China's Semiconductor Industry Opportunity 2: Solar Cells

China's semiconductor industry will enter the period of strategic opportunities for industrial development. The global semiconductor industry has entered the industrial transfer period, and developed countries have shifted to the high-end industrial chain. At the same time, the global semiconductor industry has implemented a fab-lite strategy to transfer chip manufacturing to emerging countries. Motorola reduced the number of 28 Fabs worldwide to nine, leaving only the dominant Fab. China's semiconductor industry has experienced continuous growth in its talent, technology, market, and funding conditions, and it has the objective conditions to meet the global semiconductor industry transfer.

China's semiconductor design, manufacturing, and packaging and testing have developed at the same time, the structure has become more reasonable, and the industrial chain has been gradually improved. The packaging and testing industry once accounted for more than 70% of the output value of China's semiconductor industry. In recent years, the rapid development of design and manufacturing, the relatively slow development of packaging and testing, the formation of a tripartite situation. The increasingly detailed division of labor in the semiconductor industry has promoted the willingness to cooperate between all links in the industry chain. The world's third-largest chip foundry SMIC expressed its willingness to provide services for domestic small and medium IC design companies. The innovation capability of the IC design, manufacturing, and packaging and testing industries continues to increase.

The semiconductor IC (Integrated Circuit) design industry is actively developing. The overall improvement of China's semiconductor IC design capabilities. Market-oriented, product innovation in accordance with the needs of consumers. IC design has made breakthroughs in multimedia players, digital TV, FM, Bluetooth, USB and other fields. In the next 2 to 3 years, IC design will be innovated in smartphones, 3G, and Internet multimedia terminals. While based on the local market, China's IC design actively seeks overseas development opportunities. IC design companies are brewing landing domestic and foreign capital markets to attract more venture capital and high-end talent. Thai King, Rui Dike, Geko Micro, Hangzhou Guoxin, etc. are ready to land on the GEM or NASDAQ. IC accelerates the consolidation and reorganization of the industry, improving the market response speed and risk resilience.

China's semiconductor packaging and testing companies have grown rapidly. The outsourcing of packaging and testing has become an inevitable choice for international IC manufacturers, and the global packaging and testing business has accelerated to China. Since 2007, more than 10 IDM companies have closed their sealing and testing plants. China's packaging and testing technology began to move closer to the international advanced level. Local packaging companies have grown rapidly. Jiangyin Changdian, Nantong Fujitsu, and Tianshui Huatian have successfully listed on the market.

The level of R&D and production capacity of semiconductor equipment and materials continues to increase. The development of semiconductor equipment manufacturing industry benefits from the acceleration of the semiconductor industry's upgrade. The research and development level of semiconductor manufacturing equipment in local companies has improved and performed well. Granda's self-developed fully automatic wafer inspection machine was put on the market in 2008. Northern Microelectronics has developed a 100-nanometer plasma etching machine and an LED etching machine, and has obtained a number of customer certifications. Increasing the research and development of higher-tech semiconductor manufacturing equipment will become a trend in the future.

The domestic market has strong demand and the semiconductor market has a promising future. Due to the rapid growth of PCs and mobile phones, the global semiconductor market is expected to grow by 10.2% in 2010. The expansion of domestic PC, mobile phone, and consumer electronics production capacity has also contributed to the development of the semiconductor industry. In 2009, China produced 610 million mobile phones, accounting for 50% of the world; PC production was 180 million units, accounting for 60%; and color TV output was 99 million units, accounting for 50%. In the first quarter of 2010, China's semiconductor industry realized sales revenue of 29.777 billion yuan, a year-on-year increase of 46.8%. The rapid rise of emerging industries such as the Internet of Things, low-carbon, smart grid, and photovoltaic industry will benefit the semiconductor industry. Emerging industries will use a large number of integrated circuits or semiconductor discrete devices such as LCD and LED drive circuits, solar cell inverters. The need for more and more corporate IT departments to purchase and upgrade communications equipment will also bring opportunities.

