INDUSTRY OVERVIEW - HKExnews

THIS WEB PROOF INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Web Proof Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Web Proof Information Pack.

INDUSTRY OVERVIEW Jun 30 -19

This section contains statistics, industry data or other information relating to the industry that were prepared from various government or official sources that are publicly available as well as research report published by Frost & Sullivan. We believe that the sources of such information are appropriate sources for such information and have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information is false or misleading or that any fact has been omitted that would render such information false or misleading. The information has not been independently verified by us, any of our respective directors, officers, affiliates, advisers or representatives, or any other party involved in the transaction and no representation is given as to its accuracy. INFORMATION ABOUT FROST & SULLIVAN Frost & Sullivan is a global consulting company which provides services such as technology research, market research and economic research. In this document, we refer to data from Frost & Sullivan, which is derived from the report of Frost & Sullivan in October 2011. We commissioned and paid a fee of RMB650,000 for this report. We understand that Frost & Sullivan maintains a proprietary database on the global and China solar industry. In compiling this report, Frost & Sullivan relied on this database, analyzed the market and industry trends and interviewed a variety of industry experts, competitors and key customers to determine the most probable outcome quoted in the report. OVERVIEW AND OUTLOOK OF THE GLOBAL SOLAR INDUSTRY Overview The solar energy market has been one of the most rapidly growing renewable energy markets over the past decade. According to Frost & Sullivan, the global installed capacity of solar modules grew at a CAGR of 64.2%, from 6,168 MW in 2008 to 16,629 MW in 2010. Despite this robust growth, solar power still accounts for less than 1% of global electricity generation, providing significant room for future development. Frost & Sullivan forecasts that the annual global installed capacity of solar modules will increase from 16,629 MW in 2010 to 43,670 MW in 2014, representing a CAGR of 27.3%. The future growth of the PV market is driven by various factors, including rising electricity demand, increasing cost-competitiveness of solar-generated electricity, continued government incentives and favorable policies, the availability of financing for PV projects, increasing desire for energy independence, ability of solar power systems to meet peak electricity demand, rising demand for distributed energy generation systems, increasing rural electrification, and increasing environmental awareness. Europe, China, Japan and North America are currently amongst the largest solar energy markets in the world, as a result of historically favorable governmental support and subsidizing policies. Major end-user groups such as solar farm operators, residential and/or commercial rooftop installers are predominantly based in these markets, and procure solar modules from major manufacturing hubs such as China. Solar modules mainly serve the purpose of capturing and converting sunlight into electricity. In its 12th Five Year Plan, China has doubled its 2015 target for solar PV installation capacity and is expected to further increase its market share in global demand for solar modules. Key Technologies A solar power system generates electricity through its solar cells by capturing and converting light into electricity. Currently, there are two main types of technology used in commercial production of solar modules, namely crystalline silicon technology and thin film technology.

45


INDUSTRY OVERVIEW Crystalline silicon technology Crystalline silicon (C-Si) technology can be divided into mono-crystalline technology and poly-crystalline silicon technology: •

•

Poly-crystalline silicon is the most commonly used solar cell raw material, consisting of grains of silicon fused together that give the cell a distinctive, patterned appearance. Commercially available modules that use this technology have a conversion efficiency of around 15% to 16%. Mono-crystalline silicon is produced from single silicon crystal that is grown as a cylindrical ingot and therefore has no grain boundaries. It has a higher conversion efficiency of around 17% to 18%, but also a higher production cost compared to that of poly-crystalline silicon.

Thin film technology Thin film technology can be divided into three types based on the materials used: •

•

•

Amorphous silicon (a-Si) - This thin film technology involves the deposition of a layer of silicon on a substrate. It uses less silicon raw materials compared to traditional C-Si technology and has a conversion efficiency of around 8%. It has the lowest production cost of all three thin film technologies. Cadmium telluride (CdTe) - This thin film technology involves the use of cadmium, which is a toxic metal, and tellurium in a thin film solar cell. This technology has a conversion efficiency of around 10% and is experiencing rapid growth due to its relatively low production cost compared to CIGS. Copper indium gallium selenide (CIGS) - This thin film technology is relatively new and has the highest commercial conversion efficiency among thin film technologies of around 10% to 12% but also the highest production cost.

