The current situation in the PV module supply chain mirrors the previous price increase cycles, leaving sales personnel in a dilemma. "If we don't bid low, we can't win the tender and fail to meet performance KPIs. But if we bid low, the company faces losses upon delivery," lamented a salesperson who recently participated in tenders for nearly 60GW of module procurement by major players like Huaneng, Huadian, SPIC, and China Energy Construction.
Since September, module prices have been on a continuous downward trend. A new industry low of RMB 0.62 per watt was set, while the average price dropped from RMB 0.71 per watt to RMB 0.68 per watt within just two weeks.
As modules begin to incur losses, the industry must reflect on the root of the issue. On one hand, in recent bulk procurements, prices continue to be pressed down, largely due to the common practice of awarding tenders to the lowest bidders.
Moreover, the final delivery price of modules is not set by the tender price alone. What troubles module manufacturers is the "price adjustment" mechanism commonly used by major corporations. "Typically, third-party quotations for modules lag behind spot prices, which means that in a declining price market, the final transaction price is often significantly lower than the tender price, further pushing module prices down," explained a source.
For instance, at the beginning of this year, a state-owned enterprise's supply pricing document showed that most winning bids were around RMB 1 per watt. However, after applying the price adjustment mechanism, the actual execution price fell to RMB 0.8-0.83 per watt, with a difference of up to RMB 0.2 per watt. This means that at the current price level, the final transaction price for most orders is below RMB 0.7 per watt.
Earlier this year, it was pointed out that this price adjustment mechanism exacerbates the industry's downturn. Originally designed to counter the sustained rise in supply chain prices, the mechanism has become a driver for further price drops in the current downtrend.
Can the industry break the "curse" of awarding tenders to the lowest bidder? Despite continuous cost reductions in modules and PV systems, the proportion of non-technical costs—such as land costs, supporting industries, and electricity price policies—has been rising, leaving the cost savings from PV innovations unreflected in investor returns.
Some state-owned investors noted, "While continuous module price drops seem to benefit investors, the reality is different. As local governments gain a deeper understanding of new energy investment costs, they often reverse-engineer ‘reasonable’ non-technical cost margins based on supply chain prices and investor profit thresholds. This is done by increasing non-technical costs through industrial support, rural revitalization funds, land rents, and public donations."
Supporting this claim, a review of certain provinces' criteria for preferred projects during the 14th Five-Year Plan period shows that the weight of industrial support in scoring has risen from 20% to as high as 50%. For example, in Lanzhou's 2GW wind and PV competitive allocation this year, industrial support accounted for 50% of the total score. Additionally, the costs associated with industrial support have increased from less than RMB 1 per watt to around RMB 2 per watt. For example, last year, a 200MW fishery-PV project in Jiangsu required at least RMB 250 million in donations, RMB 1 billion in industrial support, and USD 60 million in foreign capital.
According to data from the China Photovoltaic Industry Association, non-technical costs in ground-mounted PV plants accounted for 13.56% of total investment in 2022, rising to 16.5% in 2023.
Land costs for PV have also surged in recent years. As local land policies tighten, many PV power plants face land shortages, further driving up land rental costs. In some regions, PV land rents have reached RMB 2,000-3,000 per mu (0.067 hectares), and even in desert areas, rents have climbed to RMB 800-900 per mu.
Additionally, the return of power curtailment and the entry into the power market have further increased the uncertainties of PV plant investments. Under these circumstances, although module prices continue to fall, investment companies still demand strict control of construction costs to mitigate potential future risks.
A state-owned enterprise noted at its mid-year meeting that nearly 40% of its new energy projects in recent years have failed to achieve the promised returns. Some projects have low asset efficiency, incur sustained losses, or even begin losing money right after commissioning. As a result, new energy projects face the challenge of "increasing capacity without increasing profits." The company plans to optimize its production control system, ensuring new projects achieve above-average returns, and to dispose of low-efficiency or ineffective assets, especially those without cash flow.
In light of the current state of the industry, on August 29, the China Photovoltaic Industry Association held a forum on pricing mechanisms for PV plant construction and bidding. Representatives from the Ministry of Industry and Information Technology's Electronics Information Department, as well as major state-owned investors like Huaneng, Huadian, SPIC, and equipment suppliers like Jinko, Trina, and JA Solar, participated. The forum called for further improvements in PV electricity pricing policies, resolving curtailment issues, implementing fair competition regulations, and reducing non-technical costs to ensure the benefits of cost reductions in manufacturing reach the downstream application side.
In any case, the new energy sector stands at a crossroads. With increasing uncertainties, companies need to create more buffer capacity to respond. However, such an environment has already started to erode the industry's investment enthusiasm and momentum.
"Neither PV module manufacturers nor state-owned investors have truly benefited from cost reductions and efficiency improvements. The vicious cycle of repeated price competition is dragging the PV industry deeper into the mire," commented an industry expert.
Source：https://mp.weixin.qq.com/s/Xh99NdZbUUPYqY7DmVUKPA
