Understanding New Energy Power Generation: Photovoltaic and Wind Power (A Comprehensive Study)

Before analyzing the new energy power generation industry, let's correct a common misconception. Many people believe that new energy is renewable energy; as long as it is renewable and environmentally friendly, it belongs to new energy. This understanding is completely wrong. New energy and renewable energy have significant differences. Renewable energy emphasizes the word "renewable," referring to energy that can be naturally recycled. For example, wind energy, solar energy, hydropower, tidal energy, etc. New energy emphasizes the word "new," referring to energy forms that utilize non-traditional energy through modern development and utilization based on new technologies and materials. To help you understand, here's a simple example. Hydropower can definitely be considered renewable energy. However, because the technology is mature and widely used, it is considered conventional energy, not new energy. Nuclear energy, which utilizes nuclear fission or fusion to release energy from uranium ore, is not renewable energy. From a classification standpoint, nuclear energy is considered new energy.
Having clarified this misconception, let's look at the new energy power generation industry. New energy power generation is an inevitable trend. Under the historical wave of global energy structure transformation, its development prospects are self-evident. In recent years, China has continuously introduced various policies to support the development of the new energy power generation industry. According to China's "dual carbon" goals, by 2060, the proportion of non-fossil energy consumption should reach more than 80%. In other words, in the future, wind and solar new energy power generation will account for more than 50% of total power generation. Looking at China's main power generation structure in 2020:

Currently, China mainly relies on traditional thermal power generation and hydropower generation, with a combined share of 85%. New energy power generation (mainly wind power, nuclear power, and solar power) accounts for a very low percentage; the combined share of wind, nuclear, and solar power generation is less than 15%. From this perspective, new energy power generation still has a long way to go.
However, in terms of growth rate, the development speed of new energy power generation is far faster than that of traditional energy power generation. Combining China's "dual carbon" goals and looking to the future, we can roughly see the development prospects of the above five power generation methods. Although thermal power generation is currently the mainstay, because it mainly burns coal and is one of the main sources of carbon emissions, under the background of carbon neutrality, it is expected that there will be little room for growth in the future; hydropower generation, while not directly causing pollution, has high terrain requirements and can damage ecosystems, thus causing considerable controversy; nuclear power, like hydropower, does not have carbon emission problems, but nuclear waste and thermal pollution remain two major challenges. In addition, nuclear safety is also a concern, so China is cautious about developing nuclear power; wind power and solar power generation are different. These two power generation methods are clean and renewable, and currently have no "fatal" drawbacks. They are also power generation projects that China is currently strongly supporting. In the long term, the development prospects of wind power generation and solar power generation are the greatest. These two directions are also the main research directions of the new energy power generation industry today. Next, we will delve into the following questions: How is the new energy power generation industry doing? What are the current investment opportunities? Which sub-sectors have greater investment value? A heads-up: This article is quite long, so here's an outline:

1. Sub-sectors and Market Size of the New Energy Power Generation Industry
2. How has the New Energy Power Generation Industry Developed in the Past 10 Years?
3. Investment Value of 5 Sub-sectors in New Energy Power Generation?
4. Current Investment Opportunities in the New Energy Power Generation Industry?

 

 

I. Sub-sectors and Market Size of the New Energy Power Generation Industry

1. What are the sub-sectors of new energy power generation? Compared to the semiconductor and new energy vehicle industries we have previously reviewed, the new energy power generation industry has a simple industrial structure and relatively few sub-sectors. From a broad perspective, new energy power generation can be mainly divided into photovoltaic power generation and wind power generation. Under these two main directions, there are corresponding sub-sectors.

Let's look at photovoltaic power generation first.

Photovoltaic power generation is solar power generation.

It mainly includes five sub-sectors: silicon materials and wafers, photovoltaic cell components, inverters, photovoltaic auxiliary materials, and photovoltaic processing equipment.

