Recently, Bloomberg New Energy Finance (Bloomberg NEF) Global Executive Interview Series released a new issue of dialogue with Lu Chuan, director of Zhengtai Group and chairman and President of Zhengtai Xinneng. Published a study entitled "New Energy Leaders: Chint's Lu on Solar, China's Industrial Edge and What's Next", We hereby share Dr. Lu Chuan's core views on the photovoltaic industry, China's industrial competitive advantage and the future of new energy in the interview.
Lu Chuan, once an outstanding legal talent, studied in the United States in his early years and obtained a doctorate in law after returning to China. Faced with the crossroads of academic research or business life, Zhengtai Group threw an olive branch to his career.
Lu Chuan joined Chint during the financial crisis from 2007 to 2009 and engaged in photovoltaic business. At that time, overcapacity and low profits were the norm in the industry. Looking back on this experience, he admitted that those years had a profound impact on his career development and became a rare opportunity.
Then, the financial crisis broke out in 2008. We continue to insist that even in the first half of 2009, we still believe that the future of thin film technology is promising. But since then, the price of polysilicon has plummeted, and thin film technology has lost its competitiveness in an instant. At this time, the company's listing plan is also affected.
Since then, as the company has turned back to the silicon technology route, the management team has also adjusted accordingly. Some senior executives with thin film research and development background have left one after another, which also opens up more development space for the younger generation of managers. It is in this process that I gradually assume more important management responsibilities and enter the core decision-making level of the company. Subsequently, the liquidity problem of the industry began to emerge. The construction of photovoltaic parks required 80% of the project financing, and it was very difficult to obtain loans from banks at that time.
China's National Day is October 1. I remember that in September 2009, as usual, we gave the factory a seven-day holiday. But when we returned to work after the holidays, we found that many customers, about 70%, had cancelled their orders. Many of our competitors are in the same situation. In just seven days, the whole market environment has undergone tremendous changes.
Question 2: What happened in just seven days that led to this situation? At that time, Europe was the main market for the photovoltaic industry. By September, when European customers returned to work after their summer holidays, they found that the situation was still grim due to the financial crisis, and they changed their original expansion plans. At that time, I had neither technical background nor practical experience in factory operation, but I was among the top executives of the company, facing a grim situation. How did we get through the difficulties? At that time, due to inventory impairment, most photovoltaic enterprises suffered losses. when polysilicon prices fell.". One of our customers, MEMC (later renamed SunEdison), was purchasing PV modules at the time, and they also faced difficulties in financing the project. We had delivered a project for MEMC (later SunEdison) at Solar Island with an installed capacity of about 40 MW, which was quite substantial by the standards of the time. At that time, there were four Chinese suppliers, each supplying a quarter, and we were one of them, and the performance of our photovoltaic modules was quite excellent. So the CEO wanted to come to China and visit Chint himself to find out why he had never heard of us before and why our products worked so well.
Question 3: So they got your product performance data and decided they needed more information? At that time, the CEO asked our group chairman why we did not engage in project development or invest in photovoltaic downstream business. At that time, we were only a manufacturing company after all.
As a Chinese company with a background in the electrical industry, we have never heard such a statement before. These conversations have really benefited us a lot. Previously, we had only thought about producing products and selling them to customers. We focus on quality, price and access without ever realizing that this is not a consumer-facing product. All of our PV modules will be supplied to the PV park, which determines the price of the power purchase agreement (PPA), which directly determines the return of downstream investors and their willingness to buy our products.
It can be imagined that the market situation was very serious at that time. Global demand may be only 20-30GW, but China's own manufacturing capacity is almost that much. Therefore, if you are not a leading photovoltaic company, the price of your modules will be depressed. In the final analysis, because companies like First Solar manufacture in the United States, and other downstream companies with project development capabilities and preference for their own components, Chinese manufacturers can only compete for the market demand of 10g W, although they have a total capacity of 20g W. This situation, incidentally, has not changed much.
This exchange seems to open a window. The CEO of the United States listed the capabilities we need to be good developers. First, you should understand the local market and obtain permits, establish good relations with local councils and county governments, have the conditions for grid connection and technical expertise. You need to have a good relationship with the National Grid, the US equivalent of a power distribution company. In addition, you need financial strength-at the very least, your balance sheet should be fairly robust.
Chint has all these ingredients. Our chairman takes this very seriously and believes in it.
The American CEO also pointed out that the most important thing is whether your product can make the photovoltaic park get the highest return. This is independent of the technical parameters of the individual components, whether 300W or 280W. The only criterion is whether it can bring additional benefits to customers.
This has completely changed the way we think. Previously, we thought we had to break the world record in technical efficiency and dominate the industry. But that's not the point.
