Liu Hui

Eruption of the international financial crisis and dwindling of the demand on the international market have plunged most enterprises of China's photovoltaic (PV) industry into loss, and forced them to stop production. As a result, the industry has stepped into reshuffling ahead of schedule.

China's PV industry has developed rapidly in recent years. China's PV cell output was only 3 MW in 2001, and by 2007, it reached 2,000 MW, rising over 600 times in six years and ranking the first in the world. On China's PV industrial chain, there are 10-plus polysilicon enterprises, 60-plus silicon enterprises, 60-plus cell enterprises and 330-plus component enterprises in operation at present, with solar energy cell output accounting for 30% of the world's total.

In the past few years and induced by high profits, Chinese enterprises' investment in polysilicon in the upstream of PV industrial chain has increased sharply. By the end of the first half of this year, nearly 50 enterprises are either constructing or expanding or planning to start polysilicon production lines in more than 20 provinces including Sichuan, Henan, Jiangsu and Yunnan, with total scale under construction exceeding 170,000 tons and total investment surpassing RMB100 billion. If all these production capacities are realized, it will be over 2 times the world's annual demand for polysilicon. Sichuan, the biggest polysilicon producer in China, produced only 700 tons of polysilicon in 2007, and over 2,000 tons in 2008. With several projects being completed and put into operation, the total production capacity of the province will reach 31,750 tons by 2010.

Since the latter half of 2008, European countries, Spain in particular, have made big changes of their policy for solar energy sector, leading to sharp dwindling of the world's PV market. As a result, the number of orders Chinese PV enterprises receive from Europe has dropped drastically; most Chinese PV enterprises have stopped production; and enterprises with inventories of high-price polysilicon have suffered seriously. The era of remarkable profit for polysilicon sector has come to an end, and the market price has fallen to US$70/kg, nearing the production cost of domestic enterprises. Due to high cost and insufficient demand, some polysilicon enterprises in Sichuan have suspended production intermittently. The nightmare of blind expansion and serious oversupply of production capacity is showing off.

Polysilicon purification core technology is secret of seven foreign big manufacturers at present. Before the international financial crisis, China's demand for polysilicon had soared, while foreign big manufacturers had strictly controlled the output, once pushing up the price on spot market to the highest of US$500 per kg, as against the production cost of only US$25-30/kg. China imported over 12,000 tons of polysilicon in 2008. Calculating on the basis that US$300 can be earned from one kg of polysilicon production, foreign big polysilicon manufacturers have earned at least US$3.6 billion from China. It's just this kind of remarkable profit that has triggered the investment heat in China's polysilicon sector.

After the financial crisis, foreign enterprises that have mastered the technology have one after another announced production expansion plans, with their annual total production capacity expanding from about 60,000 tons at the end of 2008 to over 120,000 tons at present, and thanks to their advantages in technology and cost, there is still room for the price drop. China has launched many polysilicon projects in recent years, and the production capacity will be released gradually, and foreign producers expand production, so the competition will be fiercer. Investment analysts predict that Chinese polysilicon enterprises will be unable to retrieve at least half of their RMB100 billion investment; and of the 50-plus enterprises, only 3-7 can survive.

Meanwhile, many Chinese enterprises lag behind their counterparts in Europe and Japan in terms of technology. Therefore, European strict requirement for PV components is a kind of technical threshold for Chinese enterprises. For example, if the cell component of silicon monocrystal is increased from 180W to 185W, it requires the efficiency of cells of silicon moncrystal to reach 17.4%, an index that only 3-5 Chinese cell plants can meet. Therefore, if this index of Europe becomes an internationally accepted new standard, it will help speed up production capacity elimination and technical upgrading in China's PV industry.

Crisis of China's PV industry is in essence that in lack of core technology. Chinese enterprises have already paid for this and may continue to pay for this. To upgrade polysilicon production technology, speed up R&D of silicon processing related technologies and production equipment, and enhance photovoltaic conversion efficiency to break the restrictions set by foreign enterprises will be pivotal to sustained and healthy development of China's PV industry.