Even with the expansion of manufacturing capacity for China's solar module firms, the country's domestic demand has lagged behind the rest of the world. Currently, China's has around one gigawatt (GW) of solar generation capacity. The province of Qinghai has 80 percent of total capacity or 800 megawatts (MW). In comparison, the country has 12.2 GW of wind generation capacity - over 71 percent of China's total renewable energy capacity.
In the eyes of foreign solar development firms, one of the biggest obstacles to entering the Chinese solar market for large utility scale projects has been the inconsistency in renewable energy subsidies. Feed-in-tariffs polices, and a multitude of other enticements, vary from province to province and even municipalities within those regions.
The New FIT Policy
The National Development and Reform Commission (NDRC) recently announced the country's first nationwide feed-in-tariff policy for solar power installation. Some solar industry analysts believe China's initiative to expand its domestic solar market will change foreign investors' perceptions about the Chinese market because it makes for a more attractive rate of return on developments. The program has the potential to fuel the growth and expansion of the Chinese solar market ten fold, by 2015, to ten gigawatts.
Here are the major provisions of the program:
- Solar projects approved before July 1, 2011 and completed by December 31, 2011 - RMB 1.15 (US 17.9 cents) per kilowatt-hour (kWh), excluding solar thermal.
- Solar projects approved after July 1, but not completed by December 31, 2011 - RMB 1.00 /kWh (US 15.5 cents).
- Tibet keeps it preferential FIT RMB 1.15/kWh (US 17.9 cents).
- Competitive bidding or solar concession projects cannot exceed the FIT.
- NDRC will periodically adjust tariff rates depending on the availability of investment capital and technological advances.
The NDRC plans to adjust the policy at some point to differentiate between tariffs for rooftop installations as compared to grid-scale developments. The organization will monitor the program closely, and if it fails to attract the desired number of subscribers, NDRC will consider increasing the tariff next year to make it more attractive.
NDRC branches at the provincial level will execute the feed-in-tariffs and carry out the primary mandates of the policy as developed by NDRC. The new national FIT does not apply to projects under the Golden Sun program or solar projects that undergo competitive bidding. Renewable Energy Development provides the funds for the program. The policy does not affect feed-in-trade policies at the provincial level in regions, such as Shandong, Zhejiang, and Jiangsu, which can continue to develop and administer local policies.
Other National Programs
In the last few years, China has executed other programs designed to stimulate the installation of solar power systems, but with limited success. In 2009, it introduced the rooftop subsidy program; a year later came the Golden Sun program. Hefty subsidies -- up to 50 percent rebates for the initial projects approved under the Golden Sun projects, limited the number of subscribers.
China's initial attempt at a national FIT occurred in 2009; it consisted of a competitive bidding process for the 10-megawatt Dunhuang PV development. The final FIT rate for the project was set at $0.16/kWh (USD). This project serves as a model for obtaining data from the domestic solar industry and devising a financially feasible FIT rate.
In 2010, subsequent attempts at carrying out a solar feed-in-tariff occurred with the four-phase 40 MW Ningxia projects. Later in the year, 13 additional projects, with a combined capacity of 280 MW, were put out to bid. However, the rate was much lower than the Dunhuang rate.
China installed 520 MW to bring its cumulative capacity to 893 MW by the end of 2010 as the “Golden Sun” program completed its first full year. However, the state ended a national PV FIT because it was determined that the PV generation cost was too high. Two rounds of bidding resulted in 576 MW of projects approved. The second round resulted in an additional 272 MW. The program penalizes companies by preventing them from future bidding for failing to complete project according to schedule.
The national feed-in-tariff policy signals Beijing's sincere intention to stimulate demand in the domestic solar market. The groundbreaking policy initiative has sent market analysts scrambling to revise China's photovoltaic demand figures from 1.3 to 2.0 GW by the end of 2011, and exceeding two GW in 2012. Installed capacity should increase each year thereafter. According toLi Junfeng, research director of NDRC's Energy Research Institute (ERI), the country will continueother programs in addition to the new policy.
The Chinese market responded favorably to the news, with China's largest polysilicon manufacturer, the primary raw material for PV modules GCL-Poly Energy Holdings Ltd increasing 4.8 percent on the announcement. Shanghai Chaori Solar Energy Science and Technology increased 6.6 percent.
Market analysts believe the unified FIT subsidy rates benefit domestic companies , such as JA Solar, Suntech Power Holdings, Trina Solar, and Yingli Green Energy. These companies have an inherent cost advantage and will likely gain a significant portion of the domestic market.
How the adoption of a national FIT policy affects the global PV market can only be assessed over time. In recent years, innovative feed-in-tariffs policies in countries like Spain and Germany have enabled Chinese companies to benefit from stimulated demand and the market growth for solar panels. These firms have also benefited from U.S. states like Massachusetts, California, and New Jersey, which have strong solar energy policies to increase installed capacity and meet mandated renewable energy objectives.
China's push to increase solar capacity may exert upward pressure on fragile module prices in the short-run. However, the long-term result could lead to an increase in manufacturing capacity to meet domestic and global demand. Ultimately, China's share of the solar power generation market depends on a variety of factors, such as changes in policies regarding nuclear fuel, environmental issues concerning the use of fossil fuel, and pressure caused by the continual drop in the price of solar energy systems.