Good day, and welcome to the Daqo New Energy 2nd quarter 2018 results conference call and webcast. I would now like to turn the conference over to Mr. Longgen Zhang, CEO, Mr. Ming Yang, CFO, and Mr. Kevin He, Investor Relations. Mr. He, please go ahead.
Hello, everyone. I'm Kevin He, the investor relations of Daqo New Energy. Thank you for joining our conference call today. Daqo New Energy just issued its financial results for the second quarter of 2018, which can be found on our website at www.dqsolar.com. To facilitate today's conference call, we have also prepared a PPT presentation for your reference. Today, attending the conference call we have Mr. Longgen Zhang, our Chief Executive Officer, and Mr. Ming Yang, our Chief Financial Officer. The call today will feature an update from Mr. Zhang on market and operations, and then Mr. Yang will discuss the company's financial performance for the second quarter of 2018. After that, we will open the floor to Q&A from the audience.
Before we begin the formal remarks, I would like to remind you that certain statements on today's call, including expected future operational and financial performance and industry growth, are forward-looking statements that are made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statements. Further information regarding these and other risks is included in the reports or documents we have filed with or furnished to the Securities and Exchange Commission. These statements only reflect our current and preliminary view as of today and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties.
All information provided in today's call is as of today, and we undertake no duty to update such information, except as required under applicable law. Also, during the call, we will occasionally reference monetary amounts in US dollar terms. Please keep in mind that our functional currency is the Chinese RMB We offer these translations into US dollars solely for the convenience of the audience. Without further ado, I now turn the call over to our CEO, Mr. Zhang. Please.
Hello, everyone, and thank you for joining us today for our earnings call. We remain confident in the long-term sustainable growth of the polysilicon industry despite the impact by the new solar PV policies issued by the Chinese government on May 31, 2018. The new solar policies caused uncertainty in the domestic solar market and negatively impacted downstream demand in June. Leveraging our strong cash position and efficient corporate management, we maintained full production capacity and delayed shipments until demand returned in early July when ASPs stabilized. With our production facilities now running at full capacity and low inventory levels, we are reiterating our full year polysilicon production guidance of 22,000 to 23,000 metric tons. Utilization levels and demand from our downstream customers improved in July.
According to the China Silicon Industry Association, approximately 30%-35% of China's domestic polysilicon production capacity has been shut down as those producers are unable to survive at the current market prices. With supply becoming increasingly restricted and demand gradually recovering, polysilicon ASPs recovered meaningfully in July amidst a robust customer volume demand. Despite the challenging market environment in China, demand for solar PV products remains healthy and robust for the rest of the world. New emerging markets in Latin America and the Middle East are booming with growing demand. India, in particular, is expected to grow rapidly. With grid parity approaching in many markets such as Europe and the U.S., the project developers are more aggressive in their bids.
With solar end markets outside of China accounting for an increasing percentage of our downstream customers' shipments, according to industry forecasts, global solar installations are expected to reach 95-105 GW for 2018. With lower and more competitive PV prices, the global solar installation could reach 120-140 GW 2019, and 140-160 GW in 2020. At Daqo New Energy, we are confident in the long-term sustainable growth of the polysilicon industry and our ability to benefit from this growth by increasing our production capacity and improving our cost structure and polysilicon purity. I'm pleased with our performance in this quarter and our ability to remain flexible and rapidly adapt our business to a challenging market environment. Production of monocrystalline type of polysilicon increased to 70% during the quarter.
Mono-grade polysilicon continued to enjoy a healthy premium and strong demand from our customers. EBITDA during the quarter was $31 million, and we generated $67.1 million in cash flow from operations during the first half of this year. We are one of the very few polysilicon producers able to continuously generate positive EBITDA, net income, and operating cash flow in this challenging market environment. We expect to complete our Phase 3B expansion project and start pilot production in the fourth quarter of 2018, which will increase our annual capacity to 30,000 metric tons and further reduce our polysilicon production cost by approximately $1 per kW across our entire production facility.
