Although the massive target might seem overly ambitious to some, most of the industry analysts believe that it is still very modest
China’s local media has revealed that the National Energy Administration (NEA) has decided to quadruple the country’s 2015 solar energy target to 21GW. No official word has yet come out from the National Development and Reform Commission (NDRC) or its department, the NEA. According to December 2011 estimates, the country had 3.1GW of installed solar capacity. It now plans to add a further 17.9GW in approximately four years, including 1GW generation from solar thermal power. Initially, China had set the 2020 target of 20GW, while its 2015 target was 5GW.
The country is the leading producer of solar panels in the world. The biggest solar panel manufacturers, such as Suntech Power (NYSE:STP), Yingli Green Energy (NYSE: YGE) and Trina Solar (NYSE: TSL), are all based in China. Even Canadian Solar (NASDAQ; CSIQ), which is headquartered in Canada, does most of its production in China. Due to rising local demand of solar power and abundance of supply, the target has been revised.
Although the massive target might seem overly ambitious to some, most of the industry analysts believe that it is still very modest. Lian Rui from Solarbuzz believes that “with a significant tumble in photovoltaic prices, the timetable for mass use is ahead of time. The new target is still very conservative; we expect the installation to surpass 30 gigawatts.” Some analysts, including Dylen Liu from Pacific Epoch, have predicted that the country’s solar capacity by the end of the current year will reach around 10GW. Therefore the increase “is higher than the previous target, but it was already expected – and it’s a conservative number.”
Not surprisingly, the 21GW target didn’t have any impact on the solar stocks. Lee Clements, from Impax Asset Management, believes that the fourfold increase in the solar target “is good for the market, but a higher number is already assumed.”
The global solar sector has witnessed some extraordinary growth in the past couple of years. According to Bloomberg New Energy Finance, the prices of solar panels have fallen by almost 42% in a single year to $0.87 per watt. Profit margins have therefore plummeted, and companies producing solar panels at a higher average cost have found it difficult to survive. As the solar industry expands, the market forces have pushed the inefficient manufacturers aside, while those who have successfully minimized their production costs, through a combination of technological innovation and government support, have emerged as market leaders. Some firms have found it easier to blame Chinese solar PV manufacturers for the decrease in their sales volume.
The Chinese government has time and again proved its commitment towards the country’s renewable energy sector. Since 2009, it has been offering financial assistance to its solar sector through the Golden Sun and BIPV program. The government awards subsidies and provides assistance to literally hundreds of firms associated with the solar industry. This year, under the Golden Sun program, the government has awarded an $0.87-per-watt subsidy to hundreds of developers, including Yingli Green Energy Holdings. Furthermore, so far, around 1500 projects have been approved for subsidies by the NDRC. According to Xinhua, the government’s news agency, Wind and solar PV account for a “big proportion” of the approved projects.
The news of the updated solar target has been well received by the local industry, as it comes at a time when the United States has erected trade barriers on solar imports from China, and while Europe is thinking about doing the same. An increase in the target ensures that all of the supply will be absorbed by the local market. In fact, Canadian Solar has recently announced that it might open a new plant in China with an annual production capacity of 700MW.
It is still uncertain whether non-Chinese companies will be able to tap into this market. Dieter Manz, CEO of Manz AG, a leading high-tech equipment manufacturer, has stated in an interview with Bloomberg that South Korean manufacturers such as LG and Samsung might enter the solar market once it reaches the 100GW mark. They can use their LCD assembly lines to produce thin-film solar panels for $0.30 or less.
According to European Photovoltaic Industry Association (EPIA), around 169GW to 265GW of PV systems will be installed cumulatively in the world between 2011 and 2015, with 62GW installations in 2015 alone. It will be interesting to see the impact this will have on prices. Solar industry analyst Nigel Morris believes that it is unrealistic to assume that prices of solar panels will continue to decline forever. They will eventually rise because “profit has to rule over growth.” Mark Kingsley, the Chief Commercial Officer of Trina Solar, believes that solar firms will now compete on efficiency and innovative products, as prices have fallen enough for consumers to replace conventional energy with solar power systems.
Last week, International Energy Agency announced that China can potentially replace Europe as the leading renewable energy growth market. Chinese companies are already expanding their footprints outside of Europe. Trina Solar and Yingli Green Energy have recently opened regional offices in Canada and Australia. The Israel Export and International Cooperation Institute has revealed that Suntech is the biggest supplier of solar panels to the country. According to Bloomberg New Energy Finance, the world witnessed a 24% increase in investments in clean energy in the second quarter of the current year, most of it coming from the Chinese wind and solar sectors.