Global Solar PV Market Crystalline silicon technology is currently the mainstream manufacturing technology for solar modules. The following chart sets forth the historical and forecast global solar module production volume breakdown by the type of technology from 2008 to 2014: Global Annual Production Volume of Solar Modules (2008-2014E) 48,523

(MW) 42,622 C-Si Module Thin Film Module

32,394 38,333

23,494 17,504 9,072

6,853

14,703

34,098 26,563

19,500

7,439 1,633

2,801

3,994

5,831

8,524

10,190

2008

2009

2010

2011E

2012E

2013E

2014E

C-Si Module ...................... 86%

82%

84%

83%

82%

80%

79%

Thin Film Module .............. 14%

18%

16%

17%

18%

20%

21%

5,893

960

Source: Frost & Sullivan

46


INDUSTRY OVERVIEW As shown above, crystalline silicon technology accounted for approximately 86%, 82% and 84%, of the global PV market during 2008, 2009 and 2010, respectively. As thin film technology continues to develop and gains more popularity, its market share is forecasted to increase from 17% in 2010 to 21% in 2014. However, despite the growth of thin film technology, crystalline silicon technology is still expected to remain as the mainstream solar module technology. China Solar PV Market China is currently the largest solar module manufacturing hub in the world, accounting for approximately 51.4% of the global solar module production volume in 2010. China’s solar module production volume is expected to maintain its high growth trajectory and is forecasted to account for approximately 63.8% of the global market by 2014. The chart below illustrates the annual PV module production volume in China from 2008 to 2014: China Production Volume of Solar Modules (2008-2014E) 30,969

(MW) 26,257

C-Si Module Thin Film Module

19,356 23,466

12,687

27,193

17,620

8,993 11,799

2,600 2,392 208

4,328 3,895 433

8,500 493

888

1,736

2,791

3,776

2008

2009

2010

2011E

2012E

2013E

2014E

C-Si Module .....................

92%

90%

95%

93%

91%

89%

88%

Thin Film Module .............

8%

10%

5%

7%

9%

11%

12%

Sources: China Renewable Energy Society, National Development and Reform Committee, Frost & Sullivan.

As shown above, crystalline silicon module is currently the mainstream product in the China PV market, accounting for approximately 95% of the China PV market in 2010. In line with the global trend, crystalline silicon module will continue to remain as the dominant solar module technology. SOLAR GLASS MANUFACTURING INDUSTRY VALUE CHAIN Glass is generally used as the cover on the front sheet of solar modules to protect solar cells. Test results show that after solar cells are assembled into solar modules, the conversion efficiency decreases because of light absorption and reflection by the cover glass. To increase the competitiveness of their products in the solar energy market, solar module manufacturers typically seek glass that can effectively minimize light reflection and absorption thereby allowing more light to pass through to the solar cells, creating a significant demand for specialized, high-quality solar glass for solar modules.

47


INDUSTRY OVERVIEW The solar glass manufacturing industry value chain is illustrated in the diagram below:Solar Glass Market: Value Chain Overview Upstream

Midstream

Raw material and energy suppliers

Downstream

Solar glass manufacturers

Solar module manufacturers

Raw Material and Energy Suppliers Upstream players in the solar glass manufacturing industry value chain are raw material and energy suppliers: Jun 30 -20

•

Raw materials: low-iron minerals, which include low-iron silica sand, soda ash, antimony trioxide, glauber’s salt, low-iron dolomite and low-iron limestone.

