Can China’s Dominance in Solar and Batteries Be Challenged?
Redefining Energy Podcast #48: Solar & batteries: can China’s dominance be challenged?
China manufactures 2/3 of the world’s solar panels and 2/3 of the world’s batteries. How does it look on the ground? What technological advances do Chinese companies have and what does it means for the future?
There is no better source of knowledge on the subject of Solar and Batteries than someone based in China and whose teams are inspecting hundreds of factories. As usual in China, dynamics are complex, but the results are staggering.
Andy Klump, CEO of Clean Energy Associates (CEA) speaks with Redefining Energy hosts Gerard Reid and Laurent Segalen on what’s happening in the solar and battery industries. The conversation also delves into ESG, carbon content, and traceability questions.
Podcast Transcript
Female Host:
You are listening to Redefining Energy, your co-hosts from Berlin, Gerard Reid, and from London, Laurent Segalen.
Gerard Reid:
Today on Redefining Energy, we're going to look at the world of solar and lithium-ion batteries. And we're also going to ask the question about China's dominance of this area, Laurent.
Laurent Segalen:
But first, what about our partner?
Gerard Reid:
Acrylic Capital is a leading investment management company headquartered in Hamburg, Germany. Acrylic Capital invests in real sustainable assets, such as renewables, energy efficiency, green infrastructure, and sustainable real estate.
Laurent Segalen:
Back to the show. Yes, Gerard, China manufacturers two thirds of the world's solar panels and two thirds of the world's batteries. We need to ask our self, how did they get there? What type of advance did they have and what it means for the future.
Gerard Reid:
I've done a lot of work in these areas for the last 15 years and my own take on it really is that the Chinese have understood that we're going through an energy revolution and they feel that they need to dominate these technologies. And it's a little bit the way what we did in the West. A hundred years ago, we dominated oil and gas. We dominated electricity. Well, that's the Chinese view going forward now that they need to dominate these ones.
About Clean Energy Associates
Laurent Segalen:
We really need to bring a real expert of solar batteries in our conversation. And we have invited Andy Klump, we really like Andy, he's been a player in the energy industry for the past 15 years. He's American, but he's based in China. He speaks Mandarin and is the owner and CEO of Clean Energy Associates, which is a solar and storage technical service and engineering firm.
Gerard Reid:
And I've known Andy for 15 years. So he really is one of the leading guys in this industry. And it's just, it's a privilege to have him on the show,
Laurent Segalen:
He's not just shoveling reports around, he and his team, they're going in the factories and they see really what technical things are going on.
Gerard Reid:
Great. So let's listen to the interview then. Well, Andy, it's great to have you on the show, ni hao.
Andy Klump:
Excellent, Laurent and Gerard. It's great to be here. Thanks for inviting me on the show.
Gerard Reid:
And listen, I think let's jump straight in and talk a little bit about solar. I mean, you've been in this industry for years. I'd love to just have your perspective on solar since the beginning, right. And how you see the state of the industry.
Andy Klump:
It's been 15 years for me working in China. I started off working with Trina Solar in their Chungcheong facility. For two years, we saw about a 10x growth in the company during that early stage in the industry. But then in the last 13 years, I founded and been running CEA ever since. So I've seen a lot of solar factories in the last 15 years.
Gerard Reid:
Okay. Could you believe what's happened in terms of the cost reductions and the massive scale ramp ups we've seen?
Solar Market Background and Overview
Andy Klump:
No concept when I started, we actually saw a rising module price environments, or pricing started off as early as 2006, at $3.25 a watt. And then it peaked around $4.75 a watt in 2008. And so since that peak it's dropped by over 95%, and it's just, the industry has grown a hundred X at that 14 year period, it is just incredible.
Laurent Segalen:
Andy today, who would you say are the big guys, is the industry concentrating around several large corporations?
Andy Klump:
Absolutely. I mean, there's a whole list of massive players, but just you look at it and the top few players, once again, Longi, Jinko, JA Solar and you know, you have a consolidated group that makes up a little more than 50% of the overall market in terms of actual shipments. You look at the top 10 players, call it total shipments and roughly 90% of the industry. But what's interesting is the last couple of years, we've seen a lot of new players rising with small to mid-sized capacities. And as a result, if you look at the overall capacity, the top 10 players only have 70% of overall capacity. But I think over time, that percentage is going to grow as a lot of the large-scale manufacturers are growing at very large investment levels of call it a 10 gigawatt size facility. So much larger than anything has been seen or witnessed in the industry before
Laurent Segalen:
Andy, just from my perspective, I mean, I was in solar factories many years ago, but I haven't been in a 10 gigawatt factory. Just give me an idea of how big a 10 gigawatt factory is.
