The passing of the Uyghur Forced Labor Prevention Act in December 2022 has helped to reignite demand for Chinese solar panel manufacturers like JinkoSolar. However, some companies in the industry believe Washington needs to scrap tariffs on solar imports from China altogether if the US is to meet its clean energy targets.
- US solar installations fell 16% year-over-year in 2022 because of a ban on some Chinese goods, which limited the availability of panels.
- The Inflation Reduction Act could lead to a CAGR of 18% in US solar installations between 2023 and 2026.
- JinkoSolar is the seventh-biggest holding in the Proshares S&P Kensho Cleantech ETF, which is up 10% year-to-date.
Shares in JinkoSolar [JKS] have trended higher so far this year as demand for its products picks up. Solar panels made by the company and Trina Solar [788599.SS] are flowing into the US after imports had piled up at ports amid forced labour concerns.
According to a Reuters report, the backlog is easing after rules around complying with the Uyghur Forced Labour Protection Act (UFLPA) were made clearer, following its passing December 2022. UFPLA bans the importation of any products made in China’s Xinjiang region, where ethnic Uyghur and other Muslim groups are believed to have been subjected to forced labour by China’s authorities.
A steady flow of photovoltaic (PV) imports should help to accelerate the development of solar projects. According to a market report from the Solar Energy Industries Association published 9 March, solar installations fell 16% year-over-year in 2022, mainly due to a ban on some Chinese goods that limited the availability of panels.
As of 10 March, the JinkoSolar share price is up 19.8% year-to-date, though down 7.2% in the past month.
Declining margin growth
While demand looks to be picking up, shares in the Shanghai-based solar company dropped 12.8% on 10 March after the release of its fourth quarter (Q4) and full-year 2022 results.
Gross margin for Q4 declined to 14.1% from 15.7% in Q3 2022 and 16.1% in Q4 2021. The margin for the full fiscal year was 14.8% versus 16.3% in 2021. This was blamed in part on “seasonal unbalance between polysilicon supply and demand for PV products” as well supply chains adjusting their inventory levels. Volatile polysilicon and wafer prices also led some customers to pause their orders, commented JinkoSolar CEO and chairman Xiande Li.
Total shipments of 16.8 GW for the October to December period were up 54.8% sequentially and 73.3% year-over-year. Revenue rose 55.8% and 85.5% over the respective periods.
Guidance for Q1 2023 indicates total shipments to be between 11 GW and 13 GW compared with total shipments of 8.4 GW in Q1 2022. Shipments for the full-year are expected to be 60 GWW and 70 GW, up from 46.6 GW in 2022.
Tailwinds from improving policies
The US is keen to realise its domestic solar panel manufacturing potential with subsidies made available through the Inflation Reduction Act. The climate bill is expected to lead to a compound annual growth rate (CAGR) of 18% in US solar installations between 2023 and 2026, according to Goldman Sachs research.
However, the US won’t be able to wean itself off imports completely. For example, China is the lead supplier of polysilicon, an essential material in solar panels, accounting for 80% of polysilicon manufacturing in 2022.
It’s for this reason that Liu Hanyuan, chairman of Tongwei Group [600438.SS], believes that the US should put a complete stop to all tariffs on solar imports from China. Speaking to Bloomberg at the sidelines of the National People’s Congress, Liu argued that by opening up access to each other’s technology, the US can accelerate its clean energy transition.
“We hope US politicians can be at peace with opening the market,” Liu said.
Funds in focus: the Proshares S&P Kensho Cleantech
JinkoSolar received a big upgrade from Roth Capital in January, citing US policy tailwinds picking up speed. The rating was raised from ‘neutral’ to ‘buy’ and the share price target hiked from $50 to $70, implying an upside of 43% from the most recent closing price of $48.98.
The stock is the seventh-biggest holding in the Proshares S&P Kensho Cleantech ETF [CTEX] as of 10 March, with a weighting of 4.05%. The fund is up 9.7% year-to-date, though down 2.8% in the past month.
The stock is also the ninth-largest holding and makes up 2.74% of the Invesco Solar ETF [TAN]. The fund is up 2.9% year-to-date and down 2.6% in the past month.
The Global X China Clean Energy ETF [9809.HK] has allocated 0.97% of its portfolio to the stock, as well as 3.93% to Trina Solar. The fund is up 1.1% year-to-date and down 5.2% in the past month.