Since that year (2009), we have been developing projects in China and around the world.
We started in Korea first, in part because we had a team there that was very familiar with project development work. So they took action, starting with the 1MW project. South Korea has limited land resources, but the electricity price is very high.
Then we began to develop projects in China. Our first project was connected to the grid in 2009, when there was no feed-in tariff policy in China. Everything we do is based on speculation, trying to predict the future level of electricity prices. It is a 10 MW photovoltaic park located in Ningxia in the west. The team has accumulated project development experience through this project, including internal skills building and operation and maintenance experience.
Question 4: Is Ningxia still a market for your company to forge skills? Following the photovoltaic business, we launched the EPC business and stepped into the field of electrical and renewable energy products.
Subsequently, we noticed the field of distributed generation, such as the German market where a large number of household rooftop photovoltaics have been installed. At that time, SolarCity in the United States was already involved in this field, and I read all their reports and concluded that the household photovoltaic business had a bright future. It was 2012, and China's residential electricity prices were at their lowest level, so we chose to wait and see, and it was not until 2015 that we officially entered the household market with further cost reduction and component efficiency improvement. In the 10 years to 2025, the business scale of our household photovoltaic power plants has grown from zero to about 2 million.
Previously, most of our products were sold to Europe, America or other regions, mainly for export.At that time, most Chinese people thought of the photovoltaic industry as simply a manufacturing industry that produced products for other countries, not China. But after about 2016, the situation changed.
Decarbonization has become a national policy. China announced the "double carbon" ( Question 7: There is a view in the market that if the cost of electricity is low, electrification will be promoted, and vice versa. Is this true in China and other markets? Because of photovoltaics, we can get cheaper, more accessible and cleaner electricity. Otherwise, if other energy sources are cheaper and more accessible, they could also become widespread in China. Our starting point is not that photovoltaic is a kind of green energy. Our starting point has always been that this energy is cheaper and more accessible. If it's more environmentally friendly, that's great. Question 8: What are the effective experiences in Chinese corporate culture? What are the advantages of this system? Therefore, Chinese entrepreneurs are eager to realize their personal dreams through hard work. They have great resilience and perseverance. In China, there are many entrepreneurs who are well educated and understand the world situation. Everyone is very diligent. This is the reason why we can execute the landing quickly. Another advantage is the supply chain. China's value chain is quite well developed. Many enterprises compete with each other, which makes the industry extremely competitive. In addition, China's infrastructure is perfect. This enables the plant to be put into operation in a very short time. Taking our photovoltaic cell factory as an example, even during the epidemic, despite many restrictions, it only took about nine months from ground breaking to formal production. Component factories take three to six months. In addition, there are standards and infrastructure built by the government. The Chinese government has maintained policy stability and regulatory support, and has always had a strong ability to support the development of enterprises. Q9: Turkey is one of your chosen investment destinations. How easy is it to do business locally? What makes you think this country is a good place to do business? Where will you expand your business next? At the same time, Turkey is adjacent to Europe, so it is a gateway to Europe for us. For our manufacturing industry, globalization is a question that all Chinese enterprises are thinking about. This involves several levels. The most basic thing is to carry out global business, such as global trade. Products made in China are sold all over the world, which is the simplest stage. The second stage is to start investment rather than manufacturing, such as photovoltaic project development. At this point, you form a joint venture with a partner or client and invest some of the capital. The third stage is that in addition to investment, you also provide a complete turnkey solution, which may even include manufacturing. These are the steps taken by Chinese enterprises in the process of globalization. But now we believe that we should pursue "global localization" rather than "globalization". In the past, globalization meant setting up a headquarters in China, having offices elsewhere, and having a presence there. Today, based on the global situation, this model may no longer work. So you have to move to global localization. This means that not only do we have offices in other regions, but the offices are also run by local teams, and the local people know more about the local situation and how to achieve their goals in the country. Turkey was one of our chosen locations. To be selected as a manufacturing site, certain prerequisites must be met, such as a sound infrastructure, a transparent legal system, and a competitive workforce. Turkey has exactly these conditions. In the future, we may set up factories in the EU. However, at present, in the EU, at least in terms of labor costs, there is still a lack of competitiveness, so we must adapt to local conditions. Q10: You have experience operating plants in Europe. How does this help you? At that time, its automation level far exceeded that of any factory in China, but five years later, China's automation technology has developed quite mature. This is not because we learned from them, but because we looked at that line and knew how to build a more competitive, cheaper and more efficient line. Our production speed far exceeds that of our European counterparts, but that factory has given us valuable experience beyond "production". We acquired the German factory to supply local customers and learned how to run a German factory with a German management team. After the minimum price agreement between the European