Monday, 02 September 2013 02:28

China Introduces New 20-Year PV Subsidy Policies

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New 20-year subsidy gives CNY 0.42/kWh to distributed PV projects and CNY 0.9 to 1/kWh to ground power stations based on zoning.


China’s National Development and Reform Commission (NDRC) announced new subsidy policies to boost the country’s solar PV industry – the latest among a series of incentives introduced by the government this year to scale up the country’s solar PV production. PV enterprises in China are set to see a new round of growth.

New Subsidy Policies

According to NDRC’s plan, distributed power generation projects will receive CNY 0.42 per kWh of electricity generated.

Ground-based PV power stations will receive subsidies of CNY 0.9/kWh, 0.95/kWh, or 1/kWh, based on local light resources and power station construction costs.

The standards, scheduled to last 20 years, apply to all PV power stations registered after September 1, 2013. Power stations that were registered before the date, but that will only start power generation after January 1, 2014, are also eligible for the subsidies.

Excluded from the new subsidies are distributed PV projects that directly receive an investment allowance from the government budget.

Both subsidies are higher than industry expectations. In March of this year, the government divided the country into four zones based on their varied amounts of lighting resources and suggested subsidy standards of CNY 0.75, 0.85, 0.95 and 1 per kHw respectively for ground power stations in the four zones. The suggested subsidy for distributed power generation projects back then was CNY 0.35 per kWh.

One thing of note is that on top of subsidiaries from the central government, local provincial governments, especially those home to a large number of PV enterprises, also have various levels of subsidiaries in place. Jiangsu Province, for example, will add another CNY 0.25/kWh to the state-level subsidiary as well as desulfurization incentives. “The combined subsidies will help PV projects in Jiangsu to realize a financial internal rate of return (FIRR) of above 6%,” according to the calculation of Wang Xinghua, board chairman of ET Solar Group Ltd.

Wang Haisheng, chief analyst of the new energy sector at Minsheng Securities, estimates that cost for PV generation is likely to decrease by 20 - 30%, thus kick starting an era of affordable PV electricity. Liu Wenping, a PV industry expert, predicts that the expanded subsidies will lead to a new round of buy-up of PV power stations.

PV Companies Optimistic, but Cautious

Riding on the waves of the new subsidies and the pleasant surprise of the good performance in the first half of 2013, Chinese PV companies in general voiced optimism about the direction of the industry in the relative short term.

Reportedly, among the 30 Chinese PV companies that have published their financial report for the first half of 2013, 22 reported profit gains.

“Our current feeling is that the domestic business environment is improving. Unit prices for solar modules are stabilizing, if not increasing,” says Yao Feng, vice president of JinkoSolar Holding Co., Ltd. (NYSE:JKS).

In fact, global business has been so good in the first half of 2013 that a lot of first-tier PV manufacturers are all sold out. According to a Jiangsu PV executive, the first half of this year saw a tremendous increase in stalled capacity in the US and Japan, consuming all output of first-tier manufacturers in China, leaving the Chinese domestic market to second- and third-tier manufacturers to supply.

Unit price for solar panels stopped its fall in the same period as well. Han Qiming, analyst at Solarbuzz, estimates that the current price of solar modules in China stands at USD 56 - 58 cents per watt and will increase to USD 68 - 70 cents per watt before the year is over.

At the same time, industry leaders and observers remain cautious. At the policy and operational level, three major defects still linger in the Chinese PV industry, according to Wang Xuejun, China CEO and board chairman of Bay Energy Group. “A major problem is the failure to ensure that electricity generated by PV is genuinely and completely connected to the grid and purchased at full price, which fundamentally calls for vigilant supervision and execution from the government; a second problem is the high bank loan interest for the new energy sector. The current rate of 7% is too high. 4% - 5% is a more sustainable and acceptable number; a third concern is whether electricity price remains constant enough in the 20 or so years when the subsidy policy is in place to give confidence to current investors. The bottom line is that investors do not lose money,” says Wang.

A big concern for JinkoSolar’s Yao Feng is the customers’ rampant delay in payment for electricity bills. “The delay in payment can last for as long as one or two years. This causes a huge problem in the cash flow in the entire production chain. If customers don’t pay their bills, the power supplier doesn’t get any money to pay their supplier, who in turn cannot pay the supplier upstream. This makes the whole ecology of the business very toxic for anybody to survive.”

Dai Cunfeng, executive chairman of CECEP (Beijing) Solar Energy Technology Co. Ltd., thinks the subsidy for distributed power generation projects (CNY 0.42/kWh) is not high enough. “If it hits over CNY 0.45 (per kilowatt), the RIFF for most of East China will be above 8%. That’s when investors will get seriously interested,” said Dai.

A Streak of Incentives

Since June, the Chinese government has iterated a series of directives and policies to boost the country’s solar PV industry.

On June 14th, the executive meeting of China’s State Council agreed on the resolve to give support to the then-deeply troubled industry and announced six measures, which include the expansion of application of distributed power generation projects, the guarantee of full-price purchase of all PV-generated electricity, the setting of feed-in tariffs based on nationwide zoning, and the expansion of funds for renewable energy development.

On July 24th, the State Council set the development goal and bottom line for the development of the industry in its “Opinions on Encouraging the Healthy Development of the Solar Photovoltaic Industry.”

On August 20th, the National Energy Administration announced the plan to build 18 solar PV distributed power generation model zones across the country. The model zones, to be fully completed by 2015, will have a total installed capacity of 1.823 gigawatts. Projects completed within the first phase of the plan will receive a subsidy at CNY 0.42/kWh.

With the government-led directives and policy incentives, coupled with the much-fought-for evasion of hefty anti-subsidy tariffs from the EU, the Chinese PV industry looks good for a new round of fast growth. 

Read 1530 times Last modified on Monday, 14 October 2013 14:03

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