We believe that demand for our high-quality polysilicon products will continue to grow over the long term as solar PV is becoming increasingly cost competitive and less dependent on policies and subsidies. Our strong balance sheet, ample operating cash flow, and newly added capacity coming online will help us to further solidify our position as the polysilicon manufacturing leader. Now, I will give you outlook our guidance. We will begin a scheduled maintenance shutdown for our Xinjiang polysilicon facility in September, which is expected to impact polysilicon production by approximately two to three weeks based on current maintenance plans. During this period, in addition to the scheduled annual maintenance work, we will also connect the newly constructed Phase 3B facility to its existing facilities, upgrade technology across all of its facilities, and install various manufacturing efficiency projects.
As such, we expect to produce approximately 4,100-4,300 metric tons of polysilicon and sell approximately 5,900-6,100 metric tons of polysilicon to external customers during the third quarter of 2018. The above external sales guidance excludes shipments of polysilicon to be used internally by our Chongqing solar wafer facility, which utilizes polysilicon for its wafer manufacturing operation. Wafer sales volume is expected to approximately 7 million-8 million pieces for the third quarter of 2018. For the full year 2018, the company expects to produce approximately 22,000-23,000 metric tons of polysilicon inclusive of impact of our annual facility maintenance. This outlook reflects our current and preliminary view as of today and may be subject to change.
Our ability to achieve this production is subject to risks and uncertainties. With that, I will turn the call over to our CFO, Ming, who will go over our financial data for this quarter. Ming, please go ahead.
Thank you, Longgen, and good day, everyone. Thank you for joining our earnings conference call. Revenues were $67 million compared to $103.3 million in the first quarter of 2018 and $76 million in the second quarter of 2017. Revenues from polysilicon sales to external customers were $63 million compared to $95.6 million in the first quarter of 2018 and $61.1 million in the second quarter of 2017. External polysilicon sales volume was 3,881 metric tons compared to 5,411 metric tons in the first quarter of 2018 and 4,497 metric tons in the second quarter of 2017. The decrease in revenue from polysilicon was primarily due to lower polysilicon sales volume and lower ASPs.
Revenue from wafer sales were $4 million compared to $7.6 million in the first quarter of 2018 and $14.9 million in the second quarter of 2017. Wafer sales volume was 9.8 million pieces compared to 13.3 million pieces in the first quarter of 2018 and 27 million pieces in the second quarter of 2017. The sequential decrease in revenues from wafer sales was primarily due to lower sales volume and lower ASP. Gross profit was approximately $27.2 million compared to $46.2 million in the first quarter of 2018 and $24.2 million in the second quarter of 2017.
Non-GAAP gross profit, which excludes costs related to the non-operational polysilicon assets in Chongqing, was approximately RMB 27.6 million compared to RMB 46.8 million in the first quarter of 2018 and RMB 24.8 million in the second quarter of 2017. Gross margin was 40.6% compared to 44.8% in the first quarter of 2018 and 31.9% in the second quarter of 2017. The sequential decrease was primarily due to a decrease in ASP, which was partially offset by a decrease in average polysilicon production costs. In the second quarter of 2018, total costs related to the non-operational Chongqing polysilicon assets, including depreciation, were RMB 0.4 million, compared to RMB 0.4 million in the first quarter of 2018 and RMB 0.5 million in the second quarter of 2017.
Excluding such costs, non-GAAP gross margin was approximately 41.2% compared to 45.2% in the first quarter of 2018 and 32.6% in the second quarter of 2017. Selling, general and administrative expenses were RMB 7.8 million, compared to RMB 4.8 million in the first quarter of 2018 and RMB 4.5 million in the second quarter of 2017. The increase in SG&A expenses was primarily due to the increase of non-cash share-based compensation costs related to the company's share incentive plan, which in aggregate increased our non-cash share-based compensation expense by approximately $3.5 million for the second quarter compared to the first quarter. We expect to be at similar levels of share-based compensation expense for Q3 and Q4.
