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Consumption red line may be relaxed, china demand continues to exceed expectations

published: 2024-03-11 17:07

Recently, the 5% red line for curbing solar and wind power waste in China's national grid may be relaxed, potentially leading to a further unexpected increase in 2024. This policy requirement originated from the Clean Energy Consumption Action Plan (2018-2020) released in October 2018, aiming to ensure a decrease in abandoned wind and solar power compared to 2017 and to achieve a photovoltaic utilization rate of over 95% by 2020, with a waste rate below 5%. According to data from the Consumption Monitoring and Early Warning Center, the photovoltaic utilization rate was around 98% in 2023, with only sporadic months in western provinces like Gansu and Qinghai falling below 90%, while the rest of the regions remained above 98% .

If the red line on waste is relaxed, it is expected that there will be a sustained upward revision in new installations in 2024. Despite significant price reductions in photovoltaic components , even considering the addition of 2-hour energy storage, we suggest that ground-based power stations in the northwest region still yield a return of 6-7%. Therefore, from the perspective of power station profitability, there is a basis for increasing the waste rate. Assuming that the requirement will no longer be strictly enforced in the future, we expect china demand for new installations in 2024 to exceed expectations, with projected additions of 240-250GW, around 10-15%.

Earlier market expectations for 2024 growth were relatively low, with a common belief in global growth of 10-15% and china stagnation or decline. However, events such as the unexpectedly high installations and EPC tenders in January and February have led to a revision in expectations. With the relaxation of consumption red lines today, we believe that china installations are likely to be revised upwards to 10-15% growth.

Domestic demand has been consistently exceeding expectations recently. Therefore, we should focus on the realization of china demand and the potential of the overseas, with several keys : 1) Large-scale tendering in March-April; 2) Peak shipping season to Europe and the Americas from April to June; 3) Whether prices in Europe can be restored and in the United States can stop falling.

Source: Guohai renewable energy research

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