•

Energy: fuel, such as natural gas or heavy oil. The price of natural gas in China is regulated by the National Development and Reform Commission. The following chart illustrates the industrial natural gas price from January 2008 to January 2011 in various cities in China: RMB / m³ 6.0

5.0

4.85

4.0 3.70 2.97

3.0

2.35 2.0

2.10

2.84

2.20

1.66 1.0

0.0 Jan-2008

May-2008

Sep-2008

Jan-2009 Beijing

May-2009

Sep-2009

Chengdu

Source: NDRC, Natural Gas Providers’ Website, Frost & Sullivan Analysis

48

Jan-2010

Guangzhou

May-2010 Wuhu

Sep-2010

Jan-2011


INDUSTRY OVERVIEW Solar Glass Manufacturers Frost & Sullivan estimates that there are currently over 40 solar glass manufacturers in the global market, with over 30 from China. In 2010, China has become the leading manufacturing base for solar glass with production volume reaching 47.1% of the solar glass produced globally. A majority of solar glass manufacturers typically are glass manufacturers which had a long glass production history before entering the solar glass market. Other than solar glass, the majority of them also produce construction glass, automotive glass, curtain wall glass and specialty glass, among other glass products. Solar glass manufacturers may produce four types of glass products: (i) ultra-clear PV patterned glass, which includes ultra-clear PV raw glass and ultra-clear PV processed glass, (ii) TCO glass, which includes ITO, FTO, and AZO coating mainly on ultra-clear float glass, (iii) ultra-clear processed float glass, and (iv) back glass. Ultra-clear PV raw glass is a semi-finished patterned glass product. The special design pattern on the glass surface helps to trap light into the solar cells and reduce light reflection. Solar glass manufacturers may choose to sell ultra-clear PV raw patterned glass to a different glass processor, or process the raw patterned glass themselves, and then directly sell to solar module manufacturers. After ultra-clear PV raw glass is produced, it can be further processed into ultra-clear PV processed glass through tempering, which gives the glass the desired mechanical strength to withstand damage from adverse weather conditions and other factors. An efficiency-enhancing feature that can be added during this process is an anti-reflective coating, which can further boost the solar transmittance of the glass. The typical ultra-clear PV processed glass has a solar transmittance of 91% to 92%. The anti-reflective coating is able to increase the solar transmittance by around 2.5%. Each percentage point improvement of solar transmittance leads to a corresponding increase in power generated from solar modules. TCO glass manufacturing uses ultra-clear float glass, on top of which a TCO coating (ITO, FTO or AZO) is applied. This TCO coating acts as a conductive layer for the electricity generated by the thin film cells. Ultra-clear processed float glass can be used as the front sheet of C-Si solar modules. However, because of the lower transmittance, this type of solar glass for C-Si Solar modules is becoming less common. Back glass manufacturing uses float glass. Back glass is a piece of glass used as the back sheet of a thin film solar module. A solar glass production line used to produce ultra-clear photovoltaic raw glass will typically take about 18 months to construct. Once the production line is running, it is likely to operate continuously 24 hours a day, 365 days a year due to the high energy consumption needed initially to heat the furnace to the appropriate temperature. Another reason is that only after several weeks of operation can the furnace stabilize and produce solar glass of optimal quality. Aug 1-20

According to Frost & Sullivan, the average selling price of ultra-clear patterned glass and float glass decreased significantly in 2009 due to the negative impact by the global financial crisis but rebounded in 2010. It is expected that the price of these products will stabilize along with the entire solar power industry. The price of TCO glass also decreased in 2009 and rebounded in 2010. The price of TCO glass is forecasted to become lower due to advancements in technology and increasing production capacity. Our Directors confirm that, based on the information provided by Frost & Sullivan, there are no publicly available statistics on the market prices of solar glass in different markets.

49


INDUSTRY OVERVIEW Solar Module Producers Solar module producers are the downstream players in the value chain. They assemble all the components together into solar modules. In 2010, China had the largest share of global solar module production volume at 51.4%, followed by Europe at 15.4% and Japan at 12.0%. Global Solar Module Production by Geography (2010) China 51.4%

14.8%

15.4%

Rest of World

Europe1 6.4% United States

12.0% Japan

Total Global Solar Module Production Volume: 17,504 MW 1

Note: Including Turkey Source: Frost & Sullivan

According to Frost & Sullivan, the following table sets forth the global ten largest solar module manufacturers in terms of production volume: 2010 Solar Module Production Volume Principal place of (MW) production

