China Galaxy Securities: Profit recovery in the photovoltaic industry driven by the reversal of internal competition, with technological innovation leading a new cycle.

China Galaxy Securities released a research report stating that previous policies continued to be implemented, focusing on "regulating price behavior" and "orderly phasing out outdated production capacity" to prevent the internal competition within the industry. As one of the key industries in China focusing on preventing internal competition, the photovoltaic industry may benefit from policy relief or technological upgrades to accelerate supply clearance. Silicon materials are leading profit recovery, and the industry is expected to turn losses around by 2026, with the possibility of seeing improvement in the second quarter of 2026. With silver paste accounting for over 50% of non-silicon costs in batteries, it is inevitable to reduce or eliminate silver usage given the rising silver prices. Technological solutions such as copper-encapsulated silver, copper plating, and copper paste will develop in parallel to form a diversified cost reduction plan. Currently, backside silver-encapsulated copper technology has been applied, and the bank predicts the possible introduction of double-sided silver-encapsulated copper technology by 2026, further reducing costs. They recommend focusing on leading companies with new technologies like BC and copper paste, as well as the silicon materials sector that benefits the most from preventing internal competition. China Galaxy Securities' main points are as follows: Event: On December 18, 2025, the "2025 China Photovoltaic Industry Annual Conference" organized by the China Photovoltaic Industry Association was held in Xi'an, Shaanxi Province. The added photovoltaic capacity in China exceeded 200GW domestically, with a global slight decrease of 1% to 540GW. Starting in 2026, the country will switch from unit GDP energy consumption to unit GDP carbon emissions as a mandatory indicator, which bodes well for the wind and solar new energy sector in the long run. Expectations indicate that specific regulations will be gradually introduced in various provinces following the issuance of Document 136, providing more than 80% of the new project's electricity volume with mechanism electricity price guarantees. Policies that promote the comprehensive participation of renewable energy in the electricity market, direct green electricity connection, and support for the integration and coordination of new energy development and absorption regulation have been successively introduced. The bank believes that wind and solar mega projects will become more certain, with centralized installations once again becoming the dominant type, and exhibiting three main characteristics: extension towards hydro-wind integration, supporting zero-carbon industries like green hydrogen and green ammonia, storage facilities, and coal-fired power plants coordinating peak shaving. In the short term, a turning point in growth may occur in 2026 due to the new electricity pricing policy, with added photovoltaic capacity declining to 230-250GW (optimistic estimate) or 200-220GW (neutral estimate). In the long term, under the influence of the dual carbon drive, cost reductions through technology, solar-energy storage cooperation, and power grid upgrades will create long-term growth momentum. Globally, photovoltaic additions in 2026 are expected to slightly decrease by 1% to 540GW, with structural highlights emerging in regions like Asia and Africa, and a return to moderate growth in 2027. The prevention of internal competition continues to progress, and profits are expected to turnaround by 2026. Previous policies have continued to be implemented from the two aspects of "regulating price behavior" and "orderly phasing out outdated production capacity" to prevent internal competition within the industry. During the recent CPIA conference, the National Energy Administration, the Ministry of Industry and Information Technology, and industry associations continued to emphasize the prevention of internal competition. On December 12, Beijing Guanheqian completed its registration, officially launching the "polysilicon production capacity integration and acquisition platform," with a planned capacity of silicon materials not exceeding 1.5 million tons. Currently, the industry's silicon material capacity is nearing 3 million tons, and capacity is expected to accelerate its exit. After the platform was launched, according to data from the Silicon Industry Branch, most polysilicon companies have increased their new single price quotes to around RMB 65,000/ton or more, a jump of about 20%, while the execution order prices remain in the range of RMB 51-53/kg. In addition, silicon wafer prices have increased (M10L/G12R/G12 silicon wafer prices at 1.2/1.25/1.5 yuan per wafer), cell prices have risen (M10L/G12R/G12 cell prices have increased to 0.3 yuan/W from 0.28/0.275/0.28 yuan/W), and the new high in silver prices is pushing up costs. Module prices have stabilized (conventional modules at 0.63-0.66 yuan/W, high-power modules at 0.67-0.7 yuan/W), with temporary slow down in demand at the end of the year (domestic projects concluding + overseas double end-of-year demand). The bank considers the photovoltaic industry as one of the key industries in China focusing on preventing internal competition, with policy relief or technological upgrades expected to accelerate supply clearance, leading to profit recovery in the silicon materials sector. The industry as a whole is expected to turn losses around by 2026, with the possibility of seeing improvement in the second quarter of 2026. BC, perovskite, and copper paste will accelerate large-scale production. The bank believes that BC battery customer acceptance at home and abroad is increasing, with market-scale applications speeding up in 2026. The perovskite industry is moving from "pilot testing" to "initial commercial production" stage. With silver paste accounting for over 50% of non-silicon costs in batteries, it is necessary to reduce or eliminate silver usage given the rising silver prices. Technological solutions such as silver-encapsulated copper, electroplated copper, and copper paste will develop in parallel to form a diversified cost reduction plan. Currently, backside silver-encapsulated copper technology has been applied, and the bank predicts the possible introduction of double-sided silver-encapsulated copper technology by 2026, further reducing costs. Risk warning: Risks of industry policies not meeting expectations; risks of new technological advancements not meeting expectations; risks of increasing component prices; risks of companies facing operational difficulties; risks of volatile overseas political situations and deteriorating trade environments.