The introduction of relevant domestic policies has provided convenience and incentives for the Chinese semiconductor industry. All along, the state has provided strong support for taxation, funds, land, infrastructure, and other policies. The “nuclear high base” special project and “02” special project have already started implementation, and the first special funds have been issued. The country has promoted 150 million semiconductor lighting products with financial subsidies. The new "Several Policies to Encourage the Development of the Software Industry and Integrated Circuit Industry" will be introduced in 2010. Compared with "18 Document," the new policy has increased support and expanded coverage. Home appliances to the countryside, home appliances trade-in, automobile to the countryside and other economic stimulus policies to expand demand for semiconductor products. The “Electronic Information Industry Adjustment and Revitalization Plan” promulgated in 2009 brought new hope to the semiconductor industry.

Optimistic about the prospects of the Chinese semiconductor market, foreign capital has poured into the local market. It will help shorten the gap between technology and developed countries and build first-rate manufacturing companies. It can bring in sufficient funds to reduce the financial burden on enterprises and local governments. Not long ago, Morgan Stanley participated in SMIC's allotment and became the fourth largest shareholder of SMIC.

Solar Cell Industry China's solar cell industry has developed rapidly in recent years and has undertaken nearly half of the global production capacity. Its products are mainly sold to European countries. In 2009, the total output of solar cells in the world was 9340 MW, and the output of solar cells in China was 4382 MW, accounting for 46.92% of global production. However, more than 95% of the products were exported abroad. In 2008, the total output of solar cells in the world reached 6850 MW, and the total output of solar cells in China reached 1780 MW, accounting for 26% of the global total. Among them, the domestic solar cell faucet Wuxi Suntech produced approximately 500MW in 2008, ranking third in the world. Tianwei Yingli produced 281.5MW, and Trina Solar produced about 200MW.

The overall development of the solar photovoltaic industry in recent years has witnessed rapid development, and the performance of all aspects of the industry chain has been outstanding. In 2009, the country's polysilicon production has reached 18,000 tons to 20,000 tons. In 2009, China's production of solar photovoltaic modules was about 2500MW, accounting for about 30% of the world's total. In 2009, the installed capacity of solar photovoltaic power generation was 160 MW, which was more than the sum of cumulative installations over the past decades.

The contradiction between the polysilicon raw material supply of the solar energy industry and the overreliance on overseas is gradually eased. Before 2008, the core technology for purification of the polysilicon industry in the upstream of solar energy was mainly in the hands of seven major foreign manufacturers. Hemlock of the United States, REC of Norway, MEMC of the United States, Wacker of Germany, Tokuyama of Japan, Mitsubishi Material, and Sumitomo Titanium. They monopolized the global supply of polysilicon and gained the most lucrative profits from the solar industry.

The dependence of raw materials on imports is a major bottleneck restricting the development of solar cells in China. This contradiction will be greatly improved in 2009. In 2010, the contradiction between supply and demand for polysilicon in China was resolved. Although China has become a major producer of solar cells, the supply of polysilicon before 2007 was poor. In 2007, the demand for polysilicon in China exceeded 10,000 tons, but the supply was only 1,130 tons. In 2008, the demand for polysilicon exceeded 17,000 tons, and the supply volume was only 4,110 tons. The gap is large, and the dependence of raw materials for solar cell industry on imports is relatively high. As the polysilicon production line built in the early stages was put into production one after another, and the production water steadily increased, the demand gap for polysilicon in China had dropped to 6,000 tons in 2009. It is expected that the balance of supply and demand for polysilicon in China will be reversed in 2010, and the annual supply of polysilicon will exceed the demand for the first time.

In the past three years, many small domestic companies have blindly invested in polysilicon projects, leading to excess capacity. The Ministry of Industry and Information Technology and the National Development and Reform Commission pointed out in the 2009 Summer Report on the Operation of China's Industrial Economy that in the first half of 2009, there were more than 50 polysilicon projects already established in China, and the investment scale would exceed 130 billion yuan and the total production capacity would exceed 230,000. Ton. If these capacities are fully realized, it will be equivalent to twice the annual global demand for polysilicon. The Ministry of Industry and Information Technology pointed out that the supply of solar photovoltaic and other emerging industries will exceed the demand rate, and China's photovoltaic industry will have a surplus in the near future. In 2009, the profit-making era of polysilicon has turned a turning point; in the short-term, the domestic polysilicon plant under construction has been hit hardest, and these huge investments may not have produced benefits and become a heavy burden for investors.

