Sichuan power cuts hit solar equipment sector

Power supply disruptions in Sichuan province in China over the past few weeks have reduced output at Chinese solar equipment manufacturer JinkoSolar.

The local government in Sichuan has imposed province-wide power-rationing measures for an unspecified period — albeit restrictions were eased slightly yesterday from a first-tier emergency response to second tier. "We are currently unable to evaluate the extent to which our business operation and financial performance for full year 2022 will be affected by the power-rationing measures in Sichuan province, as it remains uncertain how long the power-rationing measures will persist and when our Sichuan manufacturing facilities can resume full production," said Xiande Li, JinkoSolar chairman and chief executive officer, on the company's second-quarter earnings call.

"We are actively monitoring the situation and have implemented various measures to minimise the adverse impact from the power rationing on our business operations and financial performance."

Around 700MW of Jinko's output in Sichuan has been affected so far, and the company is adjusting output at its other manufacturing facilities to cover the shortfall. The company has no plans to purchase wafers from third parties.

The accelerating transition to renewable energy in several countries, as well as the energy crisis caused by the Russia-Ukraine conflict, has driven up demand for solar equipment.

JinkoSolar's quarterly shipments totalled 10,532MW during the second quarter — of which 10,183MW were in the form of modules, and 349MW were cells and wafers — up by 102.4pc year on year. Revenues rose by 137.6pc year on year to 18.84bn yuan ($2.81bn). The gross margin fell to 14.7pc from 17.1pc a year earlier, in part owing to higher polysilicon prices, which the company partially offset with technical adjustments and process improvement.

JinkoSolar is among the photovoltaic (PV) manufacturers that are investing in new capacity in response to carbon neutrality targets around the world, which is driving up polysilicon demand.

JinkoSolar has increased the pace of its planned capacity expansion in response to the rise in demand, and now expects to reach a total of 60 GW/yr for monocrystalline silicon solar wafers, 55 GW/yr for solar cells and 65 GW/yr for solar modules by the end of 2022. That is up from its guidance at the end of the first quarter for 55 GW/yr of mono wafers, 55 GW/yr of cells and 60 GW/yr of modules. As of 30 June, operational capacity totalled 43 GW/yr for mono wafers, 42 GW/yr for cells and 50 GW/yr for modules.

The company expects shipments to total 9-10GW in the third quarter, down from the 10.5GW in the fourth quarter and total 35-40GW for the full year.

Demand in Europe is slowing down in the second half of the year because of logistics problems, while customers in China are waiting to see the impact of supply chain costs before progressing with projects. And some large-scale projects are delayed because of grid connection constraints, the company said.

For the full year, China and Europe are set to account for 25-30pc of Jinko's shipments, with emerging markets at 20-25pc and Asia-Pacific at 15-20pc, with the remainder going to the rest of the world including North America.

In the first half of this year, Europe imported a total of 42.4GW of PV modules, up by 137pc year on year and China's solar installations climbed by 136pc to 30.9GW.

The strong growth in demand outpaced polysilicon supply, which has been reduced by annual plant maintenance and Covid-19 lockdowns in China, and is now further constrained by the power supply cuts in Sichuan.

Polysilicon prices recently reached a high of Yn310/kg, further increasing module prices. That has prompted some utility-scale projects in China and elsewhere to delay purchases until next year, when prices are expected to retreat from the highs as new polysilicon production plants are scheduled to start operations.

"We believe polysilicon prices will continue to increase and reach their peak in the third quarter. As polysilicon production gradually ramps up in the fourth quarter, polysilicon price increases are expected to moderate, driving a recovery of downstream demand," JinkoSolar said.

Given the anticipated increase in supply from the second half of next year, the company does not plan to move upstream into producing its own polysilicon, said chief financial officer Charlie Cao. The company has long-term supply agreements with US and German polysilicon suppliers and has made strategic equity investments in Chinese producers Xinte Energy and Tongwei to ensure it has access to supply.

Easing the polysilicon supply bottleneck will help the downstream Chinese solar market to grow by 25-30pc in 2023, after installing an additional 250GW of capacity this year, as the company expects installations to pick up pace once prices begin to fall.

By Nicole Willing