China has finally set its domestic PV installation target for 2016. The country’s National Energy Administration (NEA) announced in early June that the country will add another 18.1GW to the domestic PV capacity over the 2016~2017 period. The 18.1GW target consists of 12.6GW of standard PV power plant systems and 5.5GW related to the projects under the Top Runner Program.
There are three major takeaways from the NEA’s domestic target announcement:
[1] China’s PV capacity will increase by over 20GW this year but the actual demand will be somewhat lower
The NEA’s announcement, together with the PV Poverty Alleviation Project (Note 1), will put China’s PV installation expansion for this year above 20GW. The actual installation expansion in 2016 may be smaller compared with the 2015’s even though the announced target of 18.1GW over the 2016~2017 period is larger than the initial target of 17.8GW in 2015. Last year, the government assigned another 5.3GW to the 17.8GW target in October anda 1GW Top Runner demonstration project in Datong, Shanxi province. If the government this year decides not to supplement the annual target with similar measures, China’s PV installation volume is projected to decline for the first time in 2016 after a period of major growth and promotion.
Furthermore, NEA’s target announcement does not include a cutoff date for grid connection. The deadline is expected to be pushed back to 2017, so the target’s contribution to the China’s overall PV demand this year will be very limited.
Note 1: PV Poverty Alleviation Project is a program to improve the lives in China’s remote and deprived communities. In recent years, the Chinese government has developed various initiatives to raise the incomes of the poor. These policies are gathered under the rubric of “Poverty Alleviation.” As for PV Poverty Alleviation Project, it promotes the installation of PV systems among the lower-income households so that they have greater access to energy and can receive subsidies by selling electricity.
[2] Top Runner Program projects account for a large share of the 2016~2017 installation target
The Top Runner program, which involves projects using high-efficiency PV modules, represents about 30% of the new installation target, or 5.5GW out of the total 18.1GW. Compared with last year, Top Runner now takes up a much greater share of the installation expansion.
In addition, each PV project under Top Runner Program are required to have installation capacity up from 100MW. Construction rights will be awarded through competitive biddings that will take electricity costs as a key value.
Modules used in Top Runner projects must meet certain conversion efficiency standards. Last year, the program required mono-Si and multi-Si modules to achieve efficiency rates above 17% and 16.5%, respectively. A survey of last year’s suppliers for Top Runner projects suggests that first-tier module manufacturers will again win most of the contracts for this year’s projects. Companies such as JA Solar, Trina Solar, Jinko Solar and LERRI Solar have the scale and the technology to meet the government’s demands. Hence, Top Runner projects are going serve as a stable market channel for their high-efficiency modules during the off season.
[3] The abandonment of PV electricity will persist even though several western provinces have not been provided with installation targets this year
New PV installation projects are suspended in the provinces of Gansu and Yunnan and the autonomous region of Xinjiang, and their installation targets for 2016~2017 are set 0GW. The government’s reasoning is that these regions have not fulfilled the conditions for building new PV power plants. At the same time, however, the government has set new targets for other provinces and autonomous regions in western China including Ningxia, Qinghai and Inner Mongolia.
The Chinese government is working to build ultra-high-voltage power cables across the country so that the east will be able to consume excess electricity generated in the west. Nonetheless, this country-wide transmission solution is unlikely to be completed in the short term. The amount of tradable PV electricity in western part of China will continue to be severely limited, and more provinces and regions may also delay or suspend their installation plans in the future.
Besides, the 2.1GW target assigned to Inner Mongolia includes 1.5GW of Top Runner Program projects, of which 1GW will be for the second phase of Top Runner Program demonstration projects located in Baotou.
[4] Improve projects and targets management
NEA clearly require local governments and authorities to strictly monitor progress of all projects as well as power generation status through information management platforms or other methods. Grid-connections, electricity purchase and subsidizing shall be properly implemented as well.
EnergyTrend’s Comment
Though China has finally revealed the installation target for 2016~2017, the announcement’s effect on the domestic market is limited. The country’s grid-connected PV capacity is expected to reach 13GW by the end of this year’s first half, so demand will be relatively weak in the second half. Moreover, there are several looming problems. The government continues to delay subsidy payments to power plant companies, and the abandonment rates of PV electricity in the western regions are also rising. Consequently, the returns from investing in the country’s PV power plants have been substantially below expectations. NEA’s target announcement also does not include a deadline date, and many in the industry believe they can wait until 2017 before connecting their power plants to the grid. Consequently, module prices are anticipated to stay on a gradual downtrend on account of the weak demand. Based on these trends, EnergyTrend believes China will not witness a noticeable installation rush in the second half of this year and the market in the third quarter will be fairly cool as per previous forecasts.
The NEA announcement also shows that the Chinese government is determine to develop the country’s PV industry according to more concrete objectives, such as those mentioned in the Top Runner Program, PV Poverty Alleviation Project and other DG projects. The government also for the first time addresses the need to track the progress of various programs and to ensure that PV power plants are generating electricity within policy requirements. Generally, the focus of China’s PV policies has shifted from expanding the country’s installed capacity to improving the efficiency of power plants. These policy changes also reflects the gradual maturation of the Chinese PV market.
(Written by Corrine Lin, Assistant Research Manager at EnergyTrend. A more comprehensive version will be published in PV Magazine’s next issue.)