At present, the development of the global photovoltaic industry faces multiple risks. For example, geopolitical risks, macroeconomic risks, risks of rising raw material costs, increased corporate debt risks, intensified industry competition, and trade friction risks will affect the development of the photovoltaic industry. As the risk of economic downturn continues to increase, the prospects of the photovoltaic industry will be greatly uncertain.
(I) Global Photovoltaic Industry Risk Outlook
1. Geopolitical risks
Global geopolitical risks continue to escalate, and instability has increased significantly. The Russian-Ukrainian conflict broke out in February 2022 and has continued to this day. The contradictions between Russia and Europe and the United States have intensified comprehensively. The focus of the contradictions between the two sides has risen from regional conflicts to hegemony and anti-hegemony, leading to an unprecedented level of global political and economic game. The United States led Western countries in a comprehensive confrontation with Russia. In February 2023, the European Union approved the tenth round of sanctions against Russia. European and American countries have imposed comprehensive sanctions on Russia in the fields of economy, finance, education, network, retail, etc. In addition, while Western countries led by the United States have adopted various means to encircle Russia, they have accelerated their response to China's fierce competition and constantly created new contradictions, conflicts or economic traps. The above series of problems, coupled with the epidemic factors, eventually triggered global inflation, energy crisis and food crisis. Global oil prices soared, inflation remained high, inherent social contradictions intensified, and multiple problems such as economy, energy, society and finance were superimposed, causing political turmoil in some countries. According to the World Bank's assessment report, from April to July 2022, almost all low- and middle-income countries experienced high inflation, with inflation levels above 5% in 92.9% of low-income countries, 92.7% of low- and middle-income countries, and 89% of high- and middle-income countries. Against the backdrop of the ongoing conflict between Russia and Ukraine, energy crisis, food crisis, high inflation, and the emergence of great power games, international crisis events have occurred one after another, and risks in hot spots have continued to spill over: in July 2022, the Prime Minister of Sri Lanka announced national bankruptcy, the dissolution of parliament, and the disintegration of the government; in August-September 2022, Azerbaijan and Armenia clashed in the border area; and so on. At the same time, in the context of the energy crisis in Europe, electricity prices have risen, inflation has hit a record high, and the risk of economic recession has risen. Large-scale demonstrations and strikes have broken out in some countries, and the political situation has become turbulent.
2. Macroeconomic risks
The global economy will slow down and inflation will be high, and the global photovoltaic market demand will shrink. The World Economic Outlook report released by the International Monetary Fund (IMF) on January 30, 2023 shows that the global economic growth is expected to be 2.9% in 2023 and is expected to rise to 3.1% in 2024. The forecast for 2023 in this update is 0.2 percentage points higher than the forecast in the World Economic Outlook report released in October 2022, but lower than the historical (2000 to 2019) average of 3.8%. The report also raised the forecast for China's economic growth in 2023 from 4.4% to 5.2%. The report predicts that the US economy will grow by 1.4% in 2023 (see Table 2-7-14).
| Table 2-7-14 World economic growth trends from 2019 to 2024 unit:% | ||||||
| Year | 2019 | 2020 | 2021 | 2022 | 2023 (expected value) | 2024 (expected value) |
| World Economy | 3.6 | 2.9 | 6.1 | 3.4 | 2.9 | 3.1 |
| Developed Economies | 2.2 | 1.7 | 5.2 | 2.7 | 1.2 | 1.4 |
| United States | 2.9 | 2.3 | 5.7 | 2 | 1.4 | 1 |
| Eurozone | 1.9 | 1.2 | 5.3 | 3.5 | 0.7 | 1.6 |
| Japan | 0.8 | 0.7 | 1.6 | 1.4 | 1.8 | 0.9 |
| Emerging and Developing Economies | 4.5 | 3.7 | 6.8 | 3.9 | 4 | 4.2 |
| Russia | 2.3 | 1.3 | 4.7 | 3 | 5.2 | 4.5 |
| China | 6.6 | 6.1 | 8.4 | 6.8 | 6.1 | 6.8 |
| India | 6.8 | 4.2 | 8.9 | 3.1 | 1.2 | 1.5 |
| Brazil | 1.1 | 1.1 | 4.6 | 2.6 | 1.2 | 1.3 |
| South Africa | 0.8 | 0.2 | 4.9 | 3.4 | 2.9 | 3.1 |
3. Risk of rising raw material costs
Affected by the rising prices of raw materials such as silicon materials, upstream companies continue to pass on costs, and downstream companies are hampered in their operations, hindering the healthy development of the photovoltaic industry chain. In 2022, the price of upstream photovoltaic materials continued to rise, and the price of silicon materials rose from 80,000 yuan/ton at the beginning of 2021 to 310,000 yuan/ton, which had a certain impact on the investment and development of the photovoltaic industry. Under the general trend of market-oriented consumption, the photovoltaic grid-connected electricity price is facing downward pressure. Photovoltaic power stations need to bear additional costs such as auxiliary service fees. The pressure of upstream price increases is more difficult to divert to the downstream power industry. Photovoltaic companies are facing multiple pressures such as investment, construction, and operation, which is not conducive to the healthy, stable and high-quality development of the entire industry. At the same time, market-oriented consumption objectively leads to a partial reduction in revenue, and new energy development companies face greater investment and operating pressure.
4. Industry technology risks
The technology development trend of the photovoltaic industry is clear, and some companies face the risk of elimination. In 2019, PERC surpassed BSF technology for the first time to become the most mainstream photovoltaic cell technology. From 2016 to 2021, the penetration rate of PERC cells increased from 10% to about 90%. From the perspective of theoretical and practical development, the current photoelectric conversion efficiency of PERC cells has reached 23% to 23.2%, gradually approaching the theoretical conversion efficiency limit of 24.5%. Therefore, it is a general trend to develop the next generation of battery technology with a higher conversion efficiency limit. TOPCon planning and construction are accelerating. With the breakthrough and optimization of TOPCon battery technology, the scale and speed of TOPCon capacity construction will increase significantly in 2023. According to the capacity planning and construction progress of each company, the built capacity of TOPCon batteries in 2022 is about 66 GW, the capacity under construction is about 152 GW, and the planned capacity of TOPCon batteries in 2023 is about 170 GW. By the end of 2023, TOPCon production capacity is expected to exceed 300 GW. The built capacity of heterojunction batteries (HJT) is relatively small. According to incomplete statistics, as of the end of 2022, the built capacity of HIT batteries of manufacturers such as Huasheng New Energy, King Kong Glass, Aikon Technology, Risen Energy, Longi Green Energy and Junshi Energy has reached 8.92 GW. In addition, Huasheng New Energy's 15 GW, Aikon Technology's 16.2 GW, China Resources Power's 12 GW, and King Kong Glass's 4.8 GW have already started construction, and the cumulative capacity under construction of each company is about 114.60 GW. Entering 2023, HJT will usher in a new wave of capacity release. In the future, attention will gradually turn to N-type battery technology represented by TOPConHJT and IBC, which will gradually become the mainstream development direction of the industry's next generation of high-efficiency crystalline silicon batteries. Compared with traditional P-type batteries, N-type batteries have the advantages of high conversion efficiency, high bifaciality, low temperature coefficient, no light decay, and good weak light effect. It is one of the mainstream battery technology routes in the future. The N-type technology route also includes the choice of multiple technology routes such as TOPCon, HJT, and IBC. The competition for photovoltaic technology routes has entered a white-hot stage, and the choice of technology routes by photovoltaic companies will directly affect the subsequent competitiveness.
