Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
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Speaker: Welcome to Under the Banyan Tree, where we put Asian markets and economics in context.
Speaker: I'm Fred Newman, chief Asia economist at HSBC.
Speaker: My guests today are Evan Lee, head of energy transition research for Asia Pacific here in Hong Kong, and Corey Chan, head of Asia industrials and renewables research at our mainland Chinese joint venture HSBC Tianhai Securities just over the border.
Speaker: in Shenzhen.
Speaker: On today's show, we're talking China's solar power industry, which has seen both massive rise in output and at the same time a dramatic fall in share prices.
Speaker: Meanwhile, China is on course to blast past its clean energy goals, smashing records in 2023.
Speaker: Stay with us for all the details from HSBC Global Research.
Speaker: This is Under the Banyan Tree.
Speaker: Let's begin with some facts and figures to put the topic in perspective.
Speaker: According to the US-based NGO Global Energy Monitor, China is on track to nearly double its wind and solar capacity by 2025 from today's levels, blowing past the government's official green power target nearly five years early.
Speaker: Back in 2020, President Xi set a goal of 1200 GW of solar and wind capacity by 2030.
Speaker: For context, that's enough to power approximately 900 million homes for a full year.
Speaker: But Global Energy Monitor's report says capacity will be at well over 1300 GW by 2025, not 2030.
Speaker: Meanwhile, on a global level, the International Energy Agency says investments in solar energy in 2023 should surpass spending on oil production for the first time.
Speaker: Let's bring in our experts and dig a little deeper into the China solar story.
Speaker: Evan and Corey, welcome to the podcast.
Speaker: Thank you, Fred.
Speaker: Thank you, Fred.
Speaker: Evan, let me start off with you.
Speaker: These are mind-blowing numbers.
Speaker: China is really planning to invest even more than we thought a couple of years ago.
Speaker: How much money is really being poured into the sector?
Speaker: Give us a sense of the scale of investment that's going in the solar area right now in mainland China.
Speaker: Obviously, we're talking about billions of dollars that's been invested into the space.
Speaker: China is about one third of global solar installation every year.
Speaker: Basically, on the demand side, China would account for about 30 to 40 percent of solar power capacity being installed globally.
Speaker: And seems like the mix is increasingly going to be enlarged as China continue to put more investment into solar.
Speaker: But if we think about on the supply side, China accounts for almost roughly anywhere between 60 to 80 percent of the products along the solar equipment supply chain of the world, meaning that a majority of the solar material wafers and panels that we see today are being manufactured locally in China.
Speaker: So that suggests we couldn't really have a green energy transition without solar panels from mainland China.
Speaker: Those are impressive statistics on the supply side.
Speaker: Corey, let me bring you in here.
Speaker: Why is it that China is so dominant in terms of the production of solar cells?
Speaker: Have they invented kind of the best technology?
Speaker: Or what accounts for really China's dominance in the global supply chain for solar panels?
Speaker: Firstly, China is dominant along the supply chain.
Speaker: So it accounts for about 90% of global polystream production, 97% of the global wafer production, and almost 75% of the global module production.
Speaker: So from the upstream to downstream, we have already formed a very
Speaker: complete supply chain.
Speaker: And secondly, although there has been some technology which was invented elsewhere globally, it was bringing to China to commercialize, that is to achieve mass production.
Speaker: By achieving mass production, obviously you reduce the cost further.
Speaker: So that's in the last decade, actually the
Speaker: cost of solar has been down by about 90%, mainly because of this ability to commercialize the full supply chain and able to make the solar panels more economic than it was before.
Speaker: So, Corey, you really highlight these in part the economies of scale that drive it down prices.
Speaker: China is a big market and therefore they have huge companies.
Speaker: They're very, very competitive in this space.
Speaker: But let's talk a little bit about China's domestic energy system first.
Speaker: Evan, how important is solar today for China's energy generation domestically?
Speaker: Today, solar is about 7-8% of total power supply.
Speaker: Still quite small, even together with wind, it's roughly about 14-15% of total power supply.
Speaker: Compared to developed markets like Japan, the US, or most parts of Europe, that ratio is still quite small.
Speaker: But just bear in mind that it took about roughly five years to get from 2% to 3% for wind and solar overall to now 14%, 15% in total within a rather short period of time.
Speaker: That's quite impressive.