(1) Silicon Materials and Wafers The silicon materials and wafers industry can be divided into silicon materials and wafers. Silicon materials, simply put, are materials formed by processing and purifying industrial silicon. Silicon materials of different purities can be further processed into different wafers. Silicon materials with lower purity (purity around 6-7 nines, or about 99.999999%) can be used to make solar silicon wafers, while those with higher purity (11 nines) can be used to make semiconductor wafers. The "silicon materials and wafers" we are discussing here mainly refers to solar silicon wafers. Solar silicon wafers are the core materials for making solar panels, and their importance is self-evident. (2) Photovoltaic Cell Components Simply put, these are solar panels, the core part of the solar power generation system. Their function is to convert solar energy into electricity.

(3) Inverters

Simply put, it is a type of transformer. Its function is to convert low-voltage direct current (the electricity in the battery) into the 220-volt high-voltage alternating current that we use in our daily lives. (4) Photovoltaic Auxiliary Materials As the name suggests, these are auxiliary materials in the production of photovoltaic components, including crucibles, hot melt, diamond wire, etc. Although photovoltaic auxiliary materials are not core components, they are indispensable materials in the production of photovoltaic equipment. (5) Photovoltaic Processing Equipment Simply put, these are the machines and equipment used by photovoltaic manufacturing companies to produce photovoltaic components. This includes silicon rod/ingot manufacturing equipment, wafer/wafer manufacturing equipment, cell manufacturing equipment, etc.

Now let's look at wind power generation. Wind power mainly includes two sub-sectors: wind power components and wind turbines.

(1) Wind Power Components Simply put, these are key components of large wind turbines, including blades, nacelles, main shafts, castings, converters, etc. Wind power has many components, but they are all core components that have a crucial impact on the efficiency of wind power generation. (2) Wind Turbines Simply put, these are companies that assemble wind turbines. After the wind power components are produced, wind turbine manufacturers assemble the various components and deliver them to wind power operators for power generation. Compared to the wind power component industry, the wind turbine industry has significantly lower technological content. 2. Market Size of Each Sub-sector in New Energy Power Generation? Through the above analysis, we know that there are a total of seven sub-sectors in the new energy power generation industry. Five belong to photovoltaic power generation, and two belong to wind power generation. So the question is, what is the status of these seven sub-sectors in the entire new energy power generation industry? To determine their status, we need to look at the market size. Market size is mainly determined by two financial indicators: revenue and net profit attributable to the parent company. Revenue simply refers to the total amount of money an industry or company receives from selling goods. Net profit attributable to the parent company simply refers to the amount of money an industry or company earns after deducting various costs from the money received from selling goods. Through these two indicators, we can clearly see the market size of an industry. From the revenue and net profit attributable to the parent company of the new energy power generation industry in 2020:

Photovoltaic power generation accounts for 65%, wind power accounts for 35%, and the scale of photovoltaic power generation is nearly twice that of wind power.

(1) Let's first look at the five sub-sectors of photovoltaic power generation. The silicon material and silicon wafer market has the highest share, earning 68.83% of the industry's profits with a 41.45% market share; followed by inverters, which earned 14.77% of the industry's profits with a 10.06% market share; photovoltaic battery components are also good, earning 13.62% of the industry's profits with an 8.35% market share; the smallest share is photovoltaic processing equipment, although the market share is only 2.57%, but it earned 6.02% of the industry's profits; compared with the above four sub-sectors, photovoltaic battery components appear to be too weak, occupying 37.57% of the market share, not only earning nothing, but also losing hundreds of millions, and the investment value is expected to be low. (2) Let's look at the two sub-sectors of wind power. The market share of wind turbine units is very large, as high as 72.46%, but it only earned less than 50% of the industry's profits. Overall, the investment value is generally; in contrast, wind power components are much better, earning more than 50% of the industry's profits with only 27.38% of the market share, which deserves our attention.