5. Risk of excessive industrial concentration
The global photovoltaic module manufacturing industry chain is highly concentrated and vulnerable to external shocks. In July 2022, the International Energy Agency (IEA) pointed out the main problems of the global photovoltaic supply chain in the "Special Report on the Photovoltaic Global Supply Chain", while emphasizing the need for extensive geographical diversification in the photovoltaic industry. The International Energy Agency (IEA) said that China has played an important role in reducing global photovoltaic costs and has brought multiple benefits to the clean energy transition. At the same time, the geographical concentration of the global supply chain also poses potential challenges. According to IEA estimates, by 2025, the world will be almost entirely dependent on photovoltaic modules produced in China. Based on the manufacturing capacity under construction, China's share of global multi-product silicon, silicon ingots and silicon wafers will soon reach 95%. The report pointed out that any global supply chain that reaches such a concentration means considerable vulnerability, and the photovoltaic industry is no exception.
6. Industry competition risk
The competitive risk of global photovoltaic companies continues to increase. With the expansion of industry capacity and technological improvement, the global market competition in the photovoltaic industry is very fierce, and Chinese and foreign photovoltaic companies are constantly going bankrupt and restructuring. In the upstream silicon material link, polysilicon, granular silicon, etc. are expected to usher in a price inflection point; in the silicon wafer link, the replacement of large-size silicon wafers will accelerate: in the battery link, the commercial mass production process of the new generation of batteries TOPCon, HJT, and IBC will continue to accelerate, and may gradually replace PERC batteries; in the component link, double-sided high-power components have become the mainstream. Under the realistic conditions of rising raw material prices, the industry concentration will be more obvious. Under the continuous expansion of production, the Matthew effect in the photovoltaic industry is more obvious, the industry concentration is gradually increasing, and small and medium-sized enterprises will face greater financial pressure, survival will be more difficult, and the risk of industry competition will increase. In July 2022, the International Energy Agency (IEA) pointed out in a report that more than 30% of companies engaged in photovoltaic module manufacturing worldwide face moderate or high bankruptcy risks. The agency emphasized in its "Special Report on the Photovoltaic Global Supply Chain" that 15% of these manufacturers face a high risk of bankruptcy, which was about 28% in 2018. As for multi-product silicon suppliers, about 11% of suppliers are currently facing a high risk of bankruptcy, while another 49% are estimated to face a moderate risk of bankruptcy. The risk of polysilicon bankruptcy has dropped significantly in 2021 due to high polysilicon prices. However, polysilicon may return to low prices. The International Energy Agency (IEA) said that Chinese polysilicon manufacturers have received support in the form of financing and subsidies, but the development of this market segment is still fragile from a financial perspective. Despite the financial support, the largest polysilicon producers still posted net losses from 2018 to 2020. The IEA did not disclose the names of these producers, but said that from a supply security perspective, the continued poor financial performance within and across the PV value chain has increased the supply chain's vulnerability to the bankruptcy and underinvestment of PV module manufacturers, which will reduce its resilience, increase prices, and limit PV deployment. The agency warned that due to the possible changes in the subsidy regulations for the PV industry, this could lead to a higher risk of bankruptcy, even for the most competitive manufacturers. If competitive PV module producers go bankrupt, this could lead to wider price increases and supply impacts and the loss of subsidies.
7. Trade friction risk
Trade protectionism and anti-globalization policies continue to escalate, and trade friction cases have increased significantly. As a major exporter of photovoltaic products and the world's second largest economy, China has frequent trade frictions with countries around the world. The COVID-19 pandemic has superimposed geopolitical conflicts, supply chains have been blocked, and countries have begun to gradually develop local enterprises, increasing the possibility of unilateralism and anti-globalization. In March 2022, the United States announced that it would further investigate that Chinese photovoltaic module manufacturers have transferred part of their manufacturing operations to Southeast Asia to circumvent anti-dumping and countervailing (AD/CV) tariffs. From the implementation of anti-subsidy and anti-dumping investigations on Chinese photovoltaic products in 2011, to the launch of "Section 201" and "Section 301" in 2018, to the blacklisting of four photovoltaic module manufacturers in Xinjiang, China in 2021, the United States has repeatedly introduced restrictive policies against Chinese photovoltaic companies and products. The European Union and India have also successively launched "double-reverse" investigations on photovoltaic products exported from my country. On July 14, 2021, Europe and the United States proposed a package of environmental protection proposals, including the establishment of a carbon border adjustment mechanism (CBAM), which is essentially a special tariff imposed on imported products in international trade. In addition to anti-dumping and anti-subsidy, technology patent disputes are becoming a new barrier to the photovoltaic industry. In March 2022, 12 European countries including the Netherlands, Belgium, Bulgaria, Germany, France, and Spain required Longi to recall components that may infringe relevant patents and immediately compensate Hanwha, and Longi was not allowed to sell solar panels affected by patent litigation. Patent disputes are the result of fierce market competition. Intellectual property disputes are easy to initiate and more targeted in photovoltaic trade, and are more operational than "double anti-dumping". In the future, disputes over patent technology are likely to become new trade barriers in the photovoltaic industry.
(II) Industry investment risk outlook for key countries
1. Investment risk outlook for China's photovoltaic industry
(1) Risk of imbalance between supply and demand
Phased overcapacity and market competition risks. After full market competition and elimination, the photovoltaic industry has gradually cleared out backward and excess capacity, and the market and resources have gradually concentrated on advantageous enterprises, and the competitive landscape has been reshaped. However, at the same time, with the acceleration of the global carbon neutrality trend, leading enterprises have accelerated the launch of large-scale capacity protection plans, and more and more cross-border capital and enterprises have poured into the photovoltaic industry. Some companies that were originally facing market elimination have begun to resume production. In the future, market competition will become more and more fierce, and the focus of competition will also shift from the original scale and cost to the comprehensive competitiveness of enterprises, including business model innovation, technology research and development, financing capabilities, operations management, marketing, etc. If the growth rate of the downstream application market in the future is lower than the expected expansion or even declines, the above-mentioned capacity expansion will further intensify the disorderly competition in the industry, resulting in unreasonable declines in product prices and declines in corporate profits. Therefore, the photovoltaic industry may face the risk of overcapacity brought about by competitive expansion.
(2) Supply chain stability risk
On the one hand, in recent years, the photovoltaic industry has undergone rapid changes in product specifications, technology applications, and upstream and downstream supply and demand relationships. On the other hand, orders for photovoltaic industry component products, especially overseas orders, often require at least half a year in advance from signing to production. If the supply and demand matching of raw materials, supply security and logistics efficiency cannot be guaranteed, the company cannot accurately predict the future price trend of the supply chain, which will be detrimental to the delivery of corporate orders, and product costs will further increase or even result in order losses. This change will greatly test the company's supply chain management capabilities and bring huge challenges to the survival of the company. In addition, due to the impact of the epidemic, some supply chain companies have stopped production, domestic and foreign logistics have been greatly restricted, logistics and procurement costs have risen sharply, and the management difficulty of production organization and product transportation has increased. Therefore, if the company cannot establish competitive supply chain management capabilities, it may face the risks brought by supply chain fluctuations.
(3) Industry technology risks
Technology is accelerating iteration and upgrading, and faces the risk of technology route selection. 2022 is the first year of commercialization of N-type technology, and 2023 is the first year of real N-type mass production. The photovoltaic industry is an industry with the most frequent technology iteration. Photovoltaic companies are facing multiple-choice questions in this technology route competition. N-type technology routes include TOPCon, HJT, and IBC. The competition for photovoltaic technology routes has entered a white-hot stage, and the choice of technology routes by photovoltaic companies will directly affect their subsequent competitiveness. As prices in the industrial chain fall and product price competition may become fierce, new photovoltaic technologies are expected to bring new added value to photovoltaic modules, thereby creating new space and new patterns. On the one hand, the photovoltaic industry has a short history and fast technology updates. The life cycle of each generation of products is shorter than the depreciation period of mature industry equipment; on the other hand, the photovoltaic industry is a high-tech industry with high technical barriers. Companies in the industry need to have rapid response capabilities and continuous development capabilities to grasp the development trends of new technologies as accurately as possible. The photovoltaic industry is at the stage of upgrading with new technologies emerging in silicon wafers, cell modules and system products. This requires enterprises in the industry to increase their R&D investment and improve their innovation capabilities. If the company cannot accurately judge the development trend of technology and products, or fails to invest sufficient research and development efforts in the technology with the greatest market potential, there may be a risk of technological backwardness, causing the conversion efficiency and power of the company's related products to lag behind those of companies in the same industry, resulting in a decline in the company's market share. Although the company has determined the research direction of new technologies and has deep technical reserves, if a revolutionary new technical route with better performance and lower cost in terms of conversion efficiency appears in photovoltaic cells, or a technological mutation occurs that causes a sharp drop in the cost of photovoltaic modules or a significant increase in the conversion rate of cells, and such major alternative technologies appear in the industry and the company is unable to grasp them in time, the company will face the risk of losing its technological competitive advantage or even being eliminated by the market.
