By Zhang Cheng, Consulting Business Department of China National Chemical Information Center
The central government has outlined a roadmap for green and low-carbon energy transformation and unveiled the orientation and goals of new energy development by rolling out a number of energy-related policies consecutively in 2022. The new chemical material industry, as the upstream of the new energy industry, is also meeting new development opportunities.
China's photovoltaic (PV) power generation sector has seen fast growth in the past decade. The installed capacity of PV power increased from 42GW in 2015 to 308GW in 2021, accounting for 11.5% of the total installed capacity, with an average annual growth rate of 39% (see Figure 1). After achieving grid parity, the government issued policies, shifting the pivot of enterprises from increasing market shares to strengthening technological innovation, improving product quality and reducing production costs, so as to ensure the healthy and orderly development of the PV industry, and promote the development of China's PV industry from largescale to high quality. PV power generation is expected to become the main energy source in China and the main driver to achieve carbon neutralizationon the back of the implementation of "carbon peaking and carbon neutralization"goals.
Figure 1 Cumulative installed PV capacity and estimates in China from 2015 to 2030
Looking on the optimistic side, according to China Photovoltaic Industry Association, China's new PV installed capacity is predicted to increase by 19.5% annually on average, which will push up the demand for key materials of upstream PV modules significantly (see Figure 2).
Source: China Photovoltaic Industry Association, China National Chemical Information Centre
Figure 2 New PV installed capacity and estimates in China and the world from 2021 to 2025
PV adhesive film: the capacity is concentrated in China, and the shares of leading producers tend to be saturated
PV adhesive film is the core material of PV modules, so it is crucial to the quality and lifespan of PV modules. Figure 3 shows the capacity and production of China's PV adhesive film industry from 2018 to 2021.
Source: CICC, China National Chemical Information Center
Figure 3: Capacity and production of China's PV adhesive film from 2018 to 2021
China's PV industry started early and has well developed. With a high proportion of capacity in many segments of the industrial chain, the industry has been leading the development of the global PV industry. The market share of China's top four PV adhesive film producers accounted for nearly 90% of the global total in 2021 (see Table 1). The share of First PV Material was 46%, and that of Jiangsu Sveck Photovoltaic New Material and Haiyou New Materials also exceeded 10% each in 2020. With the expansion of capacity, the market share of First will increase to 50-60% in the future, underpinning its leading position in the industry. However, their market coverage tends to be saturated, leaving little upward room.
Source: PV Infolink, China National Chemical Information Center
Adhesive film material: Tight supply of EVA
The cost of adhesive film includes fees of direct materials, direct labor and manufacturing, of which fees of direct materials account for more than 90%. EVA particles and POE particles, as the most important raw materials of adhesive film, account for more than 80% of the direct materials.
EVA adhesive film occupies the key market of PV adhesive film, mainly including transparent EVA adhesive film and white EVA adhesive film, with a total market share of more than 70% (see Table 2). Today, traditional transparent EVA adhesive film is the mainstream product in the market, accounting for 52% of the market share in 2021. However, the product can only be functioned in packaging with properties of light transmission, bonding, yellowing resistance, so its market share will gradually decrease in the future. During the adoption of white EVA adhesive film, glass backplane can replace organic backplane so as to reduce the cost of modules, so its market share increased to 24% in 2021. However, the share is expected to be stable-to-lower in the future, as white fillers overflow, shrink and be fragmented during the lamination process of white EVA adhesive film.
Source: China Securities, CPIA,China National Chemical Information Center
Note: Assuming the capacity ratio is 1.2 and 1 GW of PV module needs 10 million m2 of PV adhesive film, 0.48kg of raw materials are required to produce 1m2 of adhesive film.
Collectively, the market share of POE adhesive film and co-extruded POE adhesive film (EPE adhesive film) is about 23%, and it will continue to increase in the future. Given that the market share of double-glazed modules is increasing and PV module manufacturers attach more importance to the influence of packaging materials on the improvement of power generation efficiency, higher-quality adhesive film will take more market presence. Although POE can be locally made, the POE adhesive film market will see little growth in the future due to high cost, low production efficiency, and unstable performance caused by the supply of raw materials and complicated production process.
As the feedstock cost takes up a large proportion of the total cost of PV packaging adhesive film, and the dependence on PV packaging adhesive film imports is high, the supply and price fluctuations of raw materials have a greater impact on the output and gross profit margin in the market.
China's EVA has been in short supply for a long time. The capacity is far from meeting the demand, and hence the import dependence is more than 50% (see Figure 4).
Source: Sublime China Information (SCI), China National Chemical Information Centre
Figure 4 Production statistics of China's PV film industry in 2016-2025
Domestic EVA output has been growing fast in recent years on the heels of increasing downstream demand, with an average annual growth rate of about 18.9%, and the operating rate has reached the highest level (about 76%). Despite the increase in the self-sufficiency rate, the supply remains short, with the import dependence as high as about 51% in 2021.
Domestic consumption of EVA increased from 1.303 million tons to 2.054 million tons during 2016-2021, with an average annual growth rate of 9.5%. It was the development of PV and cable industries that kept boosting the consumption growth. PV adhesive film, foaming products and cable materials are the three major derivatives of EVA in China, collectively accounting for 82% of the total consumption. PV is the fastest growing field among them. Backed by the national subsidy policy, domestic PV industry has been developing at a high speed, and its EVA consumption growth is as high as 17.7%. PV overtook foaming to be the largest consumption sector of EVA in 2021.
In 2021, about 38% of domestic EVA capacity was made by kettle process and 62% by tubular process (see Table 3). Given that the tubular process is more efficient in EVA production, the capacity based on the process will increase significantly in line with the rapid growth of PV demand in the future.
Source: China National Chemical Information Center
Adhesive film: POE to be domestically produced
Plastic modification, foaming materials and PV were three major derivatives of POE in 2021 (see Figure 5). Plastic modification was the most important, accounting for about 70% of the total POE consumption. Following the trends of "replacing steel with plastics" and "pursuing lighter automobiles, thinner and more stylish household appliances", the penetration of modified plastics in different fields will continue to increase the demand for modified plastic products in automobile, household appliance shell, and packaging industries. This is the main driving force for the rapid growth of POE consumption.
Figure 5 POE consumption by downstream sectors in 2021
Domestic enterprises are committed to solving the catalyst problem technically in recent years before achieving industrialized production and application of POE. Zhejiang University and Sinopec Beijing Chemical Research Institute are carrying out POE R&D. Jingbo Petrochemical and Wanhua Chemical are currently in the pilot test of POE production (see Table 4). Therefore, the localization process of POE is expected to be accelerated.