R&D expenses were approximately RMB 0.2 million, compared to RMB 0.1 million in the first quarter of 2017 and RMB 0.3 million in the second quarter of 2017. Research and development expenses can vary from period to period and reflect R&D activities that took place during each period. Other operating income was RMB 1.9 million, compared to RMB 0.4 million in the first quarter of 2018 and RMB 0.8 million in the second quarter of 2017. Other operating income mainly consists of unrestricted cash incentives that the company receives from local government authorities, the amount of which varies from period to period. Operating income was compared to RMB 41.7 million in the 2018 and RMB [20.2] million in the second quarter of 2017.
Operating margin was 31.4% compared to 40.4% in the first quarter of 2017 and 26.6% in the second quarter of 2017. Interest expense was RMB 3 point million compared to RMB 4.1 million in the first quarter of 2018 and RMB 5.3 million in the second quarter of 2017. EBITDA was RMB 31 million and RMB 29 point. Margin was 46.3% compared to 50% in the first quarter of 2018 and 39.2% in the second quarter of 2017. Net income attributable to Daqo New Energy shareholders was RMB 13.4 million compared to RMB 31.6 million in the first quarter of 2018 and RMB 4.1 million in the second quarter of 2017.
Earnings per basic ADS were $1.06 compared to $2.91 in the first quarter of 2018 and $1.15 in the second quarter of 2017. Non-GAAP net income attributable to Daqo New Energy shareholders were $18.2 million in Q2 2018 compared to $30.9 million in the first quarter of 2018 and $13.8 million in the Q2 of 2017. Non-GAAP earnings per basic ADS were $1.44 in the second quarter of 2018 compared to $3.03 in the first quarter of 2018 and $1.31 in the second quarter of 2017. Now for the company's balance sheet.
As of June 30, 2018, the company had RMB 179.3 million in cash equivalent, and restricted cash compared to RMB 83 million as of March 31, 2018. In addition to the proceeds from our follow-on offering in April, the company also received more than RMB 30 million of customer prepayments during the quarter. As of June 30, 2018, the accounts receivable balance was RMB 0.3 million compared to RMB 2 million as of March 31, 2018. We remain very prudent with our AR policy and our accounts receivable balance remain at very low levels. As of June 30, 2018, bank notes receivable balance was RMB 19.3 million compared to RMB 49.7 million as of March 31, 2018.
As of June 30, 2018, total bank borrowings were RMB 196 million, of which RMB 93 million were long-term bank borrowings, compared to total bank borrowings of RMB 218 million, including RMB 108 million of long-term bank borrowings as of March 31, 2018. In April 2018, the company issued 2,064,379 ADSs, representing 51.6 million ordinary shares through a follow-on at $55 per ADS. The proceeds, net of underwriting commission and issuance costs, were $106.6 million. For the six months ended June 30, 2018, net cash provided by operating activities was RMB 67.1 million compared to RMB 70 million the same period of 2017.
The decrease was primarily due to an increase in inventory balance as well as payments of tax expense due to local government authority tax increase. For the six months ended June 30, 2018, net cash used in investing activities was RMB 52.5 million compared to RMB 32.9 million in the same period of 2017. Net cash used in investing activities in the first half of 2018 and 2017 was primarily related to the capital expenditures on the Xinjiang polysilicon project. The company currently anticipates capital expenditures for the full year to be approximately RMB 120 million-RMB 130 million, primarily related to our Phase 3B expansion project and technology upgrades.
For the six months ended June 30, 2018, net cash provided by finance activities was RMB 93.2 million, compared to net cash used by financing activities of RMB 23.4 million in the same period of 2017. The increase was primarily due to net proceeds from follow-on offering. This concludes our prepared remarks. We would like now to turn the call over to the operator to begin the Q&A session. Operator, please begin. Thank you.
The first question is from the line of Philip Shen with Roth Capital Partners. Please go ahead.