(4) Industry competition risk
The leading enterprises have obvious advantages, the concentration of the industrial chain is high, and the industry competition is more intense. Globally, China's photovoltaic industry has an overwhelming advantage in manufacturing scale, technology and cost, and is at the forefront of all links in the industry. The production capacity of all links in China's photovoltaic industry chain is concentrated in leading enterprises, and the concentration is high. The accelerated expansion of leading enterprises will intensify competition in the photovoltaic industry chain. In addition, under the background of "dual carbon", the high prosperity of the photovoltaic industry has attracted companies from various industries to cross-border. The cross-border trend occurred because of the impact of multiple factors such as the epidemic, and the rapid decline of industries such as real estate, fast-moving consumer goods, and finance. Many companies with sluggish main businesses are trying to find a second growth curve. The demand for the clean energy industry is very strong, especially the stock prices of listed companies in the photovoltaic industry have soared, and their attractiveness has greatly increased. In recent years, as the prosperity of the photovoltaic industry has remained high, cross-border people and bureaus are everywhere, and there is indeed a mixed situation, and investors need to be vigilant. Although the photovoltaic industry has strong demand and a bright industry outlook, as an emerging industry that is capital-intensive, talent-intensive, and technology-intensive, cross-border photovoltaic companies are more concentrated in the field of new technologies, especially the photovoltaic cell link where technology iteration is most obvious, and there are still high risks.
(5) Trade barrier risk
The photovoltaic trade barriers have been upgraded and revised again, which has put forward higher requirements for the compliance operation of enterprises. The foreign trade situation has become more severe and complex. In addition to traditional forms of trade frictions, barriers and restrictions such as anti-dumping, anti-circumvention and raising basic tariffs, "human rights", "low-carbon certification" and "energy efficiency labels" are becoming new forms of trade barriers, which have put forward higher requirements for the compliance operation of enterprises. In the United States, the so-called "Uyghur Forced Labor Prevention Act" (UFLPA) officially came into effect on June 21, 2022. The bill further restricts the Xinjiang-related supply chain in a more systematic way, lowers the threshold for the United States to restrict "Made in China", expands the scope of attack, and will have a significant impact on the exports of Chinese companies. In India, from April 1, 2022, the Indian government will significantly increase the basic tariff on solar photovoltaic modules from 0 to 40%, and the basic tariff on solar cells from 0 to 25%, in order to reduce dependence on imports and expand the country's photovoltaic manufacturing base. On June 15, 2022, the Indian Ministry of Finance's Department of Revenue issued a notice accepting the final anti-dumping ruling made by the Indian Ministry of Commerce and Industry on March 29, 2022, and decided to impose a five-year anti-dumping duty on solar fluorine-coated backsheets originating in or imported from China, except for transparent backsheets. In Europe, in November 2022, the European Parliament issued the Corporate Sustainability Reporting Directive (CSRD), which will be implemented as early as January 1, 2024. This has transformed ESG standards from "soft laws" that companies previously voluntarily complied with to binding and enforceable "hard laws" that put forward higher requirements in terms of labor rights and environmental protection. In addition, South Korea and France have proposed that imported photovoltaic products must have low-carbon certification. Sweden and Italy require environmental product declarations (EPDs). EPDs have higher requirements than carbon footprint certifications. It can be simply understood that EPDs include carbon footprint requirements, and carbon footprint is the most basic quantitative environmental indicator.
2. Investment risk outlook for the EU photovoltaic industry
(1) Risk of macroeconomic downturn
The eurozone economy has been hit hard by the pandemic and the conflict between Russia and Ukraine. In April 2023, the International Monetary Fund (IMF) released its latest World Economic Outlook report, predicting that the eurozone economy is expected to grow by 0.8% in 2023 and 1.4% in 2024; Germany and the UK economies are expected to shrink by 0.1 percentage points and 0.3 percentage points respectively this year (see Table 2-7-15).
| 15 Macroeconomic forecasts for some countries in the five major European photovoltaic markets unit:% | |||
| Country/Region | 2022 | 2023 | Expected value in 2024 |
| Eurozone | 3.5 | 0.8 | 1.4 |
| Germany | 1.8 | -0.1 | 1.1 |
| France | 2.6 | 0.7 | 1.3 |
| Italy | 3.7 | 0.7 | 0.8 |
|
Spain Data source: International Monetary Fund (IMF) |
5.5 | 1.5 | 2 |
In 2023, the GDP growth rates of developed European economies and emerging economies will drop to 3% and 3.2% respectively, a decrease of 1 percentage point and 1.5 percentage points respectively from the forecast released in January. The IMF believes that the Russia-Ukraine conflict has added more obstacles to Europe's economic recovery before it has emerged from the shadow of the epidemic. On April 27, Germany lowered its economic growth forecast. Affected by factors such as the Russia-Ukraine conflict, high energy prices, and Western sanctions against Russia, Germany's economic growth is expected to be 2.2% in 2022, 1.4 percentage points lower than the January forecast, but Inflation will rise significantly to 6.1%. On April 29, the French National Statistics Office released a report stating that due to high inflation and the impact of the Russia-Ukraine conflict, the French economy suffered a decline in economic growth in the first quarter. 0.4%, and the inflation rate reached 4.8%, a new high. The top two economies in the Eurozone have been severely affected by the epidemic and the Russia-Ukraine conflict. Domestic inflation has increased significantly and economic growth has declined. The economic downturn is likely to continue as the geopolitical conflict continues.
(2) Industry certification risks
The EU product certification standards are high and the certification process is relatively complicated. The EU has institutions such as Bureau Veritas, Intertek, and the German Association of Electrical Engineers (VDE) to certify photovoltaic products. They conduct tests based on CE, ULCSA, IEC, and EN standards, involving crystalline silicon solar panels, thin-film solar panels, charging controllers, inverters, etc. Among them, the "CE" mark is a mandatory certification mark. CE certification is the EU's mandatory certification requirement for products sold in member countries. It represents that the products meet a series of standards such as safety, hygiene, and environmental protection. Products with the "CE" mark indicate that the products meet the basic requirements of the EU's "New Approach to Technical Harmonization and Standardization" directive and can be sold in EU member countries. The EU has high standards for product safety and quality. In addition to the CE certificate, many safety certificates are required for exports from the EU to foreign countries. At the same time, manufacturers in non-EU countries are required to designate an EU authorized agent within the EU, and the certification process is relatively complicated.
