The intensification of the Russia-Ukraine conflict has significantly driven up traditional oil and gas (petroleum, natural gas) prices. The uncertainty about the direction of the conflict adds many risks to subsequent traditional oil and gas supply. Moreover, Europe has already experienced an energy crisis due to extreme weather and other factors. In the past year, electricity prices in Europe rose by 790% compared to the beginning of the year; UK NBP natural gas futures increased by 700% compared to the beginning of the year. Coupled with the turmoil in the Russia-Ukraine situation, natural gas supply has become even more variable.
Under the current situation, will the Russia-Ukraine crisis accelerate the process of new energy power generation in Europe, or even globally? With onshore wind power entering parity, how do you view this year's onshore wind sector? Looking at the whole year, which link of the photovoltaic industry chain is more promising? Xu Biao and Zhang Zhiwei, Executive Directors of Frost & Sullivan's Greater China region, recently spoke with Caixin about the impact of accelerating the new energy process in Europe.
Caixin
The intensification of the Russia-Ukraine conflict has significantly driven up traditional oil and gas (petroleum, natural gas) prices. The uncertainty about the direction of the conflict adds many risks to future traditional oil and gas supply. Prior to this, Europe had already experienced an energy crisis due to extreme weather, with electricity prices in the region rising by 790% compared to the beginning of the year; UK NBP natural gas futures have risen by 700% compared to the beginning of the year. Coupled with the disturbances caused by the Russia-Ukraine situation, natural gas supply is further complicated. Affected by this, some countries such as Germany have proposed new legislative drafts, aiming to advance the goal of achieving 100% renewable energy generation to 2035, 15 years ahead of the previous target.
Q
Under the current situation, will the Russia-Ukraine crisis accelerate the process of new energy power generation in Europe, or even globally? If German legislation is officially implemented, it will greatly drive demand for wind and photovoltaic power. What impact will this have on China's wind, photovoltaic, and energy storage industries? Which links in China's new energy industry chain will benefit significantly? Which targets are more advantageous?
Xu Biao, Executive Director of Frost & Sullivan Greater China
Xu Biao, Executive Director of Frost & Sullivan Greater China, said:The Russia-Ukraine crisis has had a profound impact on the new energy market in Europe and even globally, and it is expected to have far-reaching effects in the medium to long term. Just as the oil crises that occurred three times between 1973 and 1990, centered around the Middle East, were followed by increased control over strategic resources such as oil, along with significant efforts to develop new energy industries, enhance energy independence, and ensure energy security.
As Germany plans to phase out nuclear power completely in 2022 and coal-fired power in 2038, if the corresponding amendments to the Renewable Energy Act (EEG) are officially implemented, the process of wind and solar power becoming the core support for Germany's energy independence will further accelerate.Germany has a high import dependence on Russian natural gas, with more than half of its natural gas coming from Russia. Although Germany will still face many challenges in reducing its energy dependence, the German bill will not only promote the development of wind and photovoltaic power in the country but also have a positive impact on the development of new energy sources such as wind and photovoltaic power in various countries.As the world's largest wind and photovoltaic market, China possesses the most complete wind and photovoltaic industrial chain. Against the backdrop of accelerating development in the wind and photovoltaic industries, China will receive significant impetus.
In addition, the development of distributed energy systems is also an important direction for new energy development. Especially in Europe where electricity and energy prices remain high, distributed energy systems represented by rooftop solar systems are developing rapidly. The development of distributed energy systems cannot be separated from the development of energy storage systems. As the world's largest producer of lithium batteries, China plays a crucial role in supplying lithium battery energy storage systems. In the global process of new energy development,Leading enterprises in the industrial chain with price advantages, scale advantages, and overseas business layout will benefit more significantly.
Q
Domestically, green power (wind and photovoltaic) has been continuously adjusting since November 2021. What is the core contradiction? Recently, photovoltaics have rebounded somewhat, while wind power performance has been slightly worse. So, what the market is currently focusing on is whether this rebound in photovoltaics is sustainable. From an industry perspective, prices in the photovoltaic supply chain have risen consecutively recently. This suggests that terminal installation demand has warmed up, but under the pressure of rising upstream prices, will battery cell and module profits also be pressured in the short term? Looking at the whole year, which segment of the photovoltaic supply chain is more promising?
