China’s PV industry keeps growing
By Melody Song, SEMI PV Group, China

The Chinese New Year is here. Most businesses and factories in China are closed to celebrate this most important traditional holiday. However, for many solar companies, the production lines will be up and running, some even at full capacity. This is quite a different scene from a year ago when Chinese solar companies had to shut down their lines and let the workers go home due to a sudden drop in demand and tremendous inventory buildup.

Chinese companies have recovered from last year’s slump as global demand rebounded. Many companies enjoyed abundant new orders and some achieved record profit due to their low cost strategy. Preliminary data indicates that last year Chinese cell/module makers doubled their 2008 level to reach 8,000MW solar cell capacity and produced over 4,000MW solar cells, representing 40% of the global total production. During 2009, more companies have chosen the vertical integration strategy. Many companies have moved downstream to the project development sector.

Chinese solar companies still rely heavily on foreign markets. The industry felt a massive blow at the end of 2008 when overseas orders stopped coming in. Government realized the importance of revitalizing China’s PV industry and understood that developing a domestic market for PV is an important step. To jumpstart the country’s PV market, the Ministry of Finance, together with the Ministry of Urban and Rural Development introduced a national subsidy program in March 2009 to promote the use of BIPV applications and rooftop systems. The program would give a fixed upfront subsidy of 15-20 yuan per watt of installation. The response to this program was overwhelming. More than 500MW applications were received within two months of the program’s announcement. By November 2009, 91MW of installations received government approval. All of China’s leading PV companies participated in this program. Suntech was the biggest winner with almost 20% of the total approved projects.

The BIPV and rooftop subsidy program was the turning point of China’s PV market. However, the government soon understood that the industry needed much more help. In July, the Finance Ministry, together with the Ministry of Science and Technology, and the National Energy Administration of the National Development and Reform Commission (NDRC) unveiled the second national PV subsidy program, the Golden Sun Program, which would subsidize 600MW of PV demonstration projects in the next two to three years. The government would subsidize 50-70% of the total installation costs. By November 2009, China has chosen 304 projects totaling 643MW to benefit from the Golden Sun subsidy. Among them, 261 projects are BIPV and rooftop installations totaling 290MW, 35 are utility-scale PV power plant projects totaling 296MW, and 18 off-grid projects totaling 46MW to be built in remote regions.

Rooftop and Golden Sun subsidy programs were temporary measures taken by China government to help the PV industry cope with an unprecedented industry’s downturn. To support a sustained market demand, China government has also been considering an incentive scheme similar to those used in Europe, the feed-in tariff subsidy.

It was widely expected that a national FIT would be in place by the end of last year. However, statements by government officials now indicate that it could take another two or more years to hammer out the details of the FIT. The complexity of a national FIT in China cannot be underestimated. The government is clearly trying hard to lay out the groundwork for such a policy.

China’s wind industry struggled many years before a wind FIT was finally established last July. The government employed a bidding process for most wind projects before introducing the wind FIT. An important objective of the bidding practice was to understand the true cost of wind generation. When it comes to solar, government seems to have decided to take the same approach. Last year, the government solicited bids for a 10MW Dunhuang demonstration project. Solar companies were so eager to win that some submitted bids regardless of project economics. The government rejected the lowest bid and eventually accepted 1.09 yuan ($0.15) per kilowatt-hour as the FIT for the Dunhuang project. The winning bid was made by a joint venture of China Guangdong Nuclear Power Corporation, Best Solar and Enfinity.

Many experts questioned whether the project developer could make any profit at all with 1.09 yuan FIT. Some government officials even expressed similar concerns. As the first government solar project up for bidding and China’s first PV project of this size, the significance of the 10MW Dunhuang project is perhaps more than just financial returns for the bidders.

It appears that China government will continue using small scale and more targeted incentive programs, at least in the near term. In January, the central government asked eight provinces and autonomous regions best suited for solar energy to submit their PV projects and will soon start the second round of bidding process. Each project should be between 10-50MW, and each region should have a cap of 100MW. Hopefully, China will learn a great deal from these projects and move closer to a national FIT.

Premier Wen Jiabao told the Copenhagen climate change summit that between 2005 and 2008, renewable energy increased by 51% in China, representing an annual growth rate of 14.7%. China is indeed taking big stride in the development of renewable energy. As an official effort to boost clean energy development and fight climate change, China has been working on a new energy stimulus plan. A Chinese government official recently said that the much anticipated new energy stimulus plan will be finalized and could be released right after Chinese New Year. A draft plan is with the NDRC for final revision before submission to the State Council for final approval. The draft plan raised national PV installation target to 20GW from 1.8GW stipulated in the current national plan.

The delay of the stimulus plan is partially because the new energy industry, including wind, PV, and others, has been growing much faster than expected. While a national FIT policy has yet to be established, the expectation has spurred the construction and installation of solar projects throughout China. Aggregating every project announcement in hand yields a sum of 12GW of PV projects in various stages of development throughout the country. PV companies, state-owned power companies, banks, and energy investors have been actively forming alliances and signing contracts with local governments, trying to secure a place in a potentially huge market.

For instance, Suntech and China Energy Conservation Investment Corporation, a state-owned company focusing on energy investment and a leader in renewable energy investment, has formed a joint venture to develop PV projects in various regions in China. The first phase 10MW of a 50MW project in Ningxia Shizuishan was already completed and connected to grid. Here is another example. Canadian Solar has formed a strategic cooperation with China’s Guodian Power, one of China’s largest power generation companies, to jointly build, own, and operate solar projects, totaling 500MW by 2012. The joint venture has already signed letters of intent with government of Gansu, Ningxia, and Inner Mongolia.

Not only domestic players, foreign companies are also eyeing China’s PV market. First Solar, for instance, signed an agreement last September with Chinese government to build a 2,000MW solar farm in China’s Inner Mongolia.

At the end of last year, China set a goal of reducing its carbon waste per unit of GDP by 40-45% from the 2005 level. China has also promised the world to increase the share of non-fossil fuels in the primary energy use to 15% by year 2020. There are speculations that the government would further raise the total PV capacity to 30GW in the new energy stimulus plan in order to achieve those targets.

30GW by 2020 is an attainable goal. Last year at this time, the SEMI China PV Advisory Committee issued a white paper, “China’s Solar Future – a Preliminary Report on a Recommended China PV Policy Roadmap”. In this white paper, the Committee called for an accelerated adoption of PV in China to reach about 30GW installation by year 2020. It also laid out a PV installation roadmap with clear annual target up to year 2020.

China is making great efforts to optimize the country’s energy structure and expedite the development of renewable energy, and as Chinese PV companies busy filing up orders, they must all get ready to copy with a number of hurdles. Designing and implementing the right subsidy programs, a segmented electricity grid system that needs to be “smart” and “strong”, difficulties in connecting with the grid, the growing sentiment of trade protection in other nations, lack of core and innovative technologies, fraud in project application process, to name just a few.

Even with the concerns, there is no doubt that China will find a way. Historically, China’s government has played a central role in the country’s energy sector. This will also be the case for PV development. Last December, China’s top legislature adopted an amendment to the renewable energy law to require electricity grid companies to buy all the power produced by renewable energy generators, including PV. Companies that violate this law will face fines. Last month, China established a new government agency, the National Energy Commission, to centralize energy policy and help steer planning development. Premier Wen Jiabao will head the new agency. All these recent moves clearly indicate China government’s determination to aid the country’s fledgling renewable energy industry.

February 2010 – SEMI PV Group The Grid