[Feature] Chinese solar firms suck air from Korean industry

Although South Korea’s No. 1 solar module maker Hanwha Q Cells’ power business posted a record operating profit of 100 billion won ($81.4 million) in the first quarter, it faces challenges not only from the demand crunch due to the COVID-19 outbreak but also its weak price competitiveness against Chinese rivals.

On May 15, Korea Electric Power Corp. announced it would build solar power generation facilities in Guam with a capacity of 60 megawatts with solar power modules manufactured by Chinese firm JA Solar. The state-run utility’s decision came as a surprise as it excluded major domestic firms -- Hanwha Q Cells, LG Electronics, Hyundai Energy Solutions and Shinsung E&G.

“Hanwha Q Cells’ solar modules were too expensive for the project. We had to consider profitability,” a Kepco official said.

According to Korea Energy Economics Institute, the average export price of Chinese solar modules was $0.24 per watt in February. Comparatively, the price was $0.36 and $0.28 per watt in the same month in 2018 and 2019, respectively.

“Though we can’t reveal the exact price of our solar modules, the unit price of $0.24 per watt is very low,” an LG Electronics company official said. “Typically, Chinese modules are cheaper than Hanwha Q Cells’ mid-priced modules, which are cheaper than LG Electronics’ modules.”

Korean manufacturers face further challenges as the already low solar module prices are about to get even lower due to the demand crunch triggered by the virus pandemic.

Industry analyst PV InfoLink said that the demand will almost disappear in the second quarter as existing solar power projects have been put on hold.

Bloomberg New Energy Finance initially estimated that 121 to 152 gigawatts of solar modules will be newly installed in 2020, but recently lowered its estimates to 108 to 143 gigawatts.


Premium strategy


Sandwiched between low-priced Chinese solar power modules and the recent COVID-19 shock, Korean solar module makers are targeting premium markets by emphasizing their superior technology.

“Solar modules manufactured in Korea, though more expensive than Chinese products, are technologically more advanced, which is why domestic companies are targeting premium markets in the US and Europe instead of competing in red oceans such as the Southeast Asian market,” said an official from Shinsung E&G, whose solar module exports to US recorded 69 billion won last year, accounting for 15 percent of its total revenue.

In fact, Hanwha Q Cells topped both residential and commercial solar power module markets in the US last year, controlling 25.2 and 13.3 percent of each sector, up 11.1 and 5 percentage points on-year.

However, it’s difficult to attribute Hanwha’s strong performance in the US market solely to its technological edge against Chinese competitors.

“In the past, Korean solar companies definitely took the lead in technology against Chinese firms. Now, however, the technology gap has been closed significantly, almost to the same level,” an industry source said.

Typically, solar module technology is evaluated by two major categories: peak power and energy efficiency. Peak power is the highest power output a solar module can achieve. Energy efficiency is the ratio of a solar energy converted into usable energy.

In terms of peak power of 72-cell modules, Hanwha Q Cells, Shinsung E&G, LG Electronics and Hyundai Energy Solutions currently offer 460, 440, 420 and 420 Watt-peak, respectively, while solar modules of China’s LONGi Solar, Trina Solar, Jinko Solar and JA Solar demonstrate 440, 415, 410 and 400 Wp.

As for efficiency levels, Hanwha Q Cells, Hyundai Energy Solutions, LG Electronics, and Shinsung E&G currently offer 20.6, 20.4, 20.3 and 20.3 percent, respectively, while Trina Solar, Jinko Solar, LONGi Solar and JA Solar show 20.4, 20.3, 19.8 and 19.5.

“Chinese solar power modules are neck and neck with Korean products in terms of technology as they have reached 19 to 20 percent in energy efficiency level,” another industry source said.

Despite almost the same technology, it’s the brand image that differentiates Hanwha Q Cells from Chinese competitors in the US market.

“In the premium American solar market, customers prefer ‘Made in USA’ products. Their preference benefits Hanwha Q Cells as it has been manufacturing solar modules in Georgia since February last year,” a company official said.

“Also, the trade spat between the US and China played a role in Hanwha Q Cells’ advancement in the US solar market.”


Lonely fight


Though Hanwha Q Cells gained a strong foothold in the US with its premium marketing strategy, it faces a lonely fight in the global market.

According to market tracker GlobalData, Hanwha Q Cells shipped 7.3 gigawatts of solar modules in 2019, ranking sixth in the global top 10 list by shipments, the only Korean company among eight other Chinese competitors and one US firm.

Even Korea’s Ministry of Trade, Industry and Energy admitted that Chinese firms controlled 80 percent of global solar module market in the same year.

What’s worse is that at home, the ground beneath the feet of Korean solar module makers is shrinking.

Hanwha Q Cells has been leading the domestic solar module market with production capacity of 8 gigawatts compared to LG and Hyundai’s 1.5 and 0.6 gigawatts as of 2018.

However, in 2019, Chinese companies sold 700 megawatts of solar modules in Korea, more than double from 342.3 megawatts in the previous year, according to PV InfoLink. Consequently, Chinese solar modules’ market share in the Korean market rose to 22.4 percent from 14.5 percent in the same period.

Ironically, Hanwha Q Cells currently has to rely on Chinese raw materials and parts -- polysilicons make ingots, ingots make wafers, wafers make cells and cells make modules.

From 2018 to 2020, three major Korean manufacturers of polysilicon -- OCI, Hanwha and Hankook Silicon -- gave up or suspended their polysilicon businesses for solar cells as the chicken game with Chinese firms created an oversupply of raw materials.

Though global demand for polysilicon is estimated at 400,000 metric tons this year, supply is expected at 620,000 metric tons. The price of polysilicon, which stood at $400 per kilogram in 2008, dipped to $14.5 in 2015 and plunged to $10.4 in 2018. Last year, the price further dropped to $8.4. In February, the price stood at $7.1, according to PV InfoLink data.

Woongjin Energy, the only manufacturer of ingots and wafers, has been in court receivership since June last year. In March, it rejected an external audit, heading its way to bankruptcy. SK Siltron and SKC Solmics had already sold off their ingots and wafers businesses, while OCI’s Nexolon, once the world’s fifth-biggest ingots and wafers producer, went bankrupt in 2018 after four attempts to find a buyer.

To diversify its business portfolio that is currently focused on hardware, Hanwha recently acquired a 20.26 percent stake in Australia-based energy management system firm SwitchDin that specializes in virtual power plant technology.

The VPP technology provides a centralized cloud platform where companies can integrate small-sized solar power generation and energy storage systems facilities and manage them like a single power plant without additional infrastructure investment. For example, the cloud platform offers a unified real-time management of solar power modules installed at each home.

By Kim Byung-wook (kbw@heraldcorp.com)