Andy Klump:
It's incredible. So first of all, there are different steps in the value chain, but if you're looking at the module assembly, you're effectively looking at a giant football field worth of just lines and lines of of equipment, highly automated facilities, very low percentage of labor. The best technology is in China as the industry has grown at scale. So these are just huge facilities.
Technology Innovations in Solar Modules
Laurent Segalen:
Would you say a facility that's like three years old starts to be obsolete?
Andy Klump:
The rate of change over the last several years has increased exponentially. So typically one would invest in a solar facility expecting to run the lines for five, seven years. You have even early days when I was at Trina, we had some models of looking at eight or 10 years of useful life, but the cycle of the technology change is just so dramatic. Then yes, three years is kind of a long time horizon. In fact, some are looking at two years. So just a perfect example is if you look at the size of the wafer, we used to have very standard, 156 millimeter wafers. There was the same technology size from 2006 or 2007 back when I started the industry until 2019. And now since 2019, we've actually seen four different permutations of sizes as wafer size has increased. So the technology changes are very rapid right now. And you have competing technologies from different manufacturers that are coming online. It's an interesting race to whoever can get to the lowest cost while still keeping efficiencies high.
Present and Future of Solar Panel Technology
Gerard Reid:
The one thing, just as a former solar analyst, the one thing that I always remember was number one- I was always wrong with my market expectations. I always under mass estimated and I always underestimated the cost reduction. But I think what's really interesting for me looking at the industry now is the technology improvements that we're seeing, you know, you move to peroxide technologies, these double-sided modules. I would love to hear your view on how you see the technology roadmap for these guys going forward.
Andy Klump:
We have to look at a couple of different types of technologies. So when you're talking about perovskite or heterojunction technology, or sometimes shorten it as a HJT, these are future looking cell technologies, but really the core technology which dominates the market is PERC. And the upcoming technology beyond PERC is really called TOPCon. And there's a parallel technology called PERC plus. I would really say that the market is dominated by these technologies today, once again, PERC and then shifting towards TOPCon and PERC plus when you're talking about perovskites, I think we're still three to five years out. I think heterojunction technologies we're really not looking to like 2024 or 2025. There are new technologies that are on the horizon, but the age old question is when does the CAPEX decline? Once again, capital expenditures are dictating what large expansions are happening. And so the existing, very mature technology around PERC is really what manufacturers are expanding on right now. If you look at module technologies, this is where we talk about the shift to bi-facial. We talk about the shift to half cut. We see other innovations at the module level that's changed as a result of the different wafer sizing. Many different changes in technology are causing increasing challenges among those who are financing these projects and seeing different form factors emerge all of a sudden. So it's a challenge.
Laurent Segalen:
Let's talk about the size of the module, because of course, one of the criticism of the solar industry is the footprint it does on land. You know, are we talking about 500? What do you see going forward?
Solar Cell and Wafer Size Changes
Andy Klump:
Part of the challenge that we've seen in the market is the fact that there is such a proliferation of newer technologies coming to market. And by newer technologies, we're really talking about wafer sizes. So wafer sizing having increased. And once again, as I mentioned before, it was stable from 2006 till roughly 2019, but larger wafers are equating now to larger form factors for modules. And so modules used to be for utility scale products of a 72 cell module. We used to see anything ranging from 350, 360, 370 Watts per panel. Now all of a sudden jumping to 395 or 400 watt product, I would say currently in the market, we're really at a 425 watt product. And then the next several months, you're increasingly seeing more and more shipments around 450 watt product, but by next year, or really at the end of 2021, we'll see increasingly more and more 500 watt product coming to market. From there, there's another step function that will lead it to 550 watt product and eventually hit 600. So the growth in overall module level of power classes are through the roof and beyond all expectations. But keep in mind that there's also an increasing cost on the balance of system components. So I'm really referring to the racking mounting structures. The structural integrity of the system has to be stronger to handle these much larger form factor modules.
Scarcity and Demand of Materials and Impact on Module Pricing
Laurent Segalen:
We've seen recently some declaration from a large Chinese company say that the prices are going to start to realize that there are shortage capacity. Are you pessimistic about the future cost of panels?