The relevant policies introduced by the government have boosted the blowout development of the solar energy industry. In October 2003, the National Development and Reform Commission and the Ministry of Science and Technology formulated a solar energy resource development plan for the next five years. The Development and Reform Commission "Bright Project" will raise 10 billion yuan to promote the application of solar power generation technology. It is planned that by 2005 the total installed capacity of solar power systems in the country will reach 300 megawatts.

In March 2009, the Ministry of Finance formulated the "Implementation Opinions on Accelerating the Application of Solar Photovoltaic Buildings" and "Interim Measures for the Administration of Financial Assistance Funds for Solar Photovoltaic Building Applications". The central government allocates special funds to subsidize the qualified demonstration projects for photovoltaic building applications to partially compensate for the initial investment in photovoltaic applications. The regions that have introduced relevant fiscal and taxation support policies will receive priority financial support from the central government.

On July 21, 2009, the Ministry of Finance, the Ministry of Science and Technology, and the National Energy Administration jointly issued the "Notice on Implementation of the Golden Sun Demonstration Project" and decided to adopt comprehensive financial subsidies, scientific and technological support, and market pulling methods to accelerate the industrialization of domestic photovoltaic power generation. And scale development. The three ministries and commissions plan to adopt a financial subsidy method to support not less than 500 megawatts of photovoltaic power generation demonstration projects within 2-3 years. It is estimated that the state will invest about 10 billion yuan in fiscal funds for this purpose. Focus on supporting the use of power-side grid-connected photovoltaics, and in principle grid-connected photovoltaic power generation projects will be subsidized by 50% of the total investment in photovoltaic power generation systems and their associated transmission and distribution projects. Among them, the independent photovoltaic power generation system in remote and non-electricity areas provides subsidies at 70% of the total investment; for the key industrialization and basic capacity building projects of photovoltaic power generation, the subsidy and subsidy methods are mainly used to provide support. In addition to subsidies for specific power generation projects, demonstration projects and standard setting of key technologies for photovoltaic power generation are also included in the scope of subsidies. These include key technology industrialization projects such as silicon material purification, inverter control, and grid-connected operation, as well as evaluation of solar energy resources, photovoltaic power generation products and grid-connected technology standards, specification formulation, and testing and certification system construction.

China's "New Energy Industry Development Plan" has been reported to the State Council. The plan points out that from 2011 to 2020, China will directly increase investment in the energy industry by 5 trillion yuan. According to its specific breakdown, in addition to nuclear power and hydropower, renewable energy investment will reach 2 trillion - 3 trillion yuan, of which wind power will account for about 1.5 trillion, and solar energy investment will reach 200 billion -300 billion. The "New Energy Industry Development Plan" initially plans that by 2020, China's hydropower installed capacity will reach 380 million kilowatts, wind power capacity will be 150 million kilowatts, nuclear power capacity will be approximately 70-80 million kilowatts, biomass power generation will be 30 million kilowatts, and the installed capacity of solar power generation will reach approximately 20 million kilowatts. Compared with the "Long-Term Development Plan for Renewable Energy and the Mid- and Long-Term Development Plan for Nuclear Power" promulgated in 2007, the development targets for the wind power, solar photovoltaic, and nuclear power industries are respectively 5 times, 11 times, and 2 times that of the previous plan.

Key technologies for the development of the solar industry have been included in the national R&D plan. China has proposed the 973 program for thin-film batteries and sensitized battery technologies. For basic equipment and materials, such as cadmium telluride, selenium indium copper, thin film silicon battery technology has been included in the 863 count. The application of megawatt photovoltaic technology and key technical issues have been included in the scientific and technological research plan.

