceeding 3GW.

The annual report of China Huaneng New Energy shows that the company achieved revenue of HK$4.03 billion in 2023, a year-on-year increase of 150.3%, gross profit of HK$170 million, a year-on-year increase of 455.6%; net profit of HK$71.289 million, compared with the net loss of HK$30.328 million in 2022, turning losses into profits in one fell swoop.

In addition, Zhonghuan New Energy's core financial indicators also improved significantly: in 2023, total assets increased by 134.8% year-on-year, net assets increased by 594.7% year-on-year, and the debt-to-asset ratio was 62.5%, which is lower than the industry average.

Battery workshop of Zhonghuan Low Carbon Fengtai Photovoltaic Industrial Base

This achievement is not easy to come by. Yu Zhuyun, chairman of Zhonghuan New Energy Holding Group, believes that after ten years of preparation and two to three years of hard work, the company has finally been reborn and become a company that truly focuses on photovoltaics.

In the past two months, although the photovoltaic industry continued to be under pressure, Zhonghuan Low Carbon New Energy has had a lot of good news, signing a series of strategic cooperation agreements with Datang Anhui, Sungrow Power Supply, China National Nuclear Corporation Anhui, and State Power Anhui.

02 New Player’s Survival Account

In the past 20 years of photovoltaic industry, each round of technological revolution has had a dramatic and far-reaching impact. The industry is transitioning from p-type to n-type, coupled with a period of overcapacity. Not to mention cross-border newcomers, even the top players are inevitably lost in strategy.

Zhonghuan Low Carbon New Energy has a very clear understanding of its own survival and development environment. In November last year, the first thing Dr. Liu Zhifeng said when he saw Gantanhao was that at most 20% to 30% of the old players will be washed out, but 70% to 80% of the new players will die. All our work now is to strive to become one of the 30% that survive.

Looking back now, Liu Zhifeng's judgment has been partially fulfilled. As early as the beginning of this year, Liu Zhifeng had a clear account of the TOPCon battery market for the whole year: according to the global new photovoltaic installation forecast in 2024, the demand for TOPCon batteries is about 540GW, of which the survival space for professional battery cell companies is only 150GW at most.

On the component side, the photovoltaic market has been completely divided into the 80/20 principle, with 80% of the market share being monopolized by leading companies. The four companies, JinkoSolar, Trina Solar, LONGi, and JA Solar, have already accounted for 70% of the total market share.

Liu Zhifeng gave an example, there is only a total of 150GW of "cake" left for professional battery cell companies, of which the leading component companies contribute about 120GW of battery outsourcing, accounting for 70-80%. For example, companies such as Longi, JinkoSolar, JA Solar, Trina Solar, Canadian Solar, and Yida Solar have an average outsourcing volume of about 20GW of battery cells, and the top 10 component companies account for more than 90% of the total 150GW.

So, what is the effective production capacity of TOPCon batteries in the market now? By the end of 2023, the effective production capacity of TOPCon batteries (excluding integrated enterprises) will exceed 300GW, and a large number of new production capacities are on the way. This means that in 2024, more than half of TOPCon companies will have serious shortages of orders. Therefore, for a professional battery company, improving product strength, competing for customers, and locking in orders from leading companies will determine the life and death of battery cell companies.

If you want to enter the frame procurement of leading enterprises, the competition is not just about price. If the efficiency does not meet the standard, no one will buy it no matter how low the price is. Liu Zhifeng introduced that the requirements of leading enterprises for battery storage efficiency are also constantly increasing. In the third quarter of 2023, the minimum efficiency requirement was 24.4%, which was increased to 24.8% at the beginning of this year, and now it is far more than that.

This means that if a battery company's efficiency and A-grade rate do not meet the standards, it will be difficult to sell at a loss, not to mention the yield and cost. The market is so cruel. Liu Zhifeng admitted that although Zhonghuan Low Carbon New Energy is desperately catching up, it still has a gap with the top benchmark TOPCon companies and needs to tread carefully and redouble its efforts.

Only the anxious can survive. Zhonghuan Low Carbon New Energy is doing its best to become the 30% that win.

