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Is the Endgame of 'AI' Solar Photovoltaics and Energy Storage?

iconApr 17, 2024 09:09
Source:SMM
China Market: The photovoltaic sector has risen unexpectedly, with the leading support structure company achieving a year-on-year revenue growth of 2320.84%.

---The US Solar Photovoltaic Market Shows Strong Growth Momentum

China Market: The photovoltaic sector has risen unexpectedly, with the leading support structure company achieving a year-on-year revenue growth of 2320.84%.

Recently, both Huang Renxun, the founder of NVIDIA, and Sam Altman, the CEO of OpenAI, publicly stated that "the endgame of artificial intelligence is energy." This statement has propelled the energy sector, including solar PV and energy storage, into the spotlight. The domestic solar PV sector, once considered a "troubled area" in the A-share market, has now emerged with vigor. According to data from Data Treasure, there are a total of 75 listed companies on the A-share market that have invested in the photovoltaic industry chain. Among them, 54 have released performance forecasts or interim reports for the year 2023. Of these, 29 are expected to see growth, and 3 have turned losses into profits, with a positive reporting ratio of approximately 60%.

In addition to the solar PV processing sector, the performance of photovoltaic auxiliary materials has been outstanding. Among the 14 companies that have announced performance forecasts, 8 are expected to see growth, and 1 has turned losses into profits, with a positive reporting ratio close to two-thirds. As for the leading solar PV support structure company, Arctech solar in its financial report for 2023, achieved an operating income of 6,434,883.9 million yuan, a yoy increase of 73.79%; a net profit attributable to the parent company of 353,808.0 million yuan, a yoy increase of 696.31%; and a net profit attributable to the owners of the parent company after deducting non-recurring gains and losses of 319,624.1 million yuan, a year-on-year increase of 2320.84%. The main reasons for Arctech solar impressive performance are as follows:1) Stable market prices of important raw materials such as steel, reducing procurement costs. 2) Implementation of globalization strategy, expanding into emerging markets. 3) Upward extension of the supply chain, achieving self-production of components to control costs.

US Market: Computing power surges, and the new power system will become AI infrastructure beyond chips.

As the world's second-largest producer and consumer of electricity, the United States is vigorously promoting the construction of a new power system based on renewable energy sources, with photovoltaic power generation projects flourishing. In 2023, the US added 32.4GW of new photovoltaic installations, a yoy increase of 53%, marking the first time in nearly 80 years that renewable energy accounted for more than 50% of annual new capacity.

The slowing inflation bill is strongly promoting solar deployment in the United States, and in the second half of 2023, with the accelerated implementation of IRA subsidies, players in the US solar PV value chain have profited greatly. As the world's most mature and largest-scale solar tracker market, how has the operational performance of US solar tracker companies fared?

Structure of Energy Production and Consumption

Transformation of the US Power Structure: Developing a clean energy generation system composed of renewable energy, natural gas, and nuclear power

The United States is the world's second-largest producer and consumer of electricity, with fossil fuels such as oil, natural gas, and coal playing a significant role in its energy system. With the vigorous promotion of clean energy installation projects such as wind and solar power, the diversity and reliability of the US power system continue to improve. According to projections by the US Energy Information Administration (EIA), renewable energy generation will further increase by 2050, with solar and wind power becoming the primary sources of electricity, contributing over 44% of renewable energy capacity.

In the field of clean energy generation, solar power ranks third in the United States, behind only wind and large-scale hydroelectric power, but with a rapidly growing rate. In 2013, solar power accounted for only about 2% of all renewable energy sources, but by 2022, it had increased to 6%. Projections suggest that by 2035, solar power will represent 24% of the US energy generation mix, surpassing wind power.

The structure of electricity consumption in the United States is undergoing a significant shift, with data centers poised to become the largest consumers of electricity, posing new challenges to the construction of a new power system.

From 2007 to 2022, US electricity demand has steadily increased at an annual compound growth rate of approximately 1%. In the future, influenced by factors such as the development of AI computing power, the revival of domestic manufacturing in the United States, authoritative institutions predict that US electricity demand will maintain a continuous compound growth rate of 5%. This poses another challenge to the construction and operation of the new power system in the United States.

Solar Tracker Industry Market Potential

The market space for photovoltaic (PV) tracking support structures in the United States is expected to remain the largest application market globally for the next five years.

Due to its advantageous geographical location, abundant sunlight, and ample land availability, the United States is conducive to the development of solar tracker for solar power. With an early start in the market, major manufacturers have rich project experience and mature technologies, leading to high acceptance among owners. Unlike Chinese owners who prioritize initial investment amounts, US owners place greater emphasis on the electricity generation benefits that products can bring due to higher system costs. With solar tracker providing a 3% increase in electricity generation, they can achieve breakeven, resulting in high acceptance rates in the US market, with a penetration rate of up to 70%.

Currently, 24% of solar tracker in the United States are operational, with a capacity of 551 GW. 53% of solar tracker projects are in the construction phase, with a capacity exceeding 1200 GW. The announced installation capacity of tracking support structures exceeds 450 GW.

The United States is the world's largest market for tracking support structures, with an installation capacity of approximately 12 gigawatts (GW) in 2020, equivalent to 80% of the new ground station installations in the country for that year. Starting in 2020, both US-based and overseas solar tracker manufacturers responded to the call for domestic manufacturing under the IRA policy, gradually shifting their overseas supply chains back to the United States. As a result, the domestic production capacity of solar tracker in the United States has rapidly expanded. Considering the implementation of the IRA policy and the time required for capacity expansion by enterprises, it is expected that the US solar tracker market will achieve an annual average growth rate of around 20% from 2024 to 2027. However, as market penetration rates increase and grid capacity becomes limited, the growth rate is expected to gradually slow down in the subsequent years.