II. How has the new energy power generation industry developed in the past 10 years?

Let's start with the conclusion. In the past ten years, overall, the new energy power generation industry has developed very well, with a development speed far exceeding the average level of more than 4,000 listed companies in the A-share market. The development speed in the past two years has exploded, and the momentum is very strong. From a structural point of view, the long-term development speed of photovoltaic power generation is significantly faster than that of wind power generation. From the perspective of sub-sectors, the five sub-sectors of silicon materials and silicon wafers, photovoltaic auxiliary materials, photovoltaic processing equipment, inverters, and wind power components have relatively good performance and faster development. The two sub-sectors of photovoltaic battery components and wind turbine units have poor performance and slower development. The following analysis will mainly focus on these five sub-sectors: silicon materials and silicon wafers, photovoltaic auxiliary materials, photovoltaic processing equipment, inverters, and wind power components. Next is a specific analysis. How does an industry develop? Financial data is the most powerful proof. Financial data mainly looks at three points: how is the performance? Is the earning ability strong? Is the revenue quality high? To make it easier for everyone to understand, I will briefly introduce the three relevant financial indicators. Those who understand can skip this part. (1) How is the performance? Mainly look at two indicators: revenue growth rate and return on equity growth rate. ① Revenue simply means how much money you can receive from selling goods when you open a small shop. Revenue growth rate is whether the money you receive today is more than yesterday, and whether the money you receive tomorrow is more than today, whether your life is getting better and better. The specific formula is as follows: Revenue growth rate = (increase in operating income / total operating income of the previous year) × 100% For example, if you open a milk tea shop and sold 100,000 yuan worth of milk tea in the first year, the revenue is 100,000 yuan. If you sold 120,000 yuan in the second year, then the revenue growth rate of this year is (120,000-100,000) / 100,000 = 20%. ② Return on equity simply means how much money you can earn as a shareholder of a small shop after deducting various costs. The return on equity growth rate is whether you earn more this year than last year, and whether you earn more next year than this year, whether your life is getting richer and richer. The specific formula is as follows: Return on equity growth rate = (increase in return on equity / total return on equity of the previous year) × 100% Still taking the example of opening a milk tea shop, for example, if you earned 10,000 yuan in the first year, then the return on equity of the milk tea shop is 10,000 yuan. If you earned 15,000 yuan in the second year, then the return on equity growth rate of this year is (15,000-10,000) / 10,000 = 50%. (2) Is the earning ability strong? Mainly look at ROE and net profit margin. ① ROE simply means how much money one yuan of net assets can earn. The specific calculation formula is as follows: ROE (return on net assets) = (net profit / net assets) * 100% For example, if you invest 100,000 yuan in a milk tea shop, and this milk tea shop earned 10,000 yuan in the past year, then the ROE of this milk tea shop is (10,000 ÷ 100,000) * 100% = 10%. ② Net profit margin simply means how much money you can earn from selling one yuan of goods. The specific formula is as follows: Net profit margin = (net profit / sales revenue) * 100% For example, if you sell milk tea, a cup costs 10 yuan and you can earn 2 yuan, then your net profit margin is (2 yuan ÷ 10 yuan) * 100% = 20%. (3) Is the revenue quality high? Mainly look at the sales cash received / operating income. What is the highest revenue quality? It is best to be able to prepay. The goods have not been produced yet, and the money has already been paid. Such companies have sufficient cash flow, that is, cash / revenue > 100%, the larger the better; secondly, it is a cash-on-delivery transaction, the cash flow is stable, that is, cash / revenue = 100%; the worst is that the goods have been delivered, but the money has not been paid yet, and the capital chain is at risk of breaking at any time, that is, cash / revenue < 100%, the smaller the worse. By analyzing the long-term and short-term financial data of these three aspects, we can roughly see how the industry has developed in recent years. Next, we will formally enter the analysis phase. 1. Performance: Generally excellent, photovoltaic is better than wind power, silicon materials and silicon wafers, photovoltaic auxiliary materials, photovoltaic processing equipment, inverters and wind power components are better, photovoltaic battery components and wind turbine units are worse (1) Let's look at the revenue growth rate first: photovoltaic growth rate is faster than wind power, photovoltaic auxiliary materials and wind power components have the fastest growth rate, silicon materials and silicon wafers, photovoltaic equipment processing and photovoltaic battery components have faster growth rate, inverters and wind turbine units have slower growth rate.

In the past 10 years, the revenue compound growth rate of the new energy power generation industry was 24.00%, and the growth rate in the past two years has soared to 52.05%.