Speaker: So it's a huge buildup, but it's still not really the bulk of China's energy generation.
Speaker: It's still, you know, but you said 14, 15 percent.
Speaker: Corey, but isn't it true that actually the amount of capacity that we have in China exceeds the actual usage?
Speaker: Because we have a lot of solar panels around, but they're not all hooked up to the grid in China.
Speaker: Yes, that's the case.
Speaker: Actually, if you look at the grid spending, the grid spending hasn't increased as much as the solar installations.
Speaker: So there has been some delay, especially given COVID and some other issues.
Speaker: The grid spending, the increase did not catch up the increase in terms of solar installations.
Speaker: We do expect that that could cause some kind of constraint.
Speaker: It's not just in China, but also the same other part of the world.
Speaker: So when we hear these statistics that by 2025, China will install, you know, another w as a 12 1300 gigawatt in solar power, does that mean it's all going to be connected?
Speaker: Or is this just putting it in the desert?
Speaker: And it's not really generating electricity?
Speaker: We think that will be eventually connected.
Speaker: So that means actually you also need to spend more in terms of grid spending.
Speaker: But at the moment, what you just said is true.
Speaker: You know, some solar panels have been put there but not able to connect to the grid.
Speaker: So we're going to see more connection.
Speaker: And Evan, you said we're going to see the share of solar contribution to China's overall energy continue to increase.
Speaker: Now, in Western economies, we often have people installing solar panels on the roofs, and it's not just a big
Speaker: utility companies are building solar parks, but it's also the average person down the street who's actually building, putting up solar panels.
Speaker: Do we see a similar process in China or is it just giant companies that are setting these massive solar parks?
Speaker: So there are two types of mainstream demand.
Speaker: Obviously, the utilities are building a lot of big-scale solar projects, and that's been very consistent.
Speaker: That investment has been going on for years.
Speaker: But what's been ramping up really quickly over the last year or two is this rooftop applications to both residential and commercial users, putting on solar panels on top of the roof.
Speaker: Just bear in mind, a lot of the people, they don't live in houses, but in apartment buildings.
Speaker: So one of the biggest customers for buying these panels will actually be commercial users, including shopping malls and warehouses, where they could utilize their empty rooftops for solar applications.
Speaker: That power being generated will be for self-use, and extra could be dispatched to the power grid.
Speaker: And where do you see then the share of solar power in overall January usage go over the next few years?
Speaker: You said 14, 15 percent now.
Speaker: Where do we see that go in 2025, 2030?
Speaker: Is it going to be 50 percent as high as that?
Speaker: Just to clarify, the 14-15% is solar and wind combined.
Speaker: Obviously, we do think that renewables, just for solar and wind together, it's going to grow very quickly.
Speaker: And our projection is to hit beyond 20% within the next eight years, and then it will continue to grow onwards.
Speaker: So that is still a massive incremental addition of power in China from renewables.
Speaker: And Corey, China is a trailblazer in many ways for a turn of energy installment.
Speaker: Can you take a step back and just explain to us, you know, what's the overall roadmap that the Chinese government has in mind here?
Speaker: Why this emphasis on this?
Speaker: Is it really to wean the country off of
Speaker: Energy imports, for example.
Speaker: Is it environmental concerns?
Speaker: Is it just the cost efficiency?
Speaker: What's the main thinking behind this massive solar drive and also, I guess, wind drive as well?
Speaker: So first of all, in the long term, there is an ambition of green energy to be integrated with grid to reduce the carbon emissions for the whole country.
Speaker: And secondly, if you look at the sharper reduction of the solar module prices, solar power is currently on parity.
Speaker: with other traditional energy like coal power in China.
Speaker: So actually the economics also makes the solar more attractive comparing with the fossil fuels.
Speaker: So these factors have driven the solar installations in China.
Speaker: Well, this is a great time to take a quick break.
Speaker: And when we'll come back, we're going to ask why Chinese solar share prices have come down and what China's solar transition means for the global energy space.
Speaker: Corey, this is a big push into solar.
Speaker: We've massive investment coming through in order to realize that.
Speaker: And yet, I'm an economist, but I'm told that the equity prices of these companies that are involved are actually not doing too well.
Speaker: in China overall.
Speaker: The main solar players have seen share prices decline.
Speaker: Can you give us a sense of why is it, Corey?
Speaker: Is it just massive competition and thin margins?
