China’s National Development and Reform Commission and National Energy Administration have passed and announced the revised Feed-in Tariff (FiT) rates for solar and wind energy for 2016. The rates for solar projects in all three regions are cut and the new rates are lower than prior expectation.
The National Development and Reform Commission previously published a draft for the new FiT rates in October. The new rates for solar projects in 2016 were designed as followed: Region I: RMB 0.9/kWh down to RMB 0.85/kWh; Region II: RMB 0.95/kWh down to RMB 0.92/kWh; Region III: RMB 1/kWh down to RMB 0.98/kWh.
Region I covers western provinces that are suffering power restrictions resulted from renewable electricity waste such as Ningxia, Qinghai and Xinjiang. Region II covers Beijing, Tianjin and certain districts in Qinghai, Xinjiang and Gansu. Region II covers eastern China where are fully power supplied.
In the approved revision, nonetheless, FiT rates for Region I and II are lower than the rates unveiled in the prior draft.
The new FiT rates will be effective between January 1 2016 and December 31 2016, while PV projects connected to the grid before June 30, 2016 and meet any one of the following conditions can still receive subsidies at 2015 rates: project applications that are approved by any province in 2015, projects that belong to the Top Runner Program, and projects that are launched by the newly added 5.3GW solar installations in September.
“China’s 2016 version FiT scheme will stimulate stronger demand domestically in the first half of 2016,” said Patrick Lin, analyst at EnergyTrend. “PV companies that own PV projects approved in 2015 will rush to build and interconnect their portfolios so that they can be eligible for the 2015 rates.”
As the FiT rates were revised down, the internal rate of return (IRR) of Chinese PV projects will also drop. According to Lin, the IRR of PV projects located in Region I and II will decreased by 1~2% under the new FiT rates.
“EPC service providers may find ways to reduce PV system costs to maintain current IRR rates,” pointed out Lin. “They could try to purchase PV modules and inverters by lower prices as these two products cost relatively high. Such strategy will cause price fluctuation in PV modules and inverters.”