Union and China expired, the factory was closed because of the decline in the competitiveness of operating costs. Question 11: The change from generation to generation in China is very obvious. People in their thirties today may think differently than you do. How do you think this will change the way Chinese companies operate? Nowadays, we are facing great difficulties in recruiting workers. Labor costs are way up compared to 10 or 15 years ago. Moreover, young people are reluctant to do repetitive work every day, and they want to work in a more flexible way. About five years ago, I was very worried about this. But I may have changed my mind because some of these jobs may be replaced by artificial intelligence (AI) in the next five years. Some jobs may be done by robots rather than humans. In this way, the younger generation will have more space to think about how they can change the world. we started-first for household use, and then for operation and maintenance. At present, we are still paying attention to green hydrogen, green methanol and biomass energy. These are all new areas for us, and we don't have a ready pool of talent with relevant knowledge, so we are recruiting talents in these new professional fields, and we may see the results in two years. We also have three insurmountable red lines-compliance and asset-liability ratio management must be done well. If the line is crossed financially, the company will be at risk no matter what it does. The third line we call "lifeline" is cash flow. Before we get involved in any business, we will try our best to measure the cash flow. We must manage these three lines: the red line of compliance, the bottom line of leverage, and the lifeline of cash flow. Q13: I noticed that just now you mentioned that you can sacrifice up to one third of your profits for innovation and creativity in order to open up the future. Is this your way of doing business to strongly support innovation? Whenever we enter a new business area, I will communicate with the financial team. Finance is always very conservative and will ask a lot of questions about gross margin levels and so on, which is sometimes really difficult to answer. We have done a project to carry out the feasibility study of green methane oil in Northeast China. The project is planned to support about 300 MW wind power and 100 MW photovoltaic. The cost of electricity generated by this method is only about $20/MWh, so it should be very competitive for hydrogen production. However, the risk of electrolyzer is not stable enough at present. I was concerned because the electrolyzer was more like an inverter in a photovoltaic system-the total capital expenditure was not large, but if it failed, the whole system would be paralyzed. I was very hesitant about this investment decision. The finance team asked: What happens to the cash flow if something goes wrong with the project? At what price can you sell and what is the IRR? You are asking a question that no one can answer. My view is that we should not focus on that part. This is like our first photovoltaic park, which was built according to all the forecasts and has been losing money since it was built. But once you pay the tuition, you can climb the learning curve and gain insights and expertise. Question 14: What is the company's next development plan? What are the new areas that have not been explored? Centralized PV parks are now facing huge problems because they generate electricity centrally at the same time of the day and are exposed to spot market electricity prices, which have even been negative in Europe. We see the potential for developing combined or hybrid systems. Therefore, we are currently developing high-quality solar storage projects in Europe, some of which are also equipped with wind power. We will introduce green energy, but at the same time integrate some fossil energy. We seek a balanced development between pure green energy and less green energy, which is very stable and still achieves carbon reduction. This is the direction of the future. Question 15: In your opinion, what are the future directions? For example, we have a project in Turkey to replace diesel generators for an oil company with 61 oil extraction pumps. These diesel-powered generators cost up to $2 million per year in diesel, and we replaced them with a 2MW photovoltaic plus 5MWh energy storage system, saving the company 90% of the diesel cost. The cost of solar storage has been declining over the past few years." Alternatives to diesel have become very competitive in many places. A village in Africa without electricity can do this. But this requires local government support, perhaps global institutions, and then all parties work together. It is more meaningful to do so, while reducing emissions, it also improves people's lives. Q16: Do you also operate in Africa? We have done some South African bidding projects in the past, but that was 10 or 12 years ago. Recently, we have some new projects in Africa, such as Kenya and Nigeria, including off-grid household systems and diesel generator replacement projects. These projects are still small in scale, but have great potential compared with the centralized system integrated into the national grid. Question 17: Do you have personnel stationed in Africa to directly connect with the local network? After they set up a local team, they will return home and hand over the business to the local people. We must create local jobs and bring benefits. Even in Europe, when we develop projects, we donate to communities and local councils, such as libraries or similar public facilities. We must make the local people feel that we are here to support them, not to grab. Question 18: This brings us to the need for partnership. How are Chinese companies doing in establishing partnerships? In the past, most Chinese entrepreneurs could not speak English or French, but today the language skills of the younger generation are much better. I think this is very important. To build a strong and stable relationship, you have to talk to people directly, look them in the eye and communicate sincerely, so that people will feel that you are trustworthy. If you talk in another language, your eyes drift away, and the interpreter's translation is not very accurate-I think there will always be some discomfort in the other person's heart. Question 19: What else do we need to do for people to better understand China? We need to be more open and let them see for themselves, which is much better.
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