(3) New trade barriers
In addition to traditional trade barriers, European and American countries are hindering China's photovoltaic product trade through new trade barriers, mainly reflected in the EU carbon footprint certification, energy labeling work plan and other carbon barriers. These are new technical barriers following the previous trade tariff investigation and other means of encirclement. These barriers and requirements show that other countries emphasize the importance of environmental assessment in the competition process, protect their own photovoltaic power stations from the impact of photovoltaic modules with higher carbon density, and will not sacrifice the economic competitiveness of their plans. This is also a non-tariff trade barrier and technical exclusion method commonly used by developed countries. Some European countries have also introduced carbon footprint certification. France, South Korea, Italy and other countries have put forward carbon footprint accounting and certification requirements for the export of new energy products represented by photovoltaic modules; Europe, the United States, Germany, France, Japan and other countries have successively carried out product environmental declarations (EPDs). Among them, European EPD started the earliest and is relatively mature: Sweden has established an EPD mechanism with global influence (see Table 2-7-16). Carbon footprint is evolving into an irresistible trade barrier, which is directly linked to the commercial evaluation of product bidding. In order to effectively deal with green trade barriers, carbon footprint certification has become a necessary option for companies going overseas.
|
New trade barriers in Europe in 2022 |
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| Time | Trade barrier name | content |
| The draft requires EU companies and some third-party companies to perform due diligence in their business activities, covering the entire life cycle of production, use, disposal of products and provision of services. The enterprise value chain defined in it should cover the activities related to the production of goods or provision of services by the enterprise. This includes the development of products or services, the use and disposal of products, or related activities with which the company has established a business relationship. It is expected to be passed in 2023 and take effect in 2025. | ||
| February 23, 2022 | EU Draft Directive on Corporate Sustainability Due Diligence | |
|
March 2022 |
EU Draft Regulation on the Prohibition of Products from Forced Labor from Entering the EU Market | The draft is aimed at preventing forced labor products from circulating in the EU market and being exported from the EU. This draft is not targeted at specific countries, companies or industries, but is intended to effectively prohibit the sale of forced labor products in the EU, regardless of their origin. Therefore, the draft covers all products circulating in the EU market, including products produced in the EU for domestic consumption or for export, as well as imported products. |
|
March 2022 |
European Eco-design and Energy Labelling Work Plan 2022-2024 | The plan says it will complete eco-design and energy efficiency labelling measures for PV panels, inverters and systems, including possible carbon footprint requirements. |
| Mar-22 | EU Carbon Border Adjustment Mechanism (CBAM) approved | In December 2022, the EU Council and the European Parliament reached a provisional agreement on the establishment of a Carbon Border Adjustment Mechanism (CBAM), which plans to impose carbon tariffs on imported goods based on their greenhouse gas emissions. The mechanism will start a transitional trial operation on October 1, 2023. |
| Nov-22 | European Corporate Sustainability Reporting Directive (CSRD) | It will be implemented as early as January 1, 2024. CSRD transforms ESG standards into binding and enforceable "hard law", and puts forward higher requirements in terms of labor rights and environmental protection. |
(4) Risk of localization of production capacity
In order to meet the demand for photovoltaic installation in Europe, the EU will vigorously support the development of photovoltaic enterprises in the euro area, affecting the market share of Chinese photovoltaic modules. In order to achieve the goal of carbon neutrality, the EU will vigorously develop the photovoltaic power generation industry, and solar photovoltaic will become the pillar of the future power system. The growth of the photovoltaic power generation market is an opportunity to redevelop the European industry. The EU will provide policies and support companies to reinvest in the solar photovoltaic industry in Europe. It is essential to ensure the diversification of supply for the EU project development industry and the ability to cope with shocks such as module shortages. Ministers of environment, energy and economy of Austria, Estonia, Greece and other countries urged the European Commission to make solar, wind and energy storage manufacturing the strategic core of the recovery measures from the new crown crisis. The European Commission has funded a 3.2 billion euro research and development program and a photovoltaic-hydrogen industry program called "Silver Frog" to make the EU a global battery manufacturing center. The European Solar Energy Association and its partner innovation group (EIT In-noEnergy) launched the European Solar Initiative to form a solar photovoltaic industry alliance and plan to transfer 2,000 GW of solar photovoltaic manufacturing (from polysilicon to modules) back to the EU by 2025. At the same time, many EU companies have also started photovoltaic product construction plans. Greenland, a photovoltaic manufacturing startup, is working with Fraunhofer ISE and Bosch Rexroth to build a 5 GW highly automated and integrated manufacturing plant in Spain. Meyer Burger, a photovoltaic equipment manufacturer, has also begun producing heterojunction modules. As the EU's photovoltaic manufacturing localization plan continues to advance, it may increase the protection of the photovoltaic manufacturing industry, and the overseas market space for my country's photovoltaic modules will be further compressed. As the EU photovoltaic manufacturing industry continues to be implemented, it will further strengthen the intellectual property protection of local photovoltaic manufacturing companies in EU countries and intensify the "double anti-dumping" investigation of my country's photovoltaic products. The export market of my country's photovoltaic products will face a greater impact.
(5) Bidding risks
The high price limit of European electricity has affected renewable energy bidding. Since 2022, renewable energy projects have not only faced severe inflation and high shipping costs, but also a significant increase in the manufacturing costs of renewable energy products themselves due to the shortage of upstream raw materials. For example, in 2022, the Spanish government organized a large-scale renewable energy project tender for the fourth time, and the final number of photovoltaic power generation projects was zero. The ideal winning bid price set by the Spanish government was too low, which was the main reason for the failure of this tender. Against the background of an imbalance in the supply of the photovoltaic industry, the price of photovoltaic modules purchased by Spanish photovoltaic project developers has risen and the order delivery cycle has been extended, increasing the resistance to project advancement. With the spot price of the Spanish electricity market remaining high, large-scale renewable energy power stations are no longer so attractive to companies, and the bid price may change significantly. The dismal results of this renewable energy tender also sent a warning to other European countries that high electricity prices and renewable energy power generation costs are not only seen in Spain, but also in countries such as Germany, which may affect renewable energy tenders in recent years.
3. Outlook for investment risks in the U.S. photovoltaic industry
(1) Trade friction risk
The risk of trade friction is high. The United States has launched a number of trade relief measures against Chinese photovoltaic products. In 2021, some voices in the United States have emerged to boycott China's photovoltaic industry on the pretext of forced labor in Xinjiang, China, and this has gradually become a trend. The Solar Energy Industries Association (SEIA) of the United States issued a statement calling on all photovoltaic companies and their supply chains to withdraw from Xinjiang. More than 115 photovoltaic companies of the association have signed a statement to boycott products and supply chains involved in forced labor in Xinjiang. First Solar, the largest photovoltaic company in the United States, also issued a statement condemning forced labor and removing products and supply chains associated with forced labor in Xinjiang, China. In addition, the Solar Energy Industries Association (SEIA) of the United States has released a tool to increase transparency in the photovoltaic supply chain, the Photovoltaic Supply Chain Traceability Protocol, to ensure that photovoltaic modules are "ethically manufactured throughout the solar value chain." Its purpose is self-evident. On March 30, 2021, the United States proposed the "No China Solar Act," which prohibits U.S. federal funds from being used to purchase solar panels produced or assembled in China, especially in Xinjiang, and intensifies pressure on Chinese photovoltaic manufacturing. In March 2022, the United States announced that it would further investigate incidents in which Chinese PV module manufacturers have moved part of their manufacturing operations to Southeast Asia to circumvent anti-dumping and countervailing duties. On June 17, 2022, the United States implemented the Xinjiang-related Act (UFLPA), which establishes a rebuttable presumption principle, that is, any goods, utensils, articles, and commodities that are mined, produced, or manufactured in whole or in part in the Xinjiang Uyghur Autonomous Region of the People's Republic of China or produced by certain entities are prohibited from entering the United States under Section 307 of the Tariff Act of 1930. The presumption applies unless CBP determines that the importer of record has complied with specific conditions and determines through clear and convincing evidence that the goods, utensils, articles, or commodities are not produced using forced labor. Based on the authorization of the Act, the U.S. Customs and Border Protection (CBP) can take measures such as detention, exclusion, seizure/forfeiture, etc. for items within the applicable scope. The United States is likely to continue to increase sanctions on Chinese products, and trade frictions will intensify.