In terms of fiscal and taxation, PV companies have different degrees of preferential treatment in terms of fixed assets, income tax and export tax rebates. The VAT transition preferences for photovoltaic products allowed from production to consumption are proposed by various localities. The fixed assets of photovoltaic companies can be deducted for inclusion in the “Introduction to Corporate Income Taxes for Public Infrastructure Projects”. Photovoltaic enterprise income tax is exempted from the first year to the third year, and is halved from the fourth year to the sixth year; it is in the “Measures for the Management of High-tech Enterprise Recognition”. The corporate income tax rate for solar photovoltaic technology and power generation technology is 15%, which is a state-encouraged type of project. Imported equipment may be exempted from import duties and import link value-added tax. In 2009, the state raised the export tax rebate rate for photovoltaic products twice, so that the tax rebate rate for monocrystalline silicon rods reached 17%, and that for monocrystalline silicon wafers was 13%.

Current Status of China's Solar Energy Industry Technology Currently, silicon wafers are still the mainstream of solar cells, accounting for about 90% of the market share, while thin-film batteries are growing faster and are favored by investors. Within the photovoltaic industry, there are different technical routes. One is based on silicon materials, and the other is based on chemical batteries (cadmium telluride, etc.). The former is more mature and the latter has a higher photoelectric conversion rate. In the use of silicon materials, there are also two different technical routes, one is a crystalline silicon battery, and the other is an amorphous silicon thin film battery. The former has a high conversion rate, but has a high cost and energy consumption, while the latter has a low cost and low energy consumption. However, the attenuation is fast and the conversion rate is low. Thin-film batteries are cheap, and the overall price after being loaded into a photovoltaic system is lower than that of other energy sources. Although crystalline silicon batteries still occupy a major position, the future prospects for thin-film batteries are more promising.

The proportion of thin-film batteries has been rising in recent years and is expected to become the main market in the next five years. In 2006, the total output of thin-film batteries reached 249 MW, accounting for 10% of the world's battery production. In 2007, the output of thin-film batteries reached 470MW, accounting for 12.6% of the world's battery production. In 2008, the output of thin-film batteries reached 840MW, accounting for 14% of the world's solar cells. In 2009, thin-film batteries reached 1,245MW, accounting for 15% of the world's solar cells.

The main problems existing in China's solar energy industry and opportunities for future development In the solar photovoltaic industry chain, breakthroughs in polysilicon purification technology will bring market hot spots in recent years. In the entire solar photovoltaic industry chain, Chinese companies mostly enter the production of solar cells and modules at the back end, and the polysilicon purification process is a relatively weak link in China's manufacturing technology. China has invested in dozens of polysilicon plants under construction, most of which use Siemens' improved technology, and some key technologies that China has not yet mastered. More than 70% of the polysilicon in the refining process is discharged through chlorine, which not only has high refining costs, but also has serious environmental pollution. Some domestic companies have started to try small-scale physical methods to purify polysilicon. Once the technology matures and scales up production, the cost and energy consumption of polysilicon will be greatly reduced, and its investment cost is about one-tenth that of the Siemens method.

Looking into the market for the next decade, amorphous silicon thin-film battery technology will become a leader in the industry. For the development of different thin-film batteries, although the conversion efficiency of CIS (copper indium selenide) and CIGS (copper indium selenide) batteries is higher, the process instability and the scarcity of raw materials all limit their development. CdTe battery has been gradually recognized by the market, production has entered a large-scale production stage, the cost is still room for decline, the market size will continue to expand in the next few years. However, in the long term, the toxicity of cadmium limits the development of CdTe cells, and the market potential is not as good as that of amorphous silicon thin-film batteries. Cadmium and arsenic are toxic, and indium is a trace element. The content of crust is relatively small. According to relevant statistics, even if global indium is collected, it can only produce 30GWp, and its mining is relatively difficult. In contrast, amorphous silicon cells have more potential in terms of raw materials and process stability, but the conversion efficiency of amorphous thin-film batteries is not high, and the decline in performance has become a technical bottleneck restricting the development of amorphous thin films.