Hi, everyone. Thank you for the questions. I'd like to start with your outlook on pricing. As we've seen pricing stabilize in the recent weeks, with some poly pricing even being higher week over week. You know, with the capacity that shut down for maintenance throughout the industry, I think you talked about 30%-35%, it seems like it's stable. Can you give us your outlook for pricing, maybe your average ASP you expect for Q3 and possibly for Q4? Thank you.
Philip, thank you. I think good, it should be good morning for you. Okay, to answer your question, first of all, I think, because of the new policy, we call five, you know, five three one policy we call. I think, you know, the pricing fluctuation in June really, I think, cannot represent any meaning because didn't have any trading there. Basically, we also have inventory because lower prices go to, renminbi go to like, you know, multi-silicon go to RMB 70, mono even lower go to RMB 80 per kg. Actually we didn't, you know, sell, ship or sign any contract in June. That's why we have the inventory. By the end of the quarter, we have 2,115 tons there.
I think the price, the market is digested and I think of the policy then come back early July. We're starting selling early July. The price go to mono-silicon around like RMB 93 and multi is around RMB 82, RMB 83. We starting to selling the inventory. Today, we sold all the inventory today, the price today, mono-silicon is around RMB 95, RMB 96 too, the multi is around RMB 85-86 per kg. To forecast, I think, basically what I want to say is based on today's price structure, actually, if you look at, you know, the mono and the multi, the average price still is around like, you know, RMB 90. That price for the import poly, actually their cash cost is above that, frank speaking.
I think, you know, right now, to end of the year, I don't think the Chinese, you know, the Chinese market will dramatically come back. Definitely I think, Chinese market is bigger potentially, I think then a projected figure. The reason because we see a lot of DG projects without any subsidized and, you know, still installation there because of module price continue to go down. What I suggest, you know, forecast to end of the year, I think the silicon price should be between RMB 95-RMB 105. I don't think we're above RMB 110. That's, you know, if you ask me for mono-silicon. For the multi, I think maybe, by the end of the year, maybe from RMB 85- RMB 95.
Great. That's really helpful. Thank you, Longgen. Let's shift gears to utilization. You know, I know you guys are operating basically at a 100% utilization, and even when you weren't selling in June, I think you were still operating very close to a 100% utilization. Certainly the industry was not doing that. How do you expect the capacity that's shut down for maintenance, you know, to evolve? For example, do you expect that capacity to come back online at the pricing that you expect, or do you expect it to be permanently shut down? Finally, for your maintenance, you know, I think you're doing two to three weeks in Q3. Sometimes in the past you've split your maintenance between one quarter and another.
Do you expect any maintenance in Q4 as well?
Okay. To answer your question, first of all, what I think, you know, at this moment, because the price is so lower, everybody take a chance, you know, to
I think doing the maintenance. Some small player maybe take an excuse, you know. Maybe they're starting maintenance maybe never come back. Okay. Definitely I think some bigger player, definitely I think it will come back. Like Tongwei, like TBEA. I don't think. Like Tongwei, as I know, they just finished, I think, maintenance in Leshan, then come back, you know, starting production again. The TBEA is starting maintenance, I think, this month, but I think definitely come back. To us, because, you know, this year we have to shut down two weeks, maybe three weeks. The reason is because 3B expansion will connect to our existing, you know, facilities. Definitely I think it will take two to three weeks shut down, then we come back.
We were starting trial production of 3B in Q4. Definitely I think, hopefully everything is smoothly, you know, to reach the design capacity of 30,000 tons.
Okay, great. Shifting to the cost structure. You know, I think your construction Q cash cost in Q2 was $7.43. I think you said in your prepared remarks or your release that once you're fully ramped up on to 30,000 metric tons, your production cost comes down by $1 per kg. Is it fair to say, you know, let's say you're at $7.43 now, you make modest improvements in Q3 and Q4, throughout the full year 2019, your cash cost can be close to $6.50? Is that the right way of thinking about your cash cost structure? Thanks.