(2) Political risks
The tension between China and the United States has brought great uncertainty to business cooperation. For the second consecutive year, Biden emphasized in his speech at the UN General Assembly that he does not seek to enter a new Cold War with China, and repeatedly proposed to set up guardrails for Sino-US relations to prevent the two countries from falling into conflict during competition. While actively communicating, the United States also took a very negative attitude in action. First, on the Taiwan issue, the United States tested the bottom line of the one-China principle and the three Sino-US joint communiqués. Second, the United States has adopted a series of increasingly escalating economic and trade sanctions against China. On October 8, 2022, the Biden administration announced an unprecedented export control, which explicitly required "limiting China's ability to develop supercomputers and advanced semiconductor industries." US President's National Security Advisor Sullivan claimed that in the past the United States only needed to dynamically lead China, but now it is necessary to make China lag behind the United States as much as possible. At present, Sino-US relations are undergoing a fundamental readjustment. Bilateral friction has become the primary challenge for Chinese capital to conduct business in China, which will further increase the difficulty for Chinese photovoltaic companies to invest and cooperate in the United States.
(3) Technical risks
Vigilance against China will intensify the competition between the United States and China in the field of innovative technologies related to renewable energy. Under the influence of many factors such as changes in global energy supply, geopolitics, and differences in the ruling philosophies of the two parties in the United States, the US energy policy has been constantly changing. Since the 1970s, the international political environment has been complex and changeable. The Democratic Party and the Republican Party have alternately ruled the country. The understanding of successive US presidents on promoting the country's energy development and energy structure is different, but in essence, they all pursue US energy independence, are committed to increasing domestic energy supply, and reducing energy dependence on foreign countries, and increasing the diversification of energy supply. The main differences in energy development among successive presidents are reflected in the different emphases on the development of fossil energy and clean energy, and the use of multilateralism or unilateralism to maximize US interests. In the field of climate, Biden will prevent some countries from catching up while the United States is reducing emissions. In the presidential primary debate, Biden said that Chinese companies would not be allowed to build key infrastructure such as energy and communications in the United States. At the same time, Biden vigorously promotes the development of clean energy technology and industry in the United States, while China is currently in an internationally advanced position in renewable energy technology such as the photovoltaic industry. This means that the Biden administration will pay more attention to competition with China in the field of energy transformation and suppress Chinese high-tech companies to maintain their leading edge in core technologies.
(4) Economic recession and inflation risks
The outlook for U.S. economic growth remains uncertain. In the fourth quarter of 2022, the U.S. GDP constant price annualized rate was 2.9% quarter-on-quarter, down from 3.2% in the first three quarters, and slightly higher than market expectations of 2.6%. In addition, the constant price growth rate of U.S. GD in 2022 is 2.1%, which is lower than the 5.9% in 2021. However, after excluding the base effect, the real GDP growth of the United States in 2022 (1.7%) is slightly higher than that in 2021 (1.5%). . In terms of foreign trade, exports fell significantly and imports remained weak. The annualized quarter-on-quarter growth rate of U.S. imports in the fourth quarter rebounded slightly from -7.3% in the third quarter to -4.6%. The decline narrowed, but it was still in the negative range. Among them, the decline in the import of daily consumer goods is still relatively obvious, which may be related to the continued weakening of domestic commodity consumption in the United States. In the fourth quarter, the annualized quarter-on-quarter growth rate of U.S. exports turned negative to -1.3%, a significant decline from the 14.6% growth rate in the third quarter. Among them, non-durable consumer goods other than petroleum fell sharply. Due to multiple significant interest rate hikes since the beginning of 2022, the U.S. federal funds rate is currently at its highest level in 15 years since the end of 2007. Although higher interest rates have curbed inflation, their negative impact on economic growth and asset prices has increasingly aroused concerns among U.S. industry and academia. The Federal Reserve is increasingly faced with curbing inflation and maintaining economic growth and assets. The dilemma between price stability. To some extent, given that the current unemployment rate in the United States has remained low for a long time, it indicates that there is very limited room for improvement in the overall economic output level. At the same time, the global energy supply tension caused by the Russia-Ukraine conflict is difficult to completely resolve in the short term. , under the premise that the increase in supply-side levels is limited, the Fed seems to be able to only try to curb the growth of the demand-side through monetary policy adjustments, in order to achieve the purpose of curbing inflation. Although the U.S. economy in 2022 will still achieve moderate growth after experiencing substantial interest rate hikes, as the Federal Reserve continues to raise interest rates, economic sectors such as the housing market are showing signs of recession, coupled with weak consumer spending, many analysts believe that the U.S. economy is very The pace of growth may slow down or even experience a slight recession in the first half of 2023, and the outlook for economic growth remains uncertain.
(5) Risks of power grid upgrade
The management and interconnection of power grid systems is one of the challenges affecting the development of renewable energy in the United States. The power infrastructure in the United States is well developed and the power grid can cover the entire country. But the U.S. power grid is mostly AC lines, with only partial interconnections between states to enable long-distance transmission. The power supply system paralysis due to heavy snowfall in Texas in 2021 has further exposed the vulnerability of the U.S. power grid. Investment in power grid upgrades has become a priority for public utilities in the next 10 years. A 2021 review of the U.S. grid by Lawrence Berkeley National Laboratory (LBNL) shows that 930 gigawatts of low-carbon generation capacity is stalled due to grid connection barriers. More than 670 GW of that was solar, up from the previous 462 GW at the end of 2020. U.S. Department of Energy data: 70% of transmission lines and power transformers in the United States have an operating age of more than 25 years, and 60% of circuit breakers have an operating age of more than 30 years. In addition to the age of the grid, the location of existing transmission lines is also an issue. Fossil fuels such as oil, coal and natural gas are typically transported by rail or pipeline and then burned to generate electricity at power stations near cities. Clean energy sources, such as wind and solar, do not emit greenhouse gases, but the energy produced must be moved from where the wind and solar are strongest to where the electricity is actually used. Therefore, the 21st century grid must adapt to steadily increasing electricity demand to power electric vehicles, heat pumps, industrial electrification and electrolytic hydrogen production to take full advantage of the best wind and solar resources. This means that the United States needs a more powerful and Longer distance grid. While U.S. renewable energy prospects are strong, insufficient grid connections are holding back project growth. It is increasingly important for the United States to more effectively integrate renewable energy into the national grid.
(6) Grid connection risk
There is a risk of grid connection for U.S. photovoltaic projects. Research by Lawrence Berkeley National Laboratory (LBNL) shows that the number of new power generation and energy storage projects in the transmission grid connection queue across the United States continues to rise sharply, and now there are more than 2,000 GW of total power and energy storage capacity seeking to be connected to the grid. The growing backlog of projects has become a major bottleneck for project development: projects take longer and longer to complete grid connection research and go online, and most of these grid connection applications are ultimately canceled and withdrawn. Entering the grid connection queue is just one of many steps in the development process. Photovoltaic projects must also reach agreements with landowners and communities, power buyers, equipment suppliers and financiers, and may face transmission upgrade requirements.
(7) Project delay risk
U.S. photovoltaic projects may face a greater risk of delay. Due to the U.S. implementation of the Xinjiang-related bill, more than 1,000 batches of solar photovoltaic panels worth hundreds of millions of dollars have been piled up at U.S. ports since June 2022. The seized products include panels and polysilicon cells with a capacity of up to 1 GW, mainly produced by three Chinese manufacturers - Longi Green Energy Technology Co., Ltd., Trina Solar Co., Ltd. and Pinko Energy Co., Ltd. According to PV TECH statistics, 204 shipments (about 410 MW of modules, worth $134 million) were detained by US Customs in the first two months of 2023. About 41% of all detained products were eventually released, 58.2% of the shipments were awaiting action by the U.S. Customs and Border Protection or importers, and 0.8% of the detained shipments were rejected. According to the American Clean Energy Association (ACP) trade organization, solar installations in the United States fell 23% in the third quarter of 2022, and nearly 23 GW of solar projects were delayed, mainly due to the inability to obtain photovoltaic modules. The American Clean Energy Association urged the Biden administration to simplify the import review process. The areas and scope of the United States' increased sanctions on Chinese products will also further affect the development of its domestic photovoltaic industry and lead to delays in photovoltaic projects.