During the same period, the average compound revenue growth rate of all listed companies in the A-share market was only 11.83%, which dropped to 8.30% in the past two years due to downward economic pressure. Overall, the revenue growth rate of the new energy power generation industry has been very strong in the past decade, surpassing the average level of all listed companies in the A-share market. From a structural perspective, the long-term revenue growth rate of photovoltaic power generation is faster than that of wind power. The compound revenue growth rate of photovoltaic power generation in the past 10 years was 29.70%, significantly higher than the 17.81% of wind power. However, in the past two years, the compound revenue growth rate of wind power has surged to 59.05%, surpassing photovoltaic power generation. Specifically, looking at sub-sectors: ①The fastest-growing sector is photovoltaic auxiliary materials, with a 10-year compound revenue growth rate as high as 42.19%, nearly four times the average growth rate of all listed companies in the A-share market. However, the growth rate has declined significantly in the past two years, dropping to 30.21%, ranking last, but still far better than the average level of all listed companies in the A-share market; ②followed by wind power components, with a 10-year compound revenue growth rate of 41.89%, and a compound growth rate of 46.07% in the past two years; ③photovoltaic processing equipment, with a 10-year compound revenue growth rate of 29.70%, and a compound growth rate of 36.25% in the past two years; ④photovoltaic battery components, with a 10-year compound revenue growth rate of 29.27%, lower than the overall growth rate of the photovoltaic industry, but the growth rate has increased significantly in the past two years, rising to 64.59%; ⑤silicon materials and wafers, with a 10-year compound revenue growth rate of 26.18%, and a significantly faster growth rate in the past two years, rising to 41.27%, but still lower than the overall growth rate of the photovoltaic industry during the same period; ⑥wind turbines, with a 10-year compound revenue growth rate of 14.62%, relatively low, but still higher than the average growth rate of all listed companies in the A-share market, and an explosive increase in the past two years, rising to 64.90%, with large fluctuations; ⑦the lowest growth rate is inverters, with a 10-year compound revenue growth rate of only 8.74%, significantly lower than the average growth rate of all listed companies in the A-share market, but the compound growth rate has surged to 52.02% in the past two years. (2) Next, let's look at the growth rate of return on net assets attributable to the parent company: The overall growth rate is rapid, with photovoltaic power generation significantly better than wind power. Silicon materials and wafers have the fastest growth rate, followed by wind power components, photovoltaic auxiliary materials, and inverters. Photovoltaic battery components and wind turbines have slower growth rates.

Over the past 10 years, the compound growth rate of return on net assets attributable to the parent company in the new energy power generation industry was 22.41%, and the growth rate surged to 67.49% in the past two years.