Andy Klump:
No, I, I absolutely believe that falling costs will catch up again, but in a short term, there has been a number of factors that led to the costs. Plateauing, if not increasing first and foremost, I think one of the biggest cost increases have been on the glass side. You know, we used to just see one sided glass on the front side and having a back sheet to be the rear substrate, but increasingly now we see glass on glass bi-facial modules is the standard, that's roughly 90% of the market. And so all of a sudden, in a short period of time, you saw within 2019 and 2020, the market shift almost entirely to bi-facial. At the same time, we came out of COVID where the first quarter, if not the first half of 2020 was very low demand, but then all of a sudden China had this huge demand input.
Andy Klump:
And just once again, the total market of installed capacity in China in 2020 was 48 gigawatts, but 30 gigawatts literally happened in the last quarter. So this, with this massive surge of demand, and increasingly there was some constraints in terms of the amount of supply, glass prices just shot through the roof. There was a massive uptick in pricing of anywhere from 15 to 20% and many folks in international markets couldn't even get modules because the demand was so high within China. So as a result, we saw that as a shortage or leading the price increase, but it wasn't just the glass, it was also EVA who saw a price increase on aluminum, and those factors really led to a much higher price. We actually see glass easing off as there's more supply coming to market, demand in China is obviously declined from Q4 of last year to Q1 of this year. And really it's more of a greater amount of overall building boom, that has kind of slowed up a little bit in China. So declining some of the demand
Andy Klump:
Dynamics has also resulted in slightly lower pricing that's what's affected the near term price spike.
Andy Klump:
One also has to look at the increasing cost of commodities. So once again, silver has increased and roughly 50% of the industrial silver market is for solar. It's roughly 10 to 15% of the total silver market. But once again, as there's concern about inflation, a lot of investors are putting their money into commodities and the increasing commodity costs are also impacting overall costs for some of the raw materials, whether it be silver or aluminum. These are things to just keep in mind. Over time, solar is a technology game. And so as efficiencies rise and the overall industry continues to scale, costs will decline. But I think we are going to face periods where there's a pinch in demand. And this is what we saw at the end of 2020 and start of 2021. There's this constant game of supply and demand balancing as you chase to see this ongoing lower price trend.
Future Pricing Predictions
Gerard Reid:
Can I ask you to sort of take out your crystal ball? And here we are at the beginning of 2020s, we've watched, let's say, I think probably we did 120 gigawatts of solar last year, newly installed, handled prices below 20 cents a watt. Where are we going to be in 2030?
Andy Klump:
The amount of demand at 2030 is going to grow. I'm still seeing potential for this to be a 300 gigawatt market in the next 9 to 10 years, nearly tripling a ton of potential. And I think in terms of costs, I made a longterm cost prediction of us getting to 10 cents a watt. I still think that's possible. If you look out at nine to 10 years by 2025, we're still not going to be there at that time. You'll be closer to 15 to 16 cents per watt. Going beyond that, there's still another 30 to 40% cost decline down close to that 10 cents per watt level on the cost side. And that's, once again, that's a China FOB cost. It doesn't include shipment, or it doesn't include any other tariffs to any other international markets that exist such as in the U.S.
Energy Storage Trends
Laurent Segalen:
Andy I'm pretty blown away by your expertise in solar, let's see your knowledge about energy storage, because that's the much more recent market. Then the question Gerard, and me, and I guess a lot of our listeners have is are we going to see the same constant incline of technology improvement in stationary storage?
Gerard Reid:
As there are more, more specific, not stationary storage, it's lithium-ion batteries, right? That's very clear it's lithium-ion. Absolutely.
Lithium-Ion
Andy Klump:
The lithium ion battery trend is driven by the electric vehicle market. So energy storage is still a small nap on the back of an elephant. The investment in domestic battery cell manufacturing capacity is just massive and it will still continue to scale. And that's effectively what's leading to ongoing cost declines. So if we look out a decade into 2030, absolutely, we still think that we'll see roughly a 50%, if not 55% cost decline from where batteries sell technology costs are today. But, you know, if I had to look at it more near term horizon, 2025, we're still going to see like a 35, maybe even a 40% decline by that point in time. I still think that batteries are just far less mature and it's still a decade behind where the solar industry is.
Laurent Segalen:
When you visit a battery factory, do you have the same sense of automation that you see in a solar factory?