(8) Supply chain risk
The United States is highly dependent on China for photovoltaic power generation components. Affected by the US sanctions against China, the photovoltaic industry supply chain was broken for part of 2022, and companies found it difficult to purchase Chinese products such as silicon components necessary for photovoltaic panels. In December 2021, the United States signed the so-called "Prevention of Forced Uyghur Labor Act" based on its fabricated lie about "forced labor" in Xinjiang. According to the law, solar panels and other key renewable energy equipment from China will be subject to import restrictions. After the law came into effect in June 2022, the U.S. Customs and Border Protection Agency unreasonably detained solar equipment imported from China in the name of "Xinjiang human rights", resulting in the detention of a large number of photovoltaic parts and components. This policy directly affected the installed capacity of photovoltaic power in the United States in 2022. Statistics from the U.S. Solar Energy Industries Association (SEIA) show that in the United States, the newly installed capacity of large utility-scale power plants decreased by 40 percentage points in 2022, to about 10.3 million kilowatts. The installed capacity of small-scale household solar projects increased by 37%, to about 5.8 million kilowatts, but failed to completely offset the reduction. Supply bottlenecks and trade restrictions are preventing manufacturers from obtaining the equipment they need to invest in U.S. facilities.
4. Outlook on investment risks in India’s photovoltaic industry
(1) Trade friction risk
The tariff cost of components in the Indian market remains high. In order to support the development of the domestic photovoltaic manufacturing industry, India has a clear tendency towards trade protectionism in the photovoltaic industry and has launched multiple rounds of trade relief measures. On July 31, 2018, the Indian Ministry of Finance announced the imposition of temporary safeguard tariffs on solar cells and solar modules manufactured in China and Malaysia: In March 2019, India notified the imposition of anti-dumping duties on EVA sheets of solar modules imported from China, Malaysia, Saudi Arabia and Thailand; From April 1, 2022, India will impose a basic customs duty (BCD) of 25% on imported solar cells and 40% on imported photovoltaic modules. At present, most of India’s domestic components are imported from China. The increase in tariffs will reduce the local market’s demand for imports of Chinese photovoltaic modules. The imposition of basic import tariffs will make the import and export processes of Indian companies more complicated and the import and export cycle longer, which will directly affect the production progress, product delivery and sales of companies. At the same time, the BCD tariffs not only target PV modules, but also have a great impact on PV inverters, energy storage and other products. Due to the sharp increase in procurement costs, Chinese and non-Indian PV products will inevitably be blocked from the Indian market. In the first quarter of 2022, China exported $2.21 billion worth of solar PV modules to India, ranking second in the export market. Since the import tariffs were significantly increased on April 1, 2022, China's exports of PV products to India have dropped sharply to a freezing point. In 2022, China's total exports of modules to India were $2.42 billion. Half a year after the tariffs were imposed, China's exports of PV modules to India had dropped sharply to only $160 million.
(2) Risk of ineffective policy implementation
India's renewable energy installations are not as expected. Although the goals and paths are clear, judging from the installation of renewable energy in India in the past few years, its actions are far from enough to meet the set goals. In 2018, the Indian Ministry of Renewable Energy announced a plan to increase renewable energy power generation capacity, with a goal of adding 40 million kilowatts of installed capacity each year by 2028. However, the results showed that the goal was not achieved due to factors such as the COVID-19 pandemic. In 2022, India set a goal of completing 175 million kilowatts of cumulative installed capacity of renewable energy power generation by the end of the year. However, as of February 2023, official Indian data showed that the total installed capacity of renewable energy such as wind power and solar power was 122 million kilowatts, of which about half was solar power generation, and wind power generation accounted for less than one-third; the total installed capacity of non-fossil fuel power generation, including nuclear power and hydropower, was about 169 million kilowatts, of which more than 40 million kilowatts of non-fossil fuel power generation capacity was still in the bidding stage, and there were tens of millions of kilowatts of non-fossil fuel power generation projects still under construction. But overall, India's completed non-fossil fuel power generation capacity is far from the installed capacity target set.
(3) Financial risks of power companies
In recent years, the financial stability of some Indian power companies has deteriorated: stranded assets have increased. Huge debt levels have inhibited India's power expansion plans, especially for distribution companies. According to data from the Indian Ministry of Power, as of March 2022, Indian distribution companies owed about US$13.8 billion to power generators. In addition to high debt, power plants have been operating at low load due to grid pressure and shortage of raw material supply, resulting in losses for power producers. India continues to rely on imported coal for power generation, and the weak rupee has pushed up power generation costs. As India's coal stocks cannot keep up with the surging power demand from the manufacturing industry, several states in eastern and southern India have been hit by power supply shortages, and power suppliers have adopted irregular power outages. In its power expansion plan, the government has been working to ease the industry's financial problems, but the outside world remains cautious about its effectiveness in solving the structural problems that have plagued the industry.
(4) Trade protectionism may restrict the development of India's domestic photovoltaic industry
Protectionist policies may hinder the growth of solar capacity, as India's domestic solar manufacturing capacity is still limited compared to its historical reliance on imported solar equipment. The BCD Act, PLI and ALMM were originally intended to try to protect the development of India's local photovoltaic industry. Raj Kumar Singh, Minister of the Ministry of New and Renewable Energy (MNRE), said that India's excessive reliance on Chinese imports of photovoltaic products is "unhealthy". For a country like India with a huge installation target, it is strategically necessary to improve the supply capacity of the local industry chain. However, the BCD tariffs came into effect too quickly, not leaving local manufacturers enough time to develop local production capacity. The tariffs also pushed up the cost of component manufacturing, further restricting the development of the photovoltaic industry. At present, the main stimulus policy for India's capacity development is the Production-linked Incentive (PLl) scheme launched in April 2021. The total funding has been increased from the initial 45 billion rupees to 195 billion rupees with the passage of multiple resolutions. At the same time, India's domestic capacity has indeed shown an increasing trend in the second half of 2021, but compared with the huge demand, the actual output increase is still insufficient in the short term. At present, the expansion plan is mainly based on components, while the expansion of the battery link is slow due to relatively high investment costs, technology selection, commissioning cycle and other factors. The supply of battery cells will be a major problem for India's overall supply chain in the short term.
(5) India's electricity supply is in short supply, and it will increase its efforts in domestic coal-fired power generation
India's domestic coal production and coal imports are high, and its power sector is still heavily dependent on cheap coal-fired power generation, which will limit the growth rate of renewable energy. Insufficient transmission and distribution infrastructure, battery storage capacity and grid integration problems, coupled with frequent project delays and financing restrictions, will hinder the growth of renewable energy. In order to meet local electricity demand, it is planned to increase local coal-fired power generation. During the fiscal year from April 2023 to March 2024, India's coal demand for power generation is expected to increase by more than 8% year-on-year. On the one hand, India's electricity demand is rising rapidly. Under the combined influence of factors such as repeated extreme weather, a surge in household electricity consumption, and a rebound in industrial electricity consumption, India's electricity demand has continued to grow in recent months. On January 18, 2023, India's peak electricity demand once reached 210.6 million kilowatts, 1.7% higher than the previous peak. Data show that India's peak electricity demand has risen by about 5% in January 2023, and the industry expects that India's peak electricity consumption may even rise by 3% to 4% this year. On the other hand, India's electricity supply is still very tight. Although the Indian government continues to call on energy companies to increase local coal production, the growth rate of India's local coal production is not enough to meet demand. In 2022, India's domestic coal production hit a record high, temporarily easing the tight coal supply situation at a time when global coal prices were at their peak, and increasing India's coal inventory from 9 days in April 2022 to 12 days at the end of 2022. However, this inventory level is still far below the 24-day guideline issued by the Indian federal government. The slow development of renewable energy is also one of the reasons why India has to rely on coal-fired power. On January 30, 2023, the Indian Ministry of New and Renewable Energy announced that it agreed to extend the completion time of photovoltaic systems and wind-solar hybrid projects. The new energy projects that were supposed to be completed in March 2021 are expected to be postponed to around 2024. The main reason for the delay in the completion of new energy projects is that the Indian government has imposed high import tariffs on overseas photovoltaic modules, and India's domestic photovoltaic module production capacity cannot keep up, which directly leads to interruptions in the photovoltaic supply chain. Reuters reported that in 2022, India only completed two-thirds of its annual renewable energy installed capacity target.