I think so. You know, as soon as we're starting trial production, basically, I think first of all, 3B, we're adding additional 13,000 tons annual capacity. The electricity cost will drop to, I think, 20%, RMB 0.24 [limiting] per kWh. In time, okay, our quality of products also will increase. Basically, I think per kg consumption electricity will go down. Average, if the, you know, 3B, we finish 3B, average the consumption electricity is 68 kWh per kg. We're lower right now. We are around 75 kWh per kg. Definitely I think, you know, the I think figure for the cash cost is correct.
Great. Shifting to your some of your customer activity or just customer activity in general. Recently we saw LONGi announce a new long-term poly supply agreement with TBEA. They announced one with you a few months ago. You know, we were surprised to see that because of the downturn in the market, you know, they still wanna lock in long-term pricing or long-term supply agreements. It's interesting and we think it's a positive. When do you expect to possibly secure your next long-term agreement? Do you think it's actually possible, or do you think we should not expect any more near term?
Basically, first of all, I think talk about LONGi signed the contract with TBEA. I think basically if you look at LONGi, by 2020 their capacity is 45 GW. Their total consumption is around, I think around 70,000 tons, purely in the monocrystalline. Even though they signed contract with OCI, with us, with Tongwei, even, you know, with the TBEA, they still want to sign more contract with me because is waiting for, you know, my 4A extension can be, you know, smoothly. Will maybe possible to sign another contract by the end of the year. Okay? First of all, to let you know. Second, for us, we signed one 10- one long-term contract with LONGi, then we also talk to, you know, right now 3 more clients right now.
I think one of the clients we are working on there is almost, it's on time, it's going on. Will pretty soon come out. Those long-term contracts help us, you know, lock the downstream clients. That's one side. Another side is the contract we signed, actually we takes the, you know, advance payments and a higher percentage advance payments, at least 5%. That's what also help us, you know, on the expansion side to help us financing the projects.
Great. Well, one final question, I'll pass it on. As it relates to, I think in the PowerPoint you had commentary about selling into the semiconductor markets. I think in the recent quarters, you guys have been de-emphasizing either selling or being exposed to the semiconductor market in China. Has there been a shift in your thinking at all? Is that something that you wanna pursue now, perhaps to diversify the end markets for your polysilicon? What's the latest on semiconductor?
I think looking for, you know, other opportunities, we always working on that, you know. Especially today's scenario, you know that China, especially the government, is encouraged, you know, to do any try on the semiconductor side. Basically, you know, we have the ability to produce semiconductor products, you see. That's a long-term, you know, I think, strategic, you know, the policy. The reason because it's not only just, you know, you produce a polysilicon, but also, you have to, working with the downstream, you know, other company to working together. It's not that easy. Semiconductor industry is different from, you know, the solar industry. That's all we can tell you. It takes time for us, I think, to do that.
Okay. Longgen, thank you very much, and I'll pass it on.
Thank you.
Thanks, Phil.
Again, if you have a question, please press star then one. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. He for any closing remarks. Thank you.
Thank you everyone again.
I apologize.
Yeah. Thank you everyone again.
We have one follow-up question from Mr. Philip Shen. Do we have time to take this follow-up question?
Yeah, sure. Sure. Please. Yeah.
Okay. Thank you. Hold on one second. Let me announce Mr. Shen. Mr. Shen from Roth Capital Partners, please go ahead once again.
Okay. Hi. Thanks again for the questions. As it relates to your wafer business, can you talk about what the future plan and what the latest thinking is for wafer? You know, I know you reduced the outputs in the guidance for both the Q2 pre-announcement as well as the Q3 guide. At some point earlier this year, Longgen, I think you talked about, you know, considering alternative options there. Should we continue to expect this, you know, 7 million-8 million pieces in Q4 and beyond? Or do you think we should start thinking about winding down that business?
Okay. I think that's a good question, also a challenging question. I think current market situation is very challenging for our wafer business. Basically, I think, you know, we are going to, you know, have a strategic review our wafer business. Basically, the shipments you can see there. We just go ahead and clean all the inventory. The ingots we produced, we go ahead and cut into the, you know, wafer to selling. We will, you know, after we I think in the next meeting, we will announce that separately about the restructuring plans.