Rank

Company

1 2 3 4 5 6 7 8 9 10

Suntech Power Holdings Co., Ltd. First Solar, Inc. Sharp Electronics Corporation Yingli Green Energy Holding Company Limited Trina Solar Limited Canadian Solar Inc. Hanwha SolarOne, Ltd. KYOCERA Corporation SunPower Corporation Renewable Energy Corporation ASA

Source: Frost & Sullivan

50

1,570 1,410 1,174 1,061 1,060 803 797 650 584 491

China U.S. Japan China China China China Japan U.S. U.S.


INDUSTRY OVERVIEW Application of Solar Glass Products Crystalline silicon solar modules The major functions of solar glass used in crystalline silicon solar modules are to ensure the structural stability of the module and to maximize the solar transmittance and the conversion efficiency of the solar module. To increase transmittance, the glass should minimize light reflection and absorption. With less iron content, ultra-clear glass absorbs less light than normal glass, thus increasing solar transmittance into the solar cells. An anti-reflective coating can be added onto the surface of the glass to further reduce light reflection. Glass used in crystalline silicon solar modules is generally either ultra-clear PV patterned glass or ultra-clear processed float glass. The typical thickness of these types of solar glass is either 3.2 mm or 4.0 mm. Ultra-clear PV patterned glass is the most widely used glass for crystalline silicon solar modules, with solar transmittance ranging between 91% and 92%. If anti-reflective coating is applied, solar transmittance can be enhanced by around 2.5 percentage points. Ultra-clear processed float glass is less expensive than ultra-clear patterned glass, but its solar transmittance is lower, typically in the range of 88% to 91%. As a result, this solar glass application is becoming less common. Thin film solar modules TCO glass acts both as the front sheet and as the electrical conductor in a thin film solar module. TCO glass consists of a sheet of ultra-clear float glass with a layer of TCO coating to conduct electricity generated by the thin film cells. There are three major types of coatings for TCO glass: •

• •

Indium tin oxide (ITO) — ITO may be replaced by AZO in the future due to the rarity and toxicity of the indium contained in ITO. Because ITO’s stability in solar application is relatively low, it is now seldomly used in PV applications. Fluorine-doped tin oxide (FTO) — FTO is currently regarded as the mainstream TCO glass coating in China. Compared to ITO, FTO has better performance and a lower production cost. Aluminum-doped zinc oxide (AZO) — AZO is the latest application technology among the three types of TCO glass coating. Its performance is at par with that of FTO or even higher. The raw materials of AZO are easier to obtain and mix. In terms of transmittance and stability in solar applications, AZO generally outperforms both ITO and FTO. With more large-scale production of AZO, a competitive manufacturing cost and higher application rate can be expected in the near future.

51


INDUSTRY OVERVIEW OVERVIEW OF THE GLOBAL SOLAR GLASS INDUSTRY Because solar power is one of the cleanest forms of alternative energy, many countries, especially developed countries, have gradually increased their investment in solar power generation. The demand for ultra-clear photovoltaic patterned glass and TCO glass for the solar industry is directly driven by demand for solar modules. Market size and growth Global Solar Glass Market Size1 (2008-2014E) 5,814

(US$ million)

5,047

Ultra-clear Photovoltaic Patterned Glass Ultra-clear Processed Float Glass TCO Glass 2,739 2,071 965

882 559 266

57

557 380

725

3,300 2,936

2,287 1,679

1,283 27

3,826

62

142 111

81 979

1,429

160

1,969

2,354

2008

2009

2010

2011E

2012E

2013E

2014E

Ultra-clear Photovoltaic Patterned Glass ...............................................

63%

58%

62%

61%

60%

58%

57%

Ultra-clear Processed Float Glass ....

7%

3%

3%

3%

3%

3%

3%

TCO Glass ......................................

