Shangneng Electric’s 1.7 Billion Capital Increase: Overlooked Key Factors in Capacity Digestion Concerns

Shangneng Electric has responded to the second round of reviews regarding its 1.65 billion yuan capital increase. The announcement highlights key concerns such as capacity digestion, the adequacy of inventory depreciation provisions, and market expansion expenses. The company intends to raise 1.65 billion yuan to fund the “annual production of 25GW string photovoltaic inverter industrialization project,” the “annual production of 15GW energy storage inverter industrialization project,” and to supplement working capital. Upon reaching full production, the 25GW string photovoltaic inverter project will add 15GW of distributed photovoltaic inverter production capacity, increasing the total distributed business capacity to 16.5GW.

Currently, the company’s production capacity stands at only 1.5GW, so achieving 16.5GW raises significant questions about capacity digestion. In the first half of this year, Shangneng Electric’s capacity utilization rate for distributed inverters was 536.55%, a substantial increase of 166.02% compared to 2024. Despite this surge in capacity utilization, the sales-to-production ratio has remained stable at approximately 96%, similar to the levels seen in 2024. On the surface, these figures indicate a strong rationale for significant capacity expansion. However, it is important to consider the “rush installation boom” that characterized the first half of this year, with distributed photovoltaic systems playing a major role.

According to data from the National Energy Administration, the newly installed grid-connected photovoltaic capacity in China reached 212.21GW in the first half of this year, an increase of 109.73GW year-on-year. However, it is noted that most of this new capacity was added in the first five months, particularly in April and May. From June onwards, there was a considerable decline, with only 14GW added in June, and further drops in July. This trend indicates that the domestic installation market in the second half of the year is likely to be significantly affected and may struggle to return to the exceptionally high levels seen in the first half.

Industry insiders have indicated that with the future electricity prices for new photovoltaic power stations determined through electricity trading, the profitability of these power stations may decline. Consequently, investors in these stations could press for lower purchase prices for products, including inverters, which implies that both revenue and net profit margins for inverters will face increased pressure. In response, Shangneng Electric has adjusted the planned start date for its 25GW string photovoltaic inverter industrialization project to 2026. As time progresses, it is anticipated that the impacts of the new energy price reforms will gradually fade.

Additionally, the company has projected that if the 25GW string photovoltaic inverter project begins operations at the end of 2027, it will reach full capacity by 2030, producing 16.5GW of output. Based on a sales volume of 5.39GW in 2024, a compound annual growth rate of approximately 20% would be required to fully absorb the 16.5GW capacity by 2030. This suggests that the pressure for capacity digestion is overall manageable.

Furthermore, data up to August 31, 2025 indicates that Shangneng Electric has approximately 3.69GW of orders in hand for its distributed business, primarily from platform merchants. Based on the current shipping progress, these orders are expected to be fulfilled by the end of 2025. The company anticipates that the sales volume in its distributed business will continue to grow rapidly throughout 2025.

However, in addressing the capacity digestion concerns, the company may have overlooked a significant issue: the elasticity of inverter production capacity. For instance, aside from a low in 2022, the utilization rates for 2023 and 2024 have exceeded 100% and continue to rise each year. Even at its lowest point in 2023, with a utilization rate of 268.16%, the actual output from the projected 16.5GW capacity would exceed 40GW. According to data from Dianyi Hui, other inverter manufacturers also report capacity utilization rates exceeding 100%, indicating that actual output could significantly surpass nominal capacity. This situation could lead to a considerable increase in production, ultimately affecting product demand and pricing.