Okay. Okay. Good. Thanks for that. Let me see. Let's see. You know, I think you mentioned that you said that China's demand may not be as low as people think. I'm thinking consensus expectations is about 35 GW for China for full year 2018. Do you think the risk is to the high side there? You know, maybe it's 40. What is the number that you think is more realistic for China in 2018? What do you expect for 2019?
Okay. If you look at the whole policy, you know, come out, the reason is, I think, is because last year in solar industry, especially downstream, because of, you know, diamond cutting, plus, you know, PERC technology, one side is reduce the cost, another side is increase the conversion efficiency rate. The current, you know, Chinese, I think, the subsidized policy is too rich, you know, to encourage those people to, you know, expansion the downstream projects, you know, with the IRR, without leveraging, you know, above 15%. That's why last year, original target maybe, you know, planning is 25 GW, finally come out, you know, 53 GW. For the government, it's not too much. It didn't have that much money to cover almost double the capacity, you know, on the downstream projects. That's why the policy come out.
The policy come out is a little, I think, you know, strategy is a little strange because he should, you know, continue to cutting the subsidized dramatically, but he didn't do that, only cut the RMB 0.05 per kWh. The meantime, he used, I think, a non-market, you know, method to control. You see no more, I think, you know, Top Runner projects. That's wrong because you cannot stop, you know, the projects without any subsidized, especially I think today in Beijing, in the eastern coastal area, the cost is, you know, dramatic like, even rooftop, the panels rooftop only Total installation cost is around like RMB 3.5 per watt, per watt, you know, per watt.
You can generate in Beijing per watt you can generate per year, you can generate 1.5 kWh. Even if based on RMB 0.36 per kWh, the core standard, the online fee, you still return is high calculation, right? You're almost like a RMB 0.60. You probably invest only RMB 3.50. We see potential right now in Beijing, in Jiangsu, in Zhejiang. A lot of right now the rural area install right now the rooftop solar system. That's why I see there are potential there.
It's not only just, you know, the solar industry, but also you see for the environmental issue, also for the rural area solve the labor employment. All these add together, I see potential is there. What I'm thinking is definitely I think, you know, this year in China, maybe we'll reach 40 GW, even to 45 GW. Especially I think DG is not like people thinking, you know, only let's say the poor improvements only 4.5 GW, the DG is second half is 9.5 GW. I don't think so. Should be higher. That's my personal view, okay? Philip.
Mr. Shen, are you finished with your questions? I'm sorry, Mr. Shen is not, no, his line is still open, but.
Hi, everyone. Sorry to interrupt you. Thanks for your view on that for 2018 and what's your view on 2019?
2019, I think China, definitely they will issue new policy. I think that policy will update to the last policy. You know, I think dramatically reduce the subsidies, at least cutting one third, then move away that, you know, move away. I think open the door. You can install whatever you can without any subsidies. I think that's why next year China definitely will back to 45 GW- 50 GW.
Okay. Of that 50-ish GW, how much of that do you think is unsubsidized? Do you think as much as half?
What I think subsidized is maybe around 35 GW.
Okay. Okay. The rest would be unsubsidized. That's great.
Yeah.
Thanks for the view there.
Also have you think about that, Philip, because if we cut one third of the subsidies, total amount still there, it can cover more projects. You see what I'm saying? Chinese government should be doing that because they also aware that. Should, cutting the subsidies within three years to the fourth year without any subsidies. On the cutting the subsidies roadmap, I don't think the total, you know, the projects, the subsidized projects will go down. Actually, it should go up. Because you subsidize lower, less. You see what I'm saying? Total amount is fixed.
Right. I wonder if for the new subsidy or process, especially for traditional utility scale, if they will limit the auction. What do you expect the structure of the traditional utility scale auctions to be? Will they cap it on an annual basis Or how do you expect the process to work?
That mechanism, I think right now everybody is gambling on that. I think, for industry, okay, we are willing to be open to bidding. Whatever, just we're open to bidding, you know. I think, whatever you can do as to that cost effective, then you just got the projects. I think, they definitely will go there.