5. Investment risk outlook for Brazil’s photovoltaic industry
(1) Social security risk
On December 2, 2022, supporters of former President Jair Bolsonaro, who lost the recent election, marched outside the military headquarters in Brasilia, the capital of Brazil, and held a protest rally in the waiting room of the city’s international airport, causing flight delays. On November 27, 2022, protesters blocked part of the traffic in Sao Paulo and part of the light rail in Rio de Janeiro, demanding that the military overturn the election results. As of December 5, 2022, some protesters continued to camp in the capital Brasilia to protest against Lula’s election as president and his swearing-in ceremony on January 1, 2023. The capital authorities have blocked a large area between the Ministry of Justice and the Ministry of Foreign Affairs to prevent people from holding large-scale rallies outside the government building. Bolsonaro supporters who refused to accept defeat after the October 2022 election continued to protest in Mato Grosso, Santa Catarina, Rio de Janeiro and Sao Paulo, and set up roadblocks on the important agricultural corridor BR-163 highway, demanding military intervention. Although the Brazilian authorities have cleared hundreds of roadblocks across the country and the protests have lost some momentum, sporadic acts of sabotage are still possible. Before Lula took office, the Brasilia Post claimed that Bolsonaro supporters were planning a coup at the military headquarters, but "the hope of a coup was dashed." Bolsonaro had already traveled to the United States before Lula took office. On the evening of December 31, 2022, Bolsonaro's Vice President Mourao issued a statement on national television asking demonstrators to return to their lives and criticized Bolsonaro without naming him, saying that he did not appease but indulged his supporters, causing the Brazilian society to be torn apart. On January 8, 2023, tens of thousands of Bolsonaro supporters invaded the Congress, the Presidential Palace and the Supreme Court. Offices were destroyed, and documents and items were stolen or damaged. Since then, there have been reports that the riots did not only occur in Brasilia, and Brazilian energy companies are investigating whether the collapse of two transmission towers is related to the violence in Brasilia. Lula faced a divided Brazil after taking office. Taking advantage of the "riots", Lula integrated international and domestic resources to clean up some of Bolsonaro's supporters who still hold high positions. But the purge itself may undermine Brazil's political stability in the coming months, and Lula needs to find a balance. Moreover, attacks and purges will occupy a lot of government resources, thereby reducing Lula's time and energy to invest in other areas such as the economy.
(2) National economic risks
Brazil's economy will decline sharply in 2023. On January 10, 2023, the World Bank's Global Economic Prospects report stated that in 2023, the overall economic growth in Latin America and the Caribbean (LAC) is expected to slow down. The region grew by 3.6% in 2022, and is expected to grow by 1.3% in 2023 and recover to 2.4% in 2024. Among them, Brazil's economy will slow down sharply to about 0.8% in 2023 after growing by 3% in 2022. This result is consistent with the forecast in June 2022. However, the World Bank's forecast for Brazil's economic growth is the lowest (0.8%). In November 2022, the OECD expected Brazil's growth in 2023 to slow from 2.8% in 2022 to 1.2%. The Brazilian Ministry of Economy predicts that GDP growth in 2023 will be between 1.4% and 2.9%. The economies of Latin American countries are too outward-oriented and are greatly affected by global demand. The World Bank has lowered its global growth forecast, and Brazil faces reduced external demand and weak private consumption. Capital outflows and tight monetary policy will also curb investment. According to Reuters on January 11, 2023, Neto, president of the Central Bank of Brazil, said on the 10th that policymakers have taken necessary measures to ensure that inflation reaches the target by 2025. Neto stressed that he will remain vigilant and observe whether keeping interest rates at the current 13.75% for a long time can help inflation return to the target. Brazil's inflation rate in 2022 is 5.79%, higher than the government's 3.5% target and 5% tolerance range. With the decline in commodity prices, Brazil's inflation has fallen sharply. However, the high uncertainty of Brazil's fiscal framework and the possibility of fiscal stimulus are important factors in Brazil's future inflation rise. Brazil's inflation may be low first and then high in the two-way checks and balances. In addition, the hawks in the latest minutes of the Federal Reserve are expected to maintain a tight policy for a longer period of time, and Brazil has to follow suit to maintain high interest rates. This move will further hurt Brazil's domestic investment.
(3) Tax cost risk
Brazil’s tax laws are complex and numerous. In addition to the federal tax law, each of Brazil’s 26 states and the Special District of Brasilia has its own tax laws. The legislative principles, legal structure, and tax calculation methods of these tax laws are all different. The tax cost is high and the preferential application process is complicated. Brazil’s tax system is complex, including three levels of taxation: federal tax, state tax, and municipal tax. The cost is high, the tariff is high, and the tax environment is relatively complex. Although the renewable energy industry can enjoy many tax incentives, the relevant procedures and conditions for applying for the incentives are very complicated, and many incentives are often only for projects that meet specific conditions or are within a specific time node. Due to the complexity of Brazil’s fiscal and taxation system and policies, the high tax cost risks faced by enterprises in investing and implementing projects cannot be ignored.
(4) Strict financing standards and time-consuming process
Solar photovoltaic project financing is mainly carried out through policy banks (BNDES, BNB, etc.) for non-recourse project financing. Policy banks have relatively favorable interest rates and long terms, and are the first choice for most developers, but they usually require projects to have a considerable proportion of local components, such as requiring that one of the three main parts of the photovoltaic project equipment must have Brazilian domestic equipment certification (Finame Code), the local content must reach 60%, etc., and the equipment brand and parameters must be determined before applying for a loan. The approval process is long, the requirements are strict, and it takes a long time, which may affect the progress of project development.
(5) Backward infrastructure
Brazil's transportation infrastructure is relatively backward and cannot meet the needs of economic and social development. Brazil's transportation infrastructure has a certain degree of connectivity, but the development quality is relatively poor, which is obviously unable to meet the growing needs of economic and social development. At present, the total mileage of roads in Brazil has reached 1.72 million kilometers, carrying more than two-thirds of the country's cargo transportation volume, but there are only 14,000 kilometers of expressways and 219,000 kilometers of asphalt roads, and the road conditions need to be improved urgently. The total length of Brazilian railways exceeds 30,000 kilometers, of which electrified railways account for less than 4%, and the degree of modernization is obviously low. There are airports in all major cities in Brazil, and there are 175 ports in the country. However, air and water transport account for a relatively small proportion of Brazil's freight and passenger transport systems. Overall, Brazil's transportation infrastructure, especially land infrastructure, still has a lot of room for improvement.
(6) Risk of policy changes
The economic recovery outlook is weakening, and domestic economic policies may be adjusted. Affected by a series of factors such as rising inflation, continued tightening of monetary policy, and increased fiscal imbalance risks, Brazil's economic recovery momentum has weakened significantly. The forecast values of real GDP growth in 2022 and 2023 are 0.8% and 1.4% respectively. The weakening economic recovery prospects will slow down the progress of large-scale infrastructure projects, and the government will be more cautious in launching subsequent construction plans, which may restrict the growth space of the infrastructure industry to a certain extent. After Lula came to power, he will make certain adjustments to the current economic policies, including policies to accelerate infrastructure construction through privatization and auction of franchise rights, resulting in increased uncertainty in industry policies.