Solar Tracker Industry Market Competitive Landscape

The competitive landscape of the solar tracker market in the United States is characterized by increasing concentration and cost advantages.

The concentration of the solar tracker market in the United States is relatively high, with US companies Nextracker and Array Technologies occupying over 70% of the market share.

This is primarily due to several factors. Firstly, leading enterprises benefit from brand recognition and technological barriers, allowing them to command premium prices for their products. Secondly, US companies have strengthened their vertical integration strategies to reduce costs and improve efficiency, thereby mitigating the risk of profit compression.

Does the accelerated implementation of the IRA subsidies actually benefit solar tracker companies?

The implementation of the IRA policy is expected to drive an additional 200-300 gigawatts (GW) of photovoltaic (PV) installations and attract over $200 billion in new investment.

In August 2022, the US government issued the IRA Inflation Reduction Act, which includes two significant policies: the Investment Tax Credit (ITC) and the Production Tax Credit (PTC). The ITC subsidy is aimed at project contractors and subcontractors with local supply chain development, providing tax relief, while the PTC subsidy targets energy suppliers engaged in electricity production and sales.

According to estimates by authoritative institutions, the implementation of IRA over the next decade is expected to increase PV system installations in the United States by 70%, resulting in additional installations of 200-300 GW of PV power plants and attracting over $200 billion in new investment. Stimulated by the Inflation Reduction Act, the domestic solar manufacturing industry in the United States is rapidly growing, with PV industry-related companies worldwide accelerating their investments in manufacturing facilities in the United States.

Following the enactment of the policy, specific details regarding IRA‘s domestic manufacturing subsidies were not fully clarified for some time. This resulted in EPC and support structure companies having to wait for the issuance of certification and subsidy guidelines. These companies needed time to assess the policy’s impact, directly affecting the tracking support order situation in the first half of 2023. According to Array Technology (ATI), the largest projects the company owned in the first half of 2023 were delayed for a quarter due to the EPC‘s need for evaluation time. As a result, ATI lowered its revenue expectations for Q1 2023 from $1.8-1.95 billion to $1.8-1.9 billion. By Q3 and Q4 of 2023, the effectiveness of IRA’s 45X manufacturing tax credit began to manifest for photovoltaic tracking support companies. ATI noted that through tax incentives, the company earned an additional $49.9 million, emphasizing that conducting more business domestically in the United States is an indispensable part of further improving financial performance.

Array Technology
Summary of the 2023 Annual Performance Report

Kevin Hostetler: “I’d now like to expand further on the 45x benefits. In the fourth quarter we recorded a $50 million benefit to our financials relating to torque tube, with 9.3 million included as a reduction to our cost of goods sold and 40.6 million treated as a gross up to the balance sheet in the form of an increased to both other assets and other current liabilities. The entire benefit relates to certain volumes delivered during 2023 but based on the structure of the contract with each vendor, and the timing when the contract was executed $41 million of the amount we are entitled to will not materialize on the P&L until 2024…. Additionally, starting in 2024, we will be reporting all metrics on an all end basis inclusive of 45x benefits. 2023 was a transitional year and warranted a specific call out or the benefit given the number of uncertainties around its treatment. In future periods, we will call out any material differences in our assumptions, including those resulting around the inclusion of structural fasteners within the 45x benefit, to the extent they‘re all ready. ….. We expect free cash flow to be between $100 million and $150 million in 2024 which is inclusive of our estimate of the cash received during the year from the 45x torque tube benefit. ”

Source: Array Technology,SMM.

Array Technology: In 2023, ATI's annual revenue exceeded expectations, with operating income reaching $1.58 billion and adjusted EBITDA of $280 million, a yoy increase of 124%. The gross margin increased from 13% to 26%, with the primary reasons being internal cost-saving initiatives and the development of higher value-added non-tracker revenue.

Array expects its adjusted EBITDA to grow in 2024, targeting $285-315 million by year-end, with the gross margin expected to rise to 30% supported by IRA policies. However, revenue is projected to decline slightly, falling to $1.25-1.4 billion by the end of 2024. The decrease in input commodity prices prompted the company to make arrangements for tracker support production and delivery in the second half of 2024 and 2025, which will affect expected profits in 2024.

Nextracker: In January 2024, Nextracker also revised its full-year revenue and profit forecast for 2023 (increasing from $2.3-2.4 billion to $2.425-2.475 billion), with net income adjusted to $374-429 million (compared to the previous $237-266 million), including estimated benefits from IRA 45X tax credit supplier rebates of $50-80 million.

The booming development of the US photovoltaic market has attracted a large number of companies to invest in building factories, leading to rapid expansion of production capacity, which is remarkable...

Summary

The uncertainty of policy implementation effectiveness and market scale growth: As mentioned earlier, stimulated by the IRA policy, the US solar tracker market is expected to maintain steady growth of 20% in the short term, with an annual addition of over 40GW of new installations. However, with the approaching November 2024 US elections, the IRA policy is still in its preliminary implementation stage. There remains uncertainty about whether it can sustain its current level to support the healthy development of the solar PV market. This is an issue that warrants close attention.

Challenges for overseas enterprises entering the market: The US solar tracker market has a high level of concentration, and the market entry barriers are also high. Therefore, whether overseas enterprises can enter this market and how to successfully do so remain challenging questions.

Market forecast

For queries, please contact Michael Jiang at michaeljiang@smm.cn

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