During the same period, the average compound growth rate of return on net assets attributable to the parent company of all listed companies in the A-share market over the past 10 years was only 9.21%, and only 8.70% in the past two years. Overall, the compound growth rate of return on net assets attributable to the parent company in the new energy power generation industry over the past decade has been quite strong, significantly exceeding the average level of all listed companies in the A-share market. From a structural perspective, the long-term compound growth rate of return on net assets attributable to the parent company in photovoltaic power generation is significantly faster than that of wind power. The compound growth rate of return on net assets attributable to the parent company in photovoltaic power generation over the past 10 years was 35.20%, while that of wind power was only 13.14%. However, in the past two years, the compound growth rate of wind power has surged to 90.60%, while the growth rate of photovoltaic power generation, although also high at 58.28%, is still lower than that of wind power. Specifically, looking at sub-sectors: ①The fastest-growing sector is silicon materials and wafers, with a 10-year compound growth rate of return on net assets attributable to the parent company as high as 54.12%, and a further increase to 63.00% in the past two years. Combining the previous analysis, the revenue growth rate of silicon materials and wafers is also good, indicating that the high performance growth of silicon materials and wafers is not only supported by strong real demand but also by strong government support (government subsidies). ②Followed by photovoltaic auxiliary materials, with a 10-year compound growth rate of 37.79%, and a significant increase to 55.88% in the past two years. Combining the previous analysis, both revenue and net profit growth are relatively fast, indicating that this sub-sector's performance growth is supported by real demand (rather than subsidies). ③Wind power components, with a 10-year compound growth rate of 37.37%, and a surge to 93.08% in the past two years. Similar to photovoltaic auxiliary materials, both revenue and net profit growth are high, indicating that the performance growth of this sub-sector is supported by real demand; ④Inverters, with a 10-year compound growth rate as high as 35.23%, and a significant increase to 79.55% in the past two years, more than doubling. With a compound revenue growth rate of less than 9%, the compound growth rate of return on net assets attributable to the parent company is as high as 35%, indicating that the past performance growth of inverters is more driven by policy; ⑤Photovoltaic processing equipment, with a 10-year compound growth rate of 28.70%, lower than the overall growth rate of the photovoltaic industry, and a compound growth rate increase of only 41.53% in the past two years. Combining the previous analysis, the growth rates of revenue and return on net assets attributable to the parent company are both good, around 29%, which is very healthy. ⑥Wind turbines, with a 10-year compound growth rate of 6.23%, far lower than the average level of all listed companies in the A-share market. Combining the previous revenue analysis, both revenue and return on net assets attributable to the parent company growth rates are at a relatively low level, and are not worth paying too much attention to; ⑦The slowest growth rate is photovoltaic battery components, with very large fluctuations in return on net assets attributable to the parent company. In 2020, the return on net assets attributable to the parent company was negative, and the revenue growth rate was also relatively average. Currently, it does not seem to have much investment value. Overall, the performance of the new energy power generation industry has been excellent over the past decade, with revenue and return on net assets attributable to the parent company growth rates far exceeding the average level of all listed companies in the A-share market. From a structural perspective, the performance of photovoltaic power generation is significantly better than that of wind power. Over the past decade, the compound growth rates of revenue and return on net assets attributable to the parent company in the photovoltaic industry are more than double that of wind power. Specifically, in terms of sub-sectors, over the past 10 years, the performance of five sub-sectors, namely silicon materials and wafers, photovoltaic auxiliary materials, photovoltaic processing equipment, inverters, and wind power components, has been relatively good, with both revenue growth rate and return on net assets attributable to the parent company growth rate far exceeding the average level of all listed companies in the A-share market. The performance of two sub-sectors, photovoltaic battery components and wind turbines, is relatively poor and unstable, so they are not included in the following research scope. 2. Profitability: Overall performance is average, but all are in an optimized state. Silicon materials and wafers and inverters are better, while photovoltaic auxiliary materials, photovoltaic processing equipment, and wind power components are worse. Profitability mainly depends on ROE and net sales margin. It should be noted here that because the financial data of the inverter industry before 2011 is not complete, the 2010 financial data is not included in the statistics. (1) First, let's look at ROE: Overall, it is relatively poor, but there is an upward trend. Silicon materials and wafers and inverters are relatively high, while photovoltaic auxiliary materials, photovoltaic processing equipment, and wind power components are average.

Over the past decade, the ROE of the new energy power generation industry has not been high, even slightly lower than the average level of all listed companies (the entire market). However, from a trend perspective, it is on the rise, gradually surpassing the average level of the entire market in recent years.

From a structural perspective, the average ROE of photovoltaics over the past decade is 9.30%, slightly better than wind power, but still lower than the average of 11.86% for all A-share listed companies during the same period. Let's take a closer look at the sub-sectors. ①The highest average ROE over the past decade is silicon wafers and silicon materials, reaching 13.15%, significantly higher than the average of 11.86% for all A-share listed companies during the same period. In terms of trend, the ROE has significantly improved in recent years, remaining above 20% in the past two years; ②Next is inverters, with an average ROE of 12.96% over the past decade, higher than the average for all A-share listed companies. The overall trend is relatively stable, with a significant increase in ROE in 2020; ③Photovoltaic processing equipment, with an average ROE of 8.77% over the past decade, is lower than the average for all A-share listed companies (the entire market). However, from the trend perspective, it has been rising, surpassing the market average since 2017, with a very strong upward momentum; ④Photovoltaic auxiliary materials, with an average ROE of 7.74% over the past decade. From the trend perspective, the ROE has been declining since 2017, but it surged in 2020, surpassing the market average; ⑤Wind power components, with an average ROE of 7.65% over the past decade. From the trend perspective, the ROE has significantly improved in recent years. (2) Now let's look at the net profit margin: Photovoltaic processing equipment is the highest, inverters, wind power components, and photovoltaic auxiliary materials are average, and silicon materials and silicon wafers are relatively poor.