Andy Klump:
Battery cell manufacturing capacity is highly, highly automated. Once again, this is a CAPEX intensive business, a high degree of automation. Very few facilities have much of a labor component at all. When you get to the module pack, the actual, you know, the actual form factor can vary. Either there's definitely far more levels of manual labor in China. But once again, there is also a certain degrees of automation I've seen in non module pack facilities as well, but battery cells are completely the same as solar, just extremely automated, massive facilities as well. A huge amount of CAPEX is going into this industry and is led by large companies like LG and CATL and Tesla.
Gerard Reid:
There's something about the sort of performance improvements you've got to save because there's a lot of doubters out there in terms of that, look at the TMI and say, oh yeah, they won't be able improve their performance going forward. It's only a short term solution. My own feeling is it's actually a little bit like crystalline solar was, which might not be the best solution, but we're still using it 15 years later. I'd love to hear your opinion.
LFP
Andy Klump:
We're actually going to see a tremendous amount of efficiency improvements within battery cell manufacturing tactics. The best way to measure it is by energy density and energy density can be seen in different types of technology. Once again, if we're looking at it LFP versus NMC, perfect example is once again, the BYD blade battery technology that's been recently announced as the lowest level of thermal runaway to date, they're really making claims that will never explode, but once again, energy density is really I think one of the advantages that a lot of new technologies will increasingly be looking at. You also see a change in some of the components and materials. So once again, Tesla has been leading the charge and really trying to shift away from cobalt. And so increasingly Teslas, you know, using NCA batteries and then also increasingly using LFP. And I think that's also a key trend that we're going to see as this shift away towards safer technologies, or I'd say shifting towards more ESG friendly supply chains.
Laurent Segalen:
Yeah. I'm glad you talk about ESG because this is really three letters which are left front and center of reinvestment right now. And it's been, of course, some criticism brought out but the industry says, okay, that's great for the digital transition, but their cheap performance is pretty poor. So I know that now you're also developing a lot of ESG monitoring, sustainable production. Can you elaborate a bit more on the job you're doing there?
CEA’s Role with Energy Storage Traceability
Andy Klump:
We have had teams in China since I started the business in 2008. So we have a 75 plus versa team that's in China. A bulk of these folks are inspectors and engineers who are in various solar and storage facilities, but we absolutely are in a position where we're being asked by clients to look at, not just carbon content, but also the ethical supply chain. And so traceability involves going all the way upstream from solar modules to the upstream polysilicon manufacturing. Right now we have a lot of folks like myself who have background in these upstream materials and increasingly buyers want to know where the upstream components came from. So we're doing all that traceability work for different players globally.
Laurent Segalen:
Andy, it's very interesting what you say. You talk about traceability, but how concretely that traceability is being done? I mean, how do you trace?
Andy Klump:
Different manufacturers have different approaches. But I would say that the largest and strongest manufacturers have all had and are very mature in this offering. They have had MES systems, which effectively are traceability systems back to where they source their raw components. And so the larger manufacturers have integration in getting into way for manufacturing. And so they're often buying polysilicon and traceability will be much easier for these large well-established mega players. For some players that are only the smaller capacity or just sell and module manufacturers, they then have to trace through different wafer suppliers who then would have to trace to someone who's in the polysilicon production. And it's much more challenging. Blockchain does not exist in this industry yet. The reality is that more, more buyers are defaulting to large scale manufacturers who actually do have really thorough traceability programs. And increasingly we're going to see more and more market share going to these major players. But CEA is definitely in a position where we've been asked to complete traceability audits, and we can go upstream to help determine where the traceability stands on behalf of different buyers.
China’s Dominance in Solar and Energy Storage Sectors
Laurent Segalen:
But it's been pretty fascinating deep dive into the solar industry in China, in your opinion, can China dominance in those two sectors be challenged by new entrance, new countries or new economies, or is China going to remain dominant here?
Andy Klump:
I just foresee China remaining dominant. It's just clear that there's such a significant supply chain advantage that China has across a number of industries, but especially solar and energy storage. It's just very clear that China will continue to invest heavily in capacity and they have demand and needs in their own market, but they also see themselves as a key manufacturing center for the rest of the world. The ongoing growth will continue to be in China. I think there will be some cases. Once again, as I talked about with energy storage, some manufacturers can continue to grow and expand in the next three to five years, as long as they continue to innovate on new technologies and finding ways to reduce costs, reduce the dependence on some minerals. So that's where I think the industry will still be dominated by China, but maybe not quite as, as much as on the solar side.