Speaker: Or why are the companies not benefiting necessarily?
Speaker: So first of all, the demand does grow strongly, but what has been growing strongly is also the supply.
Speaker: So the shuffle is mainly due to the issue of overcapacity.
Speaker: So we see that polycylion prices were down by about 70% year-to-date and wafer prices were down by about 40% year-to-date.
Speaker: And in both segments, we see capacity rising meaningfully this year for the whole market.
Speaker: So we've oversupply and that's pushing the squeezing margins of the players.
Speaker: But surely, Evan, that's good for global solar installations.
Speaker: That means there are cheap panels for years to come.
Speaker: And does that mean we're really going to see an acceleration, not just in China, of build-up solar, but really across the world?
Speaker: Because China is such a big supplier of these components.
Speaker: That's exactly what we've been estimating.
Speaker: And further to what Corey explained, the cost of solar has gone down quite a lot.
Speaker: Over the last 10 years, it's gone down 90%.
Speaker: And with that much capacity in the system, we do believe that the cost overall will continue to drop.
Speaker: And it's more competitive against traditional energy, including coal, oil, and gas.
Speaker: So you're quite right, because not just China is adding a lot of solar panels.
Speaker: Globally, we're seeing Europe and the US going on acceleration on the renewable energy capacity growth, as well as a lot of emerging markets, including South America and Africa as well.
Speaker: That's obviously tremendous news from an environmental standpoint.
Speaker: Corey, can I just ask you, you're very close to the industry.
Speaker: Are there also improvements in technology that we can expect?
Speaker: So we have cheap panels coming out, we can install them, but surely we're not at the end of the journey in terms of technology improvements.
Speaker: Maybe these panels will get even more efficient over time?
Speaker: Yes, you are very right.
Speaker: Efficiency for those solar cells is also increasing over time.
Speaker: Currently, we are in the process of switching from the old generation of cell technology to the new generation of cell technology.
Speaker: So that means on average, the solar panels can generate about 3 to 5% more power versus solar panels that are put into place one to two years ago.
Speaker: So if this kind of efficiency improvement continues, basically you don't need to spend further on the same product, but you can have 10%, 20% higher power generation from the solar panels in place.
Speaker: So that will effectively reduce the cost per kilowatt hour basis will be much lower.
Speaker: Well, gentlemen, this is an absolutely breathtaking development in the solar industry.
Speaker: China is leading really the world in this.
Speaker: And China's own investment is benefiting really the rest of the world through the decline in prices and the cheap panels that are really available.
Speaker: But Evan, one last question for you.
Speaker: We're installing all this capacity, but we're still left with the problem of storage, don't we?
Speaker: The sun doesn't shine 24 hours a day.
Speaker: Do you see advances there coming through?
Speaker: What are the preferred solutions?
Speaker: Do we have new batteries coming online?
Speaker: Or what do you count on to leverage that solar generation?
Speaker: You're quite right because we've been talking about energy transition quite a lot for the last three years, ever since obviously China and the rest of the world has been setting these big targets for carbon neutrality.
Speaker: But one of the biggest enablers, as we do see now, is storage, as you mentioned.
Speaker: So without proper energy storage, basically you can't really make use of solar panels during nighttime where there's no sunshine.
Speaker: So the investment going into storage is also in even greater acceleration, as we do see.
Speaker: In our view, the game for storage is still catching up, and we just hope that it could catch up quick enough so that they could enable us to get to the renewable energy capacity targets as we want them to be in by 2030, 2050.
Speaker: Well, that reminds us plenty to do.
Speaker: We have obviously made enormous strides in solar energy, but obviously it's a much more complex issue to rewire the global energy system.
Speaker: But it sounds like we're well on the way.
Speaker: So thank you, Corey and Evan, for joining us under the Banyan tree and hope to bring you back in the near future to talk again about some of the latest developments in China's solar market.
Speaker: Thank you.
Speaker: Thank you, Fred.
Speaker: Thank you, Fred.
Speaker: And that brings us to the end of today's podcast.
Speaker: Many thanks for listening.
Speaker: And if you're a global research client, do check out both Evans and Corey's latest reports on solar in China and the wider Asia region.
Speaker: Both reports were published this week alongside the global solar thematic report from Sean McLaughlin, who heads our industrial team in London.
Speaker: That's it from all of us here in the Banyan Tree.
Speaker: We'll talk to you again next week.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
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