03TOPCon’s philosophy and techniques

In July this year, Zhonghuan Low Carbon New Energy's official microblog disclosed that the TOPCon battery conversion efficiency of Zhonghuan Low Carbon New Energy has reached 26.72% after being certified by the National Photovoltaic Industry Measurement and Testing Center (NPVM). Since entering the new energy photovoltaic industry in 2022, in just one and a half years, Zhonghuan Low Carbon New Energy has achieved four major leaps in N-type TOPCon battery conversion efficiency, from 26.06%, 26.31%, 26.66% and then steadily increased to today's 26.72%.

The efficiency of TOPCon has almost become a mystery: different measuring institutions, different measuring calibers, and different batches of products sent for inspection will result in very different results. Gold and silver cups are not as good as customer reputation. Being shortlisted for the top enterprise's frame procurement, being able to get orders, and full production and sales, this itself actually explains everything.

There was a time when some people lamented the expansion of photovoltaic production, saying that this technology-driven industry has now become a simple equipment splicing, a turnkey project for JEC and Laplace. In fact, this is not the case. TOPCon has too many know-hows.

Liu Zhifeng gave an example. The TOPCon battery workshop is sensitive to water vapor. Because the thickness of the tunnel oxide layer is at the nanometer level, a slight change in the workshop humidity will directly affect the growth rate of the oxide layer. If there is a lot of water vapor in the workshop, the oxidation rate will be fast, and if there is little water vapor, the growth rate will be slow. However, the process time of the battery cell production line is fixed, so the humidity in the workshop needs to be effectively controlled.

In addition, if the battery factory is located in an area with strong ultraviolet rays, such as in autumn when the weather is clear and sunny, the process flow of TOPCon cells must also be re-matched. This is because the fresh air system will bring in ozone from the outside, which will affect the growth rate of the tunnel oxide layer. Therefore, the battery workshop of Zhonghuan Low Carbon New Energy is equipped with ozone monitors.

There are many similar details. It is said that some companies, whose battery efficiency cannot be improved, even go to the local land temple to worship.

The entire industry is losing money now. What kind of companies can survive this cycle instead of being washed out?

From the perspective of the enterprise itself, it cannot change the external competitive environment. The only thing it can do is to adapt to the environment and build its own core competitiveness: maximize product strength and customer experience. Once these are done, the rest can only be left to the market...

Yu Zhuyun, chairman of Zhonghuan New Energy Holdings, believes that compared with other new players, Zhonghuan Low Carbon New Energy has the capital accumulation and cash flow of the original industry as a backing, and "is not short of money". Of course, in addition to financial strength, the most important thing depends on the determination and confidence of the enterprise to make this thing, this business, a long-term mentality, or seeing others make money, just want to take advantage of the opportunity to make a quick buck and leave.

The launch ceremony of 12GW n-TOPCon battery at Zhonghuan Low Carbon Tongcheng Photovoltaic Industrial Base

Yu Zhuyun said: "Only when you are determined and leave no room for retreat, will you be willing to humble yourself and ask for help when the company needs people. Including the cooperating local government, only when they see that the company is fully committed and ALL IN, others are willing and dare to help you. If we are indecisive and always want to make small calculations, then even those who want to help you will not dare to help you, and those who want to rely on you will not dare to rely on you, and in the end they will only give up halfway."

In addition to using a brand new career to attract talent, treatment is also important. Yu Zhuyun introduced that the option pool given to the management team by Zhonghuan Low Carbon New Energy accounts for up to 15% of the company's total equity. In the option pool, half are original shares at one yuan per share, which is equivalent to giving it to everyone. Such equity incentives are rare in photovoltaic companies.

04Yu Zhuyun’s determination and perseverance

Before entering the photovoltaic industry, Yu Zhuyun was a successful real estate developer. He founded Zhonghuan Holdings, the predecessor of Zhonghuan Low Carbon New Energy, in 2004. That year, Zhonghuan Holdings developed Hefei's first double-A-grade office building, "Zhonghuan International Building", which was a great success.

In the past, when urbanization was advancing rapidly, many people made money in real estate, but few could retire after their success. The reason why Yu Zhuyun has the capital strength to enter the photovoltaic manufacturing industry today and invest in 6GW of battery and 2GW of module production capacity without external equity financing is precisely because the company stopped investing in real estate in time when it was at its peak.