Okay. One last question here. Earlier we were talking about the industry evolution, and you said, many small players will never come back. Can you estimate, how much in terms of metric tons of capacity will not come back?
Okay. If you look at, I think, China last year, the total manufacturing, whatever, I think, the consumption produced the sale around 300,000 tons. I think of which the low cost may be around, I think right now, currently, I think around like, what I'm thinking is 100,000 tons. 200,000 tons definitely is going to, I think, wipe out. The only thing is the timing. Maybe some people still is bleeding. They're still running. You have to consider new capacity come in. Like as one's, you know, 130,000 tons, like Tongwei, two plants is going to maybe triple production. The new capacity is adding.
What I'm thinking is, yes, the older capacity definitely I think two-third will be wipe out, then new capacity come in. By the end, I think end of next year, definitely I think the lower cost of Chinese producer should be around 300,000 tons.
Really helpful.
When I say lower cost, it'll be below $9 per kg.
Okay. That's really helpful. Thank you, Longgen. I'll pass it on again.
Okay. Thanks, Phil. Oh, Mike.
This concludes our question. I apologize. There's one more question from the line of Mike Tempero with [Cavalry Asset Management] . Please go ahead.
Hi. Thank you for taking the question. Sam, I just had one question on the point you were making earlier about the unsubsidized demand. Who will be willing to take the financial risk for power plants that are selling into the merchant market? How do they get comfortable with the grid power price, the stability of the grid power price as opposed to a fixed subsidy?
Okay. I think, Mike, I think your question is good. I think the reason is because, if you look at China, after the 531 Policy come out, immediately I think the issue other, you know, regulations to the, you know, to the local governments. Encourage them to continue to do whatever they already doing. Okay. For example, like Jiangsu province, like Zhejiang province, like Beijing province, the city, the provincial subsidized didn't cutting. For example, like Beijing. Beijing city is subsidized the rooftop is RMB 0.40 per kWh. Even some district area add another RMB 0.30 for five years. Those they didn't cutting. They're still there. I think that will encourage people continue to install.
That's why in Beijing area, this year, it's a lot of right now the rooftop, is installation there, as I was told. Basically, if you look at that, you know, rooftop, if you are the conversion, I think, you know, yesterday, all those, other stuff selling, you can see that I think they are working on that. Even without any subsidized, you consider that. Today, the cost is dramatically down. If rooftop, the install cost per kWh only RMB 3.5. If per kWh can generate, you know, 1.5 kWh, that's almost, without any subsidized, is RMB 0.60 give to you. The government, it's not government, the State Grid give to you. Think about the returns, right? The returns also is high.
Yeah. Mike, basically in this unsubsidized environment, you actually would generally just sell power to the State Grid, which actually is a pretty high-quality credit. The amount of power you generate every month is settled via a payment from the State Grid.
Yeah, Mike, I think, let me answer your question. Who is financing? Right now, as soon as you finish, like Beijing, Jiangsu, those rooftop, if you can, sizable, let's say 10 MW, 20 MW , a lot of people like to buy, okay? A-share company, some firms, because the returns are high and stable. Without any subsidized, because State Grid give to you know, the money. The local governments didn't like central government, you see, because central government is solar funds, they delay. Those local governments will pay you by half, semi, half year, you know, maybe one month delay. They pay you immediately.
Right. It's a good credit. On your point about you expect the next policy to have a big cut in the subsidy, do you think it's just at the national level or both at the national level and the provincial level? Maybe it's too early to say.
I think, first of all, national level should come out first, then the local level will be followed.
Okay. Okay. Very good. Thank you. That's very helpful.
Great. Thanks, Mike.
Thank you, Mike.
This concludes our question and answer session. I would like to turn the conference back over to Mr. He for any closing remarks. Thank you.
Thank you everyone again for participating in today's conference call. Should you have any further questions, please don't hesitate to contact us. Thank you. Bye-bye.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.