Zhang Zhiwei, Executive Director of Frost & Sullivan Greater China
Zhang Zhiwei, Executive Director of Frost & Sullivan Greater China, said:Over the past year, the price of silicon materials has risen beyond expectations, with an overall increase of over 160%, and at its highest, it exceeded 200%. Excessive raw material prices have continuously pushed up the prices of silicon wafers and battery modules, severely damaging downstream terminal installations.Some terminal enterprises cannot afford the high costs, and many installation and commissioning plans have been postponed to the next year. Looking at the annual installed capacity, the industry generally predicts that the installed capacity in 2021 can reach 55-65 GW. However, due to reasons such as price increases and delayed issuance of indicators, expectations are basically reduced by about 10 GW in November and December. In fact, the photovoltaic installed capacity in 2021 was 53 GW.Under the significant policy benefits, the unexpectedly poor performance of photovoltaic installations has clearly triggered market concerns. Especially given that the industry's valuation had already increased significantly earlier on, the market is relatively sensitive. Coupled with negative news from international markets such as the US proposal to extend tariffs on Chinese photovoltaic products in November last year, domestic funds have become more cautious about the photovoltaic market.It can be said that stimulated by both negative domestic and international news, the photovoltaic industry underwent a significant adjustment in the secondary market starting from November last year.
After the end of this year, downstream terminals began to release inventory, including both new demand and projects that were postponed from last year to this year. Leading market companies started to raise silicon wafer prices, which were affected by rising upstream silicon material costs but also fully reflected the continuous improvement in downstream battery and module production, with terminal demand beginning to recover. Since mid-February, market expectations have gradually improved, bringing a small rebound to the photovoltaic market.It is expected that the photovoltaic installed capacity this year will reach 80 GW, and this rebound will also last for some time. However, the rapid changes in the international situation also bring a hint of uncertainty to the overall market.
Looking at the overall industrial chain, I am quite optimistic about the silicon material and silicon wafer segments.Regarding silicon materials, although production capacity is gradually being released, the supply remains tight this year due to rapidly growing demand. For the silicon wafer segment, it is appropriate to transfer the upward pressure on upstream silicon material prices to downstream components and battery cells. However, the component segment needs to deliver to end-users and must maintain price stability; moreover, with the price of downstream component orders remaining stable, there is some resistance to rising battery prices, which will bear more cost pressure. Additionally, it is important to note thatAlthough the photovoltaic industry has broad prospects, it is also necessary to be cautious about the risk of overcapacity under the scenario where all parties intensify their efforts to expand production.
Q
Onshore wind power has entered parity, how should we view this year's onshore wind sector? Regarding offshore wind, since parity is about to be achieved in 2022, cost reduction in the offshore wind industry chain cannot be accomplished overnight. In the short term, if the costs of offshore wind projects remain high, offshore wind investors may face the risk of not making a profit, which will greatly weaken their investment willingness. Additionally, in 2021, downstream wind farms were busy rushing to install turbines, leading to fewer tendering for offshore wind projects in 2021 and thus affecting the construction of offshore wind projects in 2022. Against this backdrop, how will it impact the market trend of the offshore wind sector in 2022? Considering domestic supply and demand as well as the Russia-Ukraine situation, how should we view the medium- and long-term trends of offshore and onshore wind?
Xu Biao, Executive Director of Frost & Sullivan Greater China, said:2021 was the first year of grid parity for onshore wind power. Although the new installed capacity of onshore wind power has significantly decreased compared to the rush installation boom in 2020, it still grew by nearly 20% compared to 2019. Under the guidance of the 'dual carbon goals,' national and local governments have put forward clear new tasks for wind power development.It is expected that the onshore wind power sector will operate in an environment of high prosperity in 2022. The decline in unit prices is an important driving force for wind power to enter a era of parity and low prices. Changes in wind turbine prices in 2022 will still be a focal point of market attention.
The last year of the national subsidy for offshore wind power in 2021 is followed by a three-year period of grid parity transition for offshore wind power.At present, the offshore wind power market in 2022 is mainly based on existing orders, with limited new resources released by local governments.At present, there is still significant cost reduction potential for offshore wind power. 2022 is a critical year for adjustments in the offshore wind sector.
Against the backdrop that domestic wind power is gradually entering an era of parity and low prices, coupled with rising raw material costs, the profits of the wind power industry chain are under pressure. In addition, affected by the Russia-Ukraine situation, global demand for new energy is accelerating expansion, and there is still significant potential for overseas exports from China's wind power industry.In the medium to long term, the development of China's wind power market will gradually stabilize, and there are relatively good prospects and incentives for the expansion of China's wind power industry into overseas markets.
