Recent market sentiment has turned thrilling on China Solar Sector for the discussion of the 14th Five-Year Plan (FYP), as market info says China has intention to raise non-fossil energy mix. We established estimates for solar capacity addition room based on different non-fossil energy mix scenarios. At 18% non-fossil energy mix, we believe China will have ample room to install 55GW solar capacity per year in 2021-25E, and has 21GW additional room if China is determined to lift 2025E non-fossil energy mix target to 20%. We also suggest investors not to overlook other boundary conditions such as the grids and UHV transmission capability to absorb rapid renewables capacity growth. Overall, we think the sector is in a promising up cycle, with poly-si and PV glass players to benefit the most in near term. Our sector top pick remains Xinyi Solar (968 HK, BUY, TP: HK$11.70). We also prefer Flat Glass (6865 HK, NR), Tongwei (600438 CH, NR) and LONGi (601012 CH, BUY, TP: RMB72.40).
- Non-fossil energy mix likely to reach above 18% in 14th FYP. As non-fossil energy mix in China is likely to reach 16% in 2020E, we think setting a 17% non-fossil consumption mix target for 14th FYP would be too conservative, given that the non-fossil energy mix is likely to reach above 16% in 2020E, while setting 20% non-fossil mix target will represent moving the 2030 target ahead by five years. We think 18% would be ample level to promote renewables development. We see any further addition on top of 18% would be strong catalyst to boost wind/solar installation in 2021-25E.
- Other boundary conditions are also critical. We think the non-fossil mix target only is not decisive to outline to picture of China PV installation in 2021-25E. We also suggest investors not to overlook other boundary conditions such as power grids’ capacity for renewable electricity consumption and UHV transmission capability. We think potential infrastructure investments and market-oriented reform for distributed electricity sales to support power storage business model will also be the highlights in the coming 14th FYP.
- Entering into promising up cycle. Though recent module price fluctuation has brought some uncertainties to tariff bidding and grid-parity projects, we still observed SOE developers has not slowed down project tender pace. We expect China PV installation to reach 40GW in 2020E, and capacity room will be gradually released with enhanced infrastructure and power storage development. For overseas PV installation, supported by substantially increased competitiveness and low interest rate environment, we believe solar farm investments is becoming increasingly attractive. In our base case estimates, we expect global annual PV installation to cross the line of 200GW in 2024E. If 14th FYP in China would give a push from raising the non-fossil energy mix target, global PV installation will hit the 200GW milestone earlier in 2023E.