Looking at the net profit margin of the five sub-sectors over the past decade.

①Photovoltaic processing equipment has the highest average net profit margin over the past decade, at 15.58%, significantly higher than the average of 8.85% for all A-share listed companies (the entire market). Combining the previous analysis, in recent years, photovoltaic processing equipment has had both ROE and average net profit margin above 15%, significantly higher than the market average during the same period, indicating strong profitability; ②Next is wind power components, with an average net profit margin of 10.80% over the past decade, higher than the average for all A-share listed companies; ③Inverters, with an average net profit margin of 10.03% over the past decade, higher than the average for all A-share listed companies; ④Photovoltaic auxiliary materials have an average net profit margin of 8.99% over the past decade, slightly higher than the market average; ⑤Silicon materials and silicon wafers have an average net profit margin of 6.06% over the past decade, far lower than the market average. 3. Revenue quality: Generally average, inverters and wind power components are better, silicon materials and silicon wafers, and photovoltaic auxiliary materials are average, and photovoltaic processing equipment is relatively poor. Revenue quality largely depends on cash flow, mainly looking at cash received from sales/operating revenue.

Overall, the cash flow of new energy power generation is generally average, with only about 90% of revenue received in cash, slightly higher than the market average of 87.58%.

From a structural perspective, the cash flow situation of photovoltaics is worse than that of wind power, and has been deteriorating in the past two years. Let's take a closer look at the sub-sectors. The best cash flow is wind power components and inverters, with an average cash received from sales/operating revenue of over 90% over the past decade, higher than the average of 87.58% for all A-share listed companies (the entire market); silicon materials and silicon wafers are next, with an average cash received from sales/operating revenue of around 88% over the past decade, basically in line with the market average; photovoltaic processing equipment has the worst cash flow, with an average cash received from sales/operating revenue of only 78.83% over the past decade, significantly lower than the market average. Combining the above three aspects of financial data. Overall, the financial situation of the new energy power generation industry is very good, and is generally on an upward trend. In comparison, the financial situation of photovoltaics is significantly better than that of wind power. However, it should be noted that photovoltaics have poor cash flow, and there has been some deterioration in recent years, so the performance may have some "water".

 

 

III. Investment Value of Five Sub-sectors in New Energy Power Generation?

In the previous section, we analyzed the development of the five sub-sectors: silicon materials and silicon wafers, photovoltaic auxiliary materials, photovoltaic processing equipment, inverters, and wind power components over the past decade. So the question is: How much investment value do these five sub-sectors have? Let's start with the conclusion:

Among the five sub-sectors.

Silicon materials and silicon wafers have the highest investment value, but also the highest investment risk; followed by photovoltaic auxiliary materials and photovoltaic processing equipment, with relatively high investment value and average investment risk; wind power components also have relatively high investment value, but due to the high terrain requirements for wind power, the investment risk is also relatively high; inverters have average investment value and face the competitive pressure from the unlisted giant Huawei, so the investment risk is relatively high. It should be noted that the above conclusions are based solely on financial data and industry competition analysis, without considering valuation. As for whether it is suitable to invest at present, it is also necessary to consider the current valuation, which will be discussed in the next section. Next is a specific analysis. Previously, we mainly analyzed the overall financial situation of the five sub-sectors of new energy power generation. However, to determine the specific investment value of an industry, it is not enough to only look at the overall financial data of the industry; it is also necessary to consider the industry competition landscape and business model. Next is a specific analysis of each sub-sector. 1. Silicon materials and silicon wafers: High investment value, but relatively large internal variables

Silicon materials and silicon wafers include two parts: silicon materials and silicon wafers.