30%

39%

35%

36%

37%

39%

40%

Note: 1 Market size in terms of revenue Source: Frost & Sullivan

Driven by the robust production growth of solar modules, the global solar glass market is expected to grow at a CAGR of 29.4% from US$2,071 million in 2010 to US$5,814 million in 2014. Global Solar Glass Market Size by Geography (2010) China 43.7%

13.0% Rest of World

9.6% United States

17.5%

16.2%

1

Japan

Europe

Total Global Solar Glass Market: US$2,071 million Note: 1 Including Turkey Source: Frost & Sullivan

52


INDUSTRY OVERVIEW As shown above, in 2010, China was the largest solar glass market in the world, accounting for approximately 44% of the revenue of the global solar glass market in 2010. This is due to the fact that China is the largest solar module manufacturing hub in the world and constitutes the largest solar glass demand in the world. Due to China’s growing importance in the global solar module manufacturing industry, it is expected that the demand for solar glass in China will also continue to increase. Global Solar Glass Manufacturers The global solar glass market is relatively concentrated. In 2010, the top five solar glass manufacturers represent approximately 60% of the total global market share by revenue. The top five global ultra-clear photovoltaic patterned glass manufacturers altogether represent approximately 50% of total global market share. Market Share of Global Solar Glass1 Manufacturers2 (2010)

Market Share of Global Ultra-clear Photovoltaic Patterned Glass Manufacturers (2010) AGC Solar

14%

AGC Solar

24% Others

11% 39%

Xinyi Solar

Others 48%

16%

11%

Flat Glass Group

NSG Group

7%

7%

10%

7% 6%

Xinyi Solar Flat Glass Group Saint-Gobain Solar

Total Global Solar Glass Market: US$2,071 million

Jun30-21

Note:

Saint-Gobain Solar

CSG Group

Total Global Ultra-clear PV Patterned Glass Market: US$1,283 million

1

Includes ultra-clear photovoltaic patterned glass, ultra-clear processed float glass, and TCO glass The principal places of production of AGC Solar are in Belgium, Japan, China, Philippines, and the U.S., those of NSG Group are in China, U.K., Germany, Japan, and the U.S., those of Saint-Gobain Solar are in China, Germany, Poland, Spain and France, while those of Xinyi Solar and Flat Glass Group are in China Source: Frost & Sullivan 2

53


INDUSTRY OVERVIEW Global top five ultra-clear photovoltaic raw glass manufacturers in terms of production capacity are shown below: 2010 December Ultra-clear photovoltaic raw glass production capacity (tonnes/day)

2011 June Ultra-clear photovoltaic raw glass production capacity (tonnes/day) Principal place of production

Rank

Company

1 2 3 4

Xinyi Solar Holdings Limited Flat Glass Group . . . . . . . . AVIC Sanxin Corporation. . . AGC Solar . . . . . . . . . . . . .

. . . .

800 1,510 250 860

2,300 1,250 900 860

5

Saint-Gobain Solar . . . . . . . . .

700

800

. . . .

China China China Belgium, Japan, China, Philippines and the U.S. China, Germany, Poland, Spain, France

Source: Frost & Sullivan Note: As of the end of October 2011, the daily production capacity for ultra-clear photovoltaic raw glass of Flat Glass Group decreased to 1,000 tonnes.

In contrast, the downstream solar module market is still relatively fragmented. In 2010, the top five global solar module manufacturers altogether only accounted for 36% of the total solar module market share by revenue. As a result, this downstream industry dynamic provides solar glass manufacturers with stronger pricing power and more customer choices. Key Entry Barriers Major entry barriers to the solar glass industry include: —

First-mover advantage protects companies who entered the market early and have already achieved lower cost through economies of scale

—

Strong requirement for technology know-hows and production experience to produce high-quality solar glass

—

Established and well-maintained relationships with raw material and energy suppliers

—

Strong customer base, as solar module manufacturers use stringent quality standards to select long-term solar glass suppliers

—

The amount of capital investment required to start up solar glass production

—

Geographic distance to customer

54


INDUSTRY OVERVIEW OVERVIEW OF CHINA SOLAR GLASS INDUSTRY Market size and growth China Solar Glass Market Size1 (2008-2014E) (US$ million)