Suggestions
In order to get closer to the market and respond to the country's major strategic deployment of "One Belt, One Road", Chinese photovoltaic companies have begun to accelerate their pace of "going out" since 2012. As the demand of overseas emerging markets continues to emerge, more and more companies are entering the photovoltaic field and actively expanding overseas photovoltaic engineering projects. However, my country's overseas investment system is imperfect, Chinese companies are unfamiliar with the overseas market environment, and risk prevention measures are not comprehensive and systematic, which makes it easy to act blindly. In order to help Chinese companies better "go out", reduce corporate investment risks, and improve corporate risk resistance, the following suggestions are put forward.
(I) Strengthen policy guidance and support
Improve the construction of supporting policies to escort enterprises to "go out". Give full play to the leading role of the government , improve the long-term cooperation mechanism for foreign investment, deepen the implementation of bilateral and multilateral strategic cooperation agreements, create a good investment environment for photovoltaic enterprises to "go global", strengthen the government's supervision of overseas investment business during and after the event, further strengthen the overseas security risk warning and monitoring system, improve the overseas security risk prevention and emergency response mechanism, and ensure the safety of enterprises' overseas investment. Establish a big data information platform to provide photovoltaic enterprises with preliminary guidance on political environment, laws and regulations, industry policies, cultural customs, etc. for "going global". Actively guide Chinese enterprises to set up or settle in economic and trade cooperation zones overseas, and encourage the construction of a number of overseas photovoltaic manufacturing industrial parks and capacity cooperation demonstration bases in major global photovoltaic markets to form industrial agglomeration and resource integration.
(III) Risk transfer
Purchase insurance products such as export credit insurance, overseas investment insurance and commercial insurance to transfer risks. The global political and economic situation in 2021 is more complicated, and investing in overseas markets may face greater risks. Some countries even conduct investment reviews against China in the hope of suppressing China's development. In addition, there are large differences between overseas markets and domestic markets. Foreign land is mostly privately owned, and land acquisition is difficult: In terms of equipment procurement, many emerging markets have insufficient raw material reserves and need to make preliminary preparations:; Most overseas projects must ensure that they pass the trial run at one time, which will bring risks of project completion on schedule and quality: There are large differences in project standards between different countries, and policy risks and exchange rate risks cannot be ignored. By purchasing export credit insurance, overseas investment insurance or commercial insurance, the safety of corporate accounts receivable can be guaranteed. By transferring the debtor's guarantee liability to the insurer, when the debtor fails to fulfill its obligations, the insurer shall bear the compensation liability, helping investors avoid overseas investment risks.
(IV) Strengthen product innovation capabilities
Strengthening product innovation capabilities, maintaining sensitivity to technology, and being vigilant against China will intensify competition between Europe, the United States and China in the field of climate-related innovative technologies. The energy structure of the United States is affected by many factors such as changes in global energy supply, geopolitics, and differences in the ruling philosophies of the two parties in the United States. The country's energy policy is constantly changing. Since the 1970s, the international political environment has been complex and changeable. The two parties in the United States have alternately ruled. The measures taken by successive US presidents to promote the development of their own energy and the global energy structure are different, but in essence, they all pursue US energy independence, are committed to increasing domestic energy supply, reducing the United States' dependence on foreign energy, and realizing the diversification of energy supply; the main differences are reflected in the different emphases of developing fossil energy and clean energy, and whether to adopt multilateralism or unilateralism to maximize US interests. In the field of climate, Biden will prevent some countries from catching up while the United States is reducing emissions. In the presidential primary debate, Biden said that Chinese companies would not be allowed to build key infrastructure such as energy and communications in the United States, and would not open up the export of high-tech technologies such as artificial intelligence and 5G. At the same time, Biden will vigorously promote the development of clean energy technology and industry in the United States, and China is currently in an internationally advanced position in clean energy technology such as the photovoltaic industry. This means that the Biden administration will pay more attention to competition with China in the field of energy transformation, suppress Chinese high-tech companies, and maintain their leading advantages in core technologies. As for the European Union, although it is currently highly dependent on photovoltaic products produced in China and has not implemented an import system as strict as that of the United States, its policies are gradually tightening and are combined with emerging trade barriers to sanction Chinese photovoltaic products. Therefore, strengthening product innovation capabilities and maintaining sensitivity to technology can maintain the irreplaceable nature of Chinese photovoltaic products and continue to maintain or expand its current global market share.
(IV) Diversified investment
To diversify the risks of a single market, investment markets and businesses should be diversified. In recent years, my country's photovoltaic enterprises have expanded their investment in overseas markets. With the reduction of the cost of photovoltaic power station power generation, the operation, maintenance and energy storage businesses derived from the development of power stations have been widely carried out. On the one hand, some photovoltaic enterprises should actively expand their business breadth, appropriately carry out power station operation service business and energy storage business, and actively participate in the business competition of the downstream of the international photovoltaic industry chain and extended industries (such as the energy storage industry). On the other hand, Chinese enterprises should pay more attention to the incentive policies and bidding information of relevant markets, invest in emerging markets with potential, and diversify market risks. In addition to paying attention to developed markets such as the European Union, the United States, South Korea, and Japan, which are among the top cumulative installed capacity, Latin America represented by Brazil and Chile, the Middle East represented by the United Arab Emirates and Saudi Arabia, and African countries that are gradually developing are all promoting the development of the photovoltaic market. It is a good opportunity for Chinese enterprises to seize emerging markets before Europe and the United States establish their own complete photovoltaic industry chain.
(V) Fully research and early risk prediction
Actively track the policy changes of various countries on foreign investment and industries, and make good risk predictions. At present, the import and export policies of energy and photovoltaic products in overseas countries are changing rapidly. Traditional photovoltaic markets such as Europe, the United States, and India frequently issue relevant policies or regulations to block the export of Chinese photovoltaic products and expand the domestic photovoltaic manufacturing industry. Therefore, photovoltaic companies should conduct a good investigation of the host country's macro-environment, understand the political and economic situation of the host country (region), the specific content of the relevant investment policies and laws and their changes, fully understand the host country's market access regulations and investment review procedures, do a good job of pre-investment research, and make a good risk plan. Enterprises should conduct a good industry risk investigation, conduct a full investigation of the development of the industry and the business situation of partners to predict industry risks.
(VI) Focus on key areas and make long-term plans
Focus on grid planning and adjust the project scale in a timely manner. Grid connection risk is the main risk faced by the photovoltaic industry. Enterprises should focus on the status of the local grid, power market structure and development plan of the host country, clarify whether the local grid and power market have sufficient power capacity to absorb the project's power generation, and investigate the abandonment of solar power generation projects that have been built, and choose a host country market with a stable market power structure and significant replacement demand. At the same time, according to the local power grid conditions, the project scale should be appropriately adjusted to make the project's power generation capacity adapt to the power grid and achieve sustainable and stable development of the project. In addition, enterprises also need to pay attention to storage information. Some markets have introduced storage requirements in addition to installed capacity, which may also affect photovoltaic demand.
(VII) Pay attention to photovoltaic derivative industries
In addition to the photovoltaic industry itself, we must also pay attention to new power systems. In 2023, we should start the research and development of new markets, promote policies to enter a new stage of development, and carry out different policy refinements for different application markets. Orderly and standardized development of industrial, commercial and household distributed markets, pay attention to issues such as direct penetration, distribution network construction, and energy storage ratio. Refined research on the Shagohuang base, power grid planning, integrated operation, power market services and other related policies.