Silicon wafers are the core components of solar panels. Silicon materials are the raw materials for producing silicon wafers. The silicon materials and silicon wafers industry is the core industry of the photovoltaic industry. Currently, the silicon materials and silicon wafers industry presents a "one super and many strong" pattern. Longi Green Energy's revenue and net profit attributable to the parent company have an absolute advantage, and the strength of the other three companies is also considerable, with market values exceeding 100 billion yuan. However, the market structure of silicon materials and silicon wafers is not solid and has large variables. Why is that? This has to start with the characteristics and current development of this industry. Silicon materials and silicon wafers are an industry with a long production cycle and low production elasticity. In simple terms, it is difficult to improve the productivity of this industry, and it cannot be improved by overtime work in the short term. Production capacity is difficult to change, but market demand is constantly changing. This contradiction determines that the operation of silicon materials and silicon wafers companies is very risky, and it is easy to encounter situations of "over-supply" or "under-supply," which is very passive. How to solve this problem? Currently, there are mainly two methods. The first is vertically integrated production and operation, which simply means not only producing silicon wafers but also solar cells, producing and selling them by oneself. For example, Longi Green Energy, although its main business is producing silicon wafers, it also has layouts in sub-sectors such as battery plates and components; the second is to cooperate deeply with upstream and downstream manufacturers and sign contracts in advance to "lock demand." For example, Tongwei Co., Ltd. invested 15 billion yuan with Trina Solar in 2020 to build projects such as silicon materials and silicon wafers. These two methods have their own advantages and disadvantages, and it is difficult to say which is better at present. Currently, silicon materials and silicon wafers are in a stage of rapid development, and competition among companies is very fierce. It is still uncertain who will win in the end. Therefore, the current market structure of silicon materials and silicon wafers is not solid and has large variables. However, overall, the current market demand for silicon materials and silicon wafers is very strong, and competition can also promote the continuous progress of enterprises, so this sub-sector is still worth investing in. 2. Inverters: Average investment value, low entry barrier, and facing huge competitive pressure from Huawei

Photovoltaic inverters are core devices in solar power generation. Their main function is to convert low-voltage direct current (the electricity in the battery) into the 220-volt high-voltage alternating current that we use in our daily lives.

Currently, there are four publicly listed companies in the inverter industry. Among them, Sungrow Power Supply is the dominant player, significantly outperforming the other three companies in terms of market capitalization and revenue. However, the barrier to entry for inverters is not high, and companies' competitiveness mainly lies in brand and after-sales service. Moreover, in the field of photovoltaic inverters, the unlisted Huawei is the world's largest manufacturer. With low barriers to entry and facing competition from giants, achieving excess returns through long-term investment in the inverter industry seems challenging. 3. Photovoltaic Auxiliary Materials: Strong Market Demand, High Investment Value

Photovoltaic auxiliary materials, as the name suggests, are auxiliary materials used in the production of photovoltaic components, including crucibles, hot melt, diamond wire, etc.

Although photovoltaic auxiliary materials are not core components and their technology content is relatively low, they are crucial to the entire photovoltaic power generation industry. Currently, there are 14 listed companies in the photovoltaic auxiliary materials industry. In terms of market capitalization, only Foster has a market capitalization exceeding 100 billion yuan, while others are mostly small and medium-sized companies. Overall, this sub-sector is relatively stable. However, due to strong market demand, achieving average returns should not be a problem. 4. Photovoltaic Processing Equipment: Large Development Space, High Investment Value

Photovoltaic processing equipment simply refers to the machinery and equipment used by photovoltaic manufacturing enterprises to produce photovoltaic components. This includes silicon rod/ingot manufacturing equipment, silicon wafer/wafer manufacturing equipment, cell manufacturing equipment, etc.