Yu Zhuyun recalled that after 2018, China Real Estate Holdings never auctioned a piece of land again. You know, the following 2019 and 2020 were exactly the most glorious moments for China's real estate, achieving sales of 16 trillion and 17 trillion respectively.

Yu Zhuyun explained that what made him make up his mind at that time was the Central Economic Work Conference in 2016, where the central government proposed to reduce leverage. He had worked in the system in his early years and had a keen sense of policy. "Many people didn't understand the six words of reducing leverage at that time, but I did. At that time, I thought, the time has come, I can reduce debt if I can, and I can keep cash if I can!"

I remember that at that time, Zhonghuan Holdings had just acquired a 50,000 square meter commercial office and hotel-style apartment project in Shanghai Waigaoqiao, which was almost ready for opening. Without saying a word, he directly paid the partner for breach of contract and withdrew from the project.

In 2018, Yu Zhuyun withdrew from the real estate industry and firmly entered the new energy track. In October 2023, he ranked 492nd on the "2023 Hurun Rich List" with a wealth of 12 billion yuan.

At present, in addition to the photovoltaic main business, the company still owns hundreds of thousands of square meters of properties such as shopping centers, hotels, and schools. In today's real economy, which is under great pressure, it can still achieve 100% full occupancy and the group's debt ratio is also very low. These have also become a safety cushion for Zhonghuan Low Carbon New Energy to survive the winter.

It is no accident that the company entered the photovoltaic industry. According to Yu Zhuyun, as early as 2013 when Hefei Suntech was acquired by Tongwei, Zhonghuan Holdings, also in Hefei, began to pay real attention to opportunities in the photovoltaic industry. At that time, Yu Zhuyun spent a long time in-depth evaluation on whether to enter the photovoltaic manufacturing industry. At that time, Europe and the United States were "anti-dumping and anti-subsidy" against Chinese photovoltaics, and the raw materials, equipment and market of the photovoltaic industry were "outside the country". Yu Zhuyun believed that it was not the best time to enter the photovoltaic industry.

Nevertheless, in 2015 and 2017, Zhonghuan Holdings has begun to build rooftop distributed photovoltaic power stations in its logistics parks, Zhonghuan prefabricated building factories, etc., and vigorously promoted the integration of photovoltaic buildings. These businesses have enabled the company to pay close attention to the development of the photovoltaic industry and wait for the opportunity. Finally, in 2022, the photovoltaic industry ushered in a technological revolution from p-type to n-type, and the strategic opportunity to enter the market was in sight. Yu Zhuyun decisively led Zhonghuan Holdings into the race, and later invited Dr. Liu Zhifeng and his team to join.

Dr. Liu Zhifeng has served as technical director and senior executive at JA Solar and Jolywood Optoelectronics. He has more than ten years of experience in the research and development and industrialization of N-type solar cell technology. He has led the successful research and development and industrialization of n-PERT, n-TOPCon and n-IBC, which are domestic and even international firsts. He has applied for more than 180 patents and nearly 100 authorized patents. He has published many SCI papers, undertaken national and provincial key scientific research projects many times, and won provincial science and technology awards, outstanding talents and other honors three times.

Zhonghuan Low Carbon New Energy created industry speed as soon as it made its move: the negotiation and signing of Fengtai's 2GW photovoltaic modules were completed in 30 days, and it was put into production in 100 days. The 6GW N-type TOPCon batteries were put into production and effective in just half a year. On July 6, 2024, Zhonghuan Low Carbon Tongcheng Photovoltaic Industry Base's 12GW n-TOPCon batteries were officially put into production, and Fengtai Phase III and IV 16GW factories are also progressing in an orderly manner. From the perspective of production capacity and product strength, it is expected to rank among the first echelon of battery professional companies by the end of 2024.

postscript

There are a few sentences in A Tale of Two Cities that can describe the current photovoltaic industry:

It was an age of foolishness, it was an age of wisdom;

It is a season of darkness, but also a season of light;

This is the winter of despair, but also the spring of hope;

People have nothing before them now, but they will have everything in the future;

People are walking towards the gates of hell, and people are on the road to heaven.

Photovoltaic is still cold, but there is no spring that will not come. The beautiful new world of the future belongs only to those who are brave enough to persist until the last moment, and only to the very few who act decisively and devote themselves wholeheartedly.