3,326 2,763

Ultra-clear Photovoltaic Patterned Glass Ultra-clear Processed Float Glass TCO Glass

2,015 1,283 1,517

906 308 227

23 58

406 291

1,016 14 101

742 128

2,341 2,020

36

218

49

98

113

73 425

645

872

2008

2009

2010

2011E

2012E

2013E

2014E

Ultra-clear Photovoltaic Patterned Glass ................. 74%

72%

82%

79%

75%

73%

71%

Ultra-clear Processed Float Glass .................................. 7%

3%

4%

4%

4%

4%

3%

TCO Glass ......................... 19%

25%

14%

17%

21%

23%

26%

Note: 1 In terms of Revenue Source: Frost & Sullivan

According to Frost and Sullivan, China solar glass market is expected to grow at a CAGR of 38.4% from US$906 million in 2010 to US$3,326 million in 2014. Ultra-clear PV patterned glass, as the mainstream glass product in the China solar glass industry, accounted for approximately 82% of the total China solar glass market share in 2010.

55


INDUSTRY OVERVIEW Chinese Solar Glass Manufacturers According to Frost & Sullivan, in 2010, total market size by revenue of the global solar glass manufacturing industry was approximately US$2 billion, of which Chinese solar glass manufacturers accounted for approximately 44%. The pie chart below shows the top 5 solar glass manufacturers in China in 2010, which altogether accounted for approximately 55% of the total China solar glass market: Market Share of Top Five China Solar Glass Manufacturers Xinyi Solar 15%

45%

Others

15% Flat Glass Group

9%

CSG Group

8%

8%

IRICO Group Antai Glass Corp

Total China Solar Glass Market: US$906 million Source: Frost & Sullivan

China top 5 ultra-clear photovoltaic raw glass manufacturers in terms of production capacity are shown below:

Rank

Company

1 2 3 4 5

Xinyi Solar Holdings Limited Flat Glass Group . . . . . . . . AVIC Sanxin Corporation. . . Jinjing Corporation . . . . . . . Hehe Holding Group . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

2010 December

2011 June

Ultra-clear photovoltaic raw glass production capacity (tonnes/day)

Ultra-clear photovoltaic raw glass production capacity (tonnes/day)

800 1,510 250 250 700

2,300 1,250 900 750 700

. . . . .

Source: Frost & Sullivan Note 1: The production capacities above are measured by referring to the time when a production line is placed in operation. Therefore, as of June 2011, the capacities of our two production lines which were placed in operation in April and May 2011 and commenced commercial production in June and July 2011, respectively, are included. Note 2: As of the end of October 2011, the daily production capacity for ultra-clear photovoltaic raw glass of Flat Glass Group, JinJing Corporation and Hehe Holding Group decreased to 1,000 tonnes, 250 tonnes and 250 tonnes respectively.

Favorable Dynamics for the China Solar Glass Industry We believe the following factors are favorable for the China solar glass industry: —

Geographic proximity to solar module producers According to Frost & Sullivan, more than 50 percent of the global solar modules are produced in China. The local suppliers of solar glass in China therefore enjoy a distinct advantage over foreign competitors, as they are closer to China’s solar module producers geographically.

56


INDUSTRY OVERVIEW —

Economies of scale and low cost Chinese solar glass manufacturers are expected to maintain, if not increase, their market share in the global solar glass market through their established franchise, strong product portfolio and economies of scale as they continue to expand their production capacity and reduce cost.

—

Mature technology and experienced manufacturing of glass As the largest glass manufacturing country of the world, China’s glass suppliers have accumulated abundant technological know-how and experience that not only increase their competitiveness but also reduce their cost of production.

—

Increasing subsidies and support from Chinese government for solar power China is expected to be a preferred destination for not only solar module manufacturing but also increased construction of solar power plants in the near future. Installed capacity of solar power in China is projected to reach 5GW by 2015 in the current 12th Five-Year Plan. Consequently, subsidies granted by both the central and local governments to support solar demand in China are encouraging more solar module production, which will in turn significantly benefit the solar glass manufacturers.

57