China has complete photovoltaic processing equipment and has fully mastered the ability to manufacture complete sets of solar cell manufacturing equipment. From the perspective of constituent stocks, photovoltaic processing equipment companies are mostly medium-sized or small companies, and the industry is in its early stages. Currently, the development of the photovoltaic industry is booming, and the demand and requirements for equipment are expected to increase, so this sub-sector has considerable development potential. 5. Wind Power Components: Broad Development Space, High Investment Value, but with Significant Uncertainty

Wind power components refer to the key components of large wind turbines, including blades, nacelles, main shafts, castings, converters, etc.

Wind power has many components, all of which are core components that are crucial to wind power generation efficiency, making them highly valuable investments in the wind power industry. From the distribution of market capitalization, the wind power component industry also consists almost entirely of small and medium-sized companies, indicating that the industry is still in its early stages. However, under the background of carbon neutrality, wind power is another important path to replace thermal power, so the long-term growth potential is very good. However, it should be noted that the development progress of components depends entirely on the deployment progress of wind power in China. Wind power has high geographical requirements and large land occupation, and compared with photovoltaics, there is greater uncertainty.

 

IV. What are the current investment opportunities in the new energy power generation industry?

Conclusion first:

Overall, the current valuation of the new energy power generation industry is high, and it is recommended to invest after the valuation falls to a reasonable range.

From a structural perspective, the current valuation of wind power is relatively reasonable, and small-position regular investment can be considered; the current valuation of photovoltaics is high, and it is not recommended to blindly chase the high. Looking at the sub-sectors specifically, the current valuations of silicon materials, silicon wafers, and photovoltaic auxiliary materials are high, making them unsuitable for investment; the current valuation of inverters is severely overvalued, making them unsuitable for investment; the current valuations of photovoltaic processing equipment and wind power components are relatively reasonable, allowing for small-position regular investment. Next is the valuation analysis. We have analyzed the financial data and industry structure of various sub-sectors of new energy power generation. Whether or not to invest still depends on the current valuation. We have compiled the valuation of various sub-sectors of new energy power generation over the past seven years (2014-2020) and calculated the average valuation level of each sub-sector over the past seven years. The reason for choosing the seven years from 2014 to 2020 is simple. The period from 2014 to 2020 was a complete bull-bear cycle, and using the average valuation of these seven years as a comparison is more reliable.

In summary, combining the previous financial analysis, the following conclusions are drawn.

From a structural perspective, there may be some opportunities in the wind power sector, but there is a certain amount of bubble in the photovoltaic sector, and overall, it is still not recommended to enter the market now. Looking at the sub-sectors specifically, silicon materials and silicon wafers should have the greatest long-term investment value. This sub-sector is the core of photovoltaic power generation, with high technology content, large market scale, and strong earning ability, and the development trend in the past two years has been very good. However, it should be noted that the cash flow of silicon materials and silicon wafers is poor and has a further deteriorating trend, so the performance may contain some "water", and the current valuation is high, so it is not recommended to chase the high at present. The performance growth rate of inverters is generally low, the barrier to entry is not high, and the overall competitiveness of the industry is poor. Moreover, among unlisted companies, there are giants like Huawei that share a large amount of market share, so the long-term investment value is limited. From the current valuation of inverters, it is also severely overvalued, so there is no investment value at present. The performance growth rate of photovoltaic auxiliary materials is very fast, but the earning ability is generally low, and such an "auxiliary industry" has low technology content and generally low industry competitiveness, so the long-term investment value is not that high. The current valuation is also relatively high, so there are no investment opportunities. The performance growth rate of photovoltaic processing equipment is fast, and the earning ability has significantly improved in the past two years. Looking forward to the future, the development prospects are also relatively broad. Moreover, the current valuation is also relatively reasonable, so there are some investment opportunities. The performance growth rate of wind power components is very fast, and the earning ability has also been rising steadily in recent years. The current valuation is also relatively reasonable, so there are also some investment opportunities. Overall, the long-term performance growth rate of the new energy power generation industry is fast, and it has experienced explosive growth in the past two years. Under the background of carbon neutrality, the future performance growth rate is expected to remain good, so the investment value of the new energy power generation industry chain is still quite high. However, the overall valuation of the new energy power generation industry is currently high, making it unsuitable to enter the market at present. It is recommended to wait patiently.

From Zhihu (Uncle Wang)