The soaring trend of the A-share photovoltaic sector this round has once again made the Chinese photovoltaic industry the focus of Wall Street's attention.

Morgan Stanley believes that due to industry acceleration consolidation and the expected bottoming out and rebound of product prices, the Chinese photovoltaic industry chain will usher in new development opportunities. The institution gave a positive outlook on the Chinese photovoltaic industry in the research report released on Friday, suggesting that it's a good opportunity for investors to start positions.

Analysts Eva Hou, Estelle Wang, and Albert Li at Morgan Stanley raised their forecasts for China's photovoltaic panel installations in the coming years in the report:

We have raised our 2024 solar installation forecast by 4% from 217GW to 225GW (217GW in 2023) due to the strong performance of distributed generation projects.

We estimate that distributed solar energy will account for 51.7% of China's total installations in 2024, reflecting investors' expectations of new policy impacts— including the effect of new policies allowing distributed solar projects to participate in electricity market trading— on the returns for distributed solar projects.

We have slightly raised the installation forecasts for 2025 and 2026 to reach 240GW (previously forecasted at 239GW) and 276GW (previously forecasted at 274GW), respectively.

Morgan Stanley stated that the Chinese Photovoltaic Industry Association's call to combat overwork is taking effect, with little room for further decline in photovoltaic component prices; the Ministry of Industry and Information Technology may introduce stricter policies on photovoltaic energy consumption in the future, which will further accelerate capacity consolidation within the industry, eliminating inefficient capacity and thus improving the overall production efficiency and profitability of the industry.

CPIA calls for 'anti-burnout,' will the price war come to an end?

The report mentioned that the China Photovoltaic Industry Association (CPIA) recently called for preventing 'burnout-style' malicious competition, establishing a healthy competitive environment for the photovoltaic bidding market, and suggested setting a price floor to support supply chain prices.

In mid-October, CPIA stated in a document that participating in bidding below cost is suspected of illegal behavior, calling on manufacturing enterprises to participate in market competition in compliance with the law and not engage in sales and bidding below cost.

The association stated that since the second half of 2023, the price of photovoltaic components in the Chinese market has been continuously declining, with prices now halved. Winning bids below cost have become a major challenge plaguing the photovoltaic manufacturing industry. The component cost of 0.68 yuan per watt is currently the lowest cost incurred by outstanding companies in the industry while ensuring product quality.

According to a report by Morgan Stanley, over the past few weeks, mainstream prices of photovoltaic products have remained relatively stable, but have consistently been below the cash costs of most manufacturers.

The bidding price for N-type modules dropped to less than 0.65 yuan per watt including tax in early October, but saw a slight increase last week. On October 22, the bidding price for the 2.5GW TOPcon modules of China Electric Power Investment Corporation slightly increased to the range of 0.675-0.772 yuan per watt, averaging at 0.694 yuan per watt.

Of note, there have been frequent reports recently about photovoltaic module manufacturers raising shipment prices. On October 30, several top photovoltaic companies responded to the price hikes.

Ja Solar Technology stated that there have been slight adjustments in distribution channel prices in the market, while JinkoSolar responded that based on the consensus reached at the industry 'anti-burnout' conference, companies are actively working together to promote industry chain prices gradually returning to a reasonable range, with the company actively responding. Longi Green Energy Technology confirmed the price hike rumors, with the company's photovoltaic component prices rising by 1-2 cents per watt.

This series of positive statements indicates that the visibility of the rebound prospects of the photovoltaic component industry is increasing. Morgan Stanley stated:

We believe there is little room for further price reductions. CPIA's calls seem to be taking effect, providing support for supply chain prices.

Industry consolidation is accelerating, with the return of utilities to dominate the sector.

At the policy level, the Ministry of Industry and Information Technology recently issued the "Guidelines for the Construction of the Photovoltaic Industry Standard System (2024 Edition)", proposing that by 2026, the linkage level between standards and industrial technological innovation will continue to increase. More than 60 new national and industry standards will be formulated, achieving full coverage of general and key standards for the photovoltaic industry.

Morgan Stanley believes that in the future, the Ministry of Industry and Information Technology may introduce more stringent photovoltaic energy consumption restrictions, which will further accelerate the integration of production capacity within the industry, eliminate inefficient capacity, and thereby improve the production efficiency and profitability of the entire industry.

The report also mentioned that starting from 2025, utilities will once again dominate the solar installation market.

Morgan Stanley expects that with policy support and growing market demand, photovoltaic product prices will gradually recover, bringing new growth momentum to industry leaders, especially state-owned enterprises.

Due to the determination of IPPs (mainly state-owned enterprises) to meet the installation targets set under China's emission reduction framework, the development of utility-scale projects may continue to grow reasonably.

It is expected that by 2025, the commissioning of ultra-high voltage (UHV) transmission lines will accelerate to improve the grid connection of large-scale public utilities projects.

The development of microgrid networks (regional power grids), combined with power supply, grids, power consumption/load, and energy storage, will support the demand of the distributed solar energy sector.

Editor/rice