Gerard Reid:
I think Andy, I'd love to hear it. Maybe my side, the last question it's in around the whole geopolitics of that, which is that if I look from the outside of China, China really takes a long-term view and it's not just about sort of industrial policy. It's also about innovation into environmental policy. And actually that gives me a lot of hope. And I know a lot of people might see that in the West as a threat, but I don't. And I'd love to hear your thoughts as an American living in China.
Andy Klump:
Absolutely. So once again after 18 years in China, I've seen and witnessed a lot, but it is extremely clear to me. China is committed to their 2060 pledge for carbon neutrality. I actually think they're going to exceed their plan in the coming decade or two. And they're going to pull that date closer to 2050, maybe closer to 2045, but China is absolutely committed to environmental protectionism. They see this as an area where they want to make a huge amount of investments. So the amount of expansion that is happening over the next five years and just solar alone, but also in energy storage. Once again, this is the first year we've seen 13 different provinces rollout energy storage campaigns. So you're going to see start of a hockey stick type trajectory in terms of energy storage adoption. So once again, China is absolutely committed to shifting away from coal. Even though there are still a lot of coal plants that are operating in China, supposedly new capacity, that's coming online, they're retiring a bunch of inefficient coal facilities, and they're going to be shifting increasingly from thermal to clean energy. So we definitely see that as a positive long-term trend. And I think the global world and the supply chains being built in China will benefit overall globes approach was really looking at a carbon neutral world
Laurent Segalen:
On those words of wisdom and optimism, Andy, thank you very much for coming onto the show.
Andy Klump:
The pleasure's all mine. I look forward to meeting in person when we get past this pandemic.
Gerard Reid:
It's been too long, Andy you're absolutely right. So I'm looking forward, agreed.
Conclusion
Laurent Segalen:
I agree. Okay. Take care. Bye. Gerard, you know, we don't do politics on the show, but I can relate to my personal experience. I've been to China more than 20 times. I love that country. I love the people they're hardworking, friendly. They're eager to learn. They have a sense of common goals. And really I felt that energy in the conversation with Andy.
Gerard Reid:
Yeah Laurent, it's interesting what you say about China, because if I look at the future of our world, it is in China. And I came across a statistic, which was, it was asking people across different ages and different countries across the world. Would they be likely to buy an electric car? And what was really interesting was the highest level of positive respondents were in China and it's across all age groups. So the statistic I saw was 60% of people over the age of 65 years would consider buying an electric car. If I confirm, in the United States, just to give you a similar number is 12% Australia, 16% Germany, 18%, and that sort of tells you something about China. China is really future orientated and they're willing to try things. And I think here in the West, we've become a little bit sort of stale and sleepy.
Laurent Segalen:
Sure. I'm with you. But for me, the most important thing is not about aspiration. It's about delivery and what the Chinese industry in solar and battery has managed to deliver in the past decade is nothing short of remarkable. They are the true agents of scale. You know, people always talk about the agents of change, but yet these agents of scale production times 100, cost divided by 15. You know, they are breaking curves here. You talk about hockey-stick that's in China, that's happening. So I was very happy to have this conversation with Andy because China, has changed the economics of the energy transition upside down. And I remember 10 years ago were begging for subsidies and now we're fine. We're the cheapest in the market. I would say congratulation to China Andy has been very privileged to be inside that revolution and that he has been able to share with us his daily life.
Gerard Reid:
I think the thing that I'd add to it as well is that China's now innovative and this is great for the world because per se, but to particularly take the case of lithium-ion batteries, Europe has finally woken up and sort of said, Oh, this is actually very strategic. We better do something. Yeah. And competition, what it does is it drives innovation. And that's why I'm very, very positive that in particular batteries are going to be a critical part of this energy transition going forward. And I do definitely see it like solar, and we really need to understand that it is like solar tech costs are going to come down. Performance is going to improve. And we're going to have lots of really exciting, interesting innovations in this area, in the coming year.
Laurent Segalen:
Absolutely. Well, Gerard, we want to thank again, our partner Aquila Capital. I also want to congratulate them because their portfolio of one their open asset under management has just passed 10 gigawatts. So they are a very serious player
Gerard Reid:
And I'd like to thank Andy. It was great having him on the show.
Laurent Segalen:
Yeah. Sometimes a bit too much jargon, but you know, expect it
Gerard Reid:
I just don't understand solar enough. Laurent, I've been in it probably too long. So I know what he's talking about.
Laurent Segalen:
Yes. Sometimes I got lost, but I really enjoyed it. Okay. Gerard, I'll talk to you in two weeks time. Okay, bye.
Female Host:
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