China’s Power Industry III – PV

Before the introduction of FIT in August 2011, China’s PV installation fell primarily within the Golden Sun program started in 2009

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Before the introduction of FIT in August 2011, China’s PV installation fell primarily within the Golden Sun program started in 2009. Due to the high installation costs, large scale of PV is not economical for China. The cost was estimated to be 8 Yuan/kwh at 2004. The steady declining module and inverter prices trimmed the cost to be around 1.7 Yuan/kwh at the end of 2010. Still it is higher than the highest utility rate paid by the end users, which is around 1.1 Yuan/kwh. China’s utility rate will be discussed in a later article.

The Golden Sun marks the beginning of the PV industry as a power-gen source. There are hundreds of small-scale PV installations[1] which are pilot systems located across the country. The goal is to disseminate PV technology, train professionals, gain experiences and develop standards. The incentive is 50% (normal cases) or 70% (for remote areas) of the initial installation costs will be covered by the government. A few hundred of megawatt of Golden Sun projects have been developed so far.

A rapid acceleration of the PV development started right after the FIT introduction. Out of the 3 GW PV installed in 2011, well over 2 GW installations were done after the arrival of FIT. The timing of the introduction of FIT is a bit surprise for many people in PV industry who eagerly awaited its arrival. Due to the large territory and various land and insolation conditions, it is hard to design a good FIT plan for the whole country. The FIT plan was originally scheduled at the end of 2011 or the beginning of 2012. However, the plummeting cost of PV modules and the strong demand from the manufacturing sector prompted the CDRC to act early. The FIT stipulated that all the electricity generated by a PV installation in 2011 that are fed into the power-grid enjoy a utility rate of 1.15 Yuan/kwh. The rate would be reduced to 1 Yuan/kwh in 2012. A flat FIT rate is a surprise for many as a complicated, structured FIT plan is anticipated.

When FIT was first introduced, the total installation costs (not including land) are about 15 Yuan/watt – which means the only economical places to build PV farms are at the west. China’s west is vast, dry and relatively thinly populated. It also has great solar radiation as the thick clouds from the oceans are largely blocked by the high mountains. The land is cheap as the area can not support large population. Even if the IRR was still quite low with 15 Yuan/W installation at the time, the long suffered power-gen companies embraced the PV just like they embraced the wind power. The state needs electricity but they are reluctant to build more coal-fire plants due to the low feed-in rate for Huo-Dian. They want to get into the PV game early and they know large scale will drive down costs.

Qinghai Province saw the biggest share in the PV installation boom late last year. According to Qinghai Energy Bureau there are slightly over 1GW PV farms connected to the grid within a few months period. There are other places enjoying the boom as well, such as Ningxia, Gansu, Inner Mongolia and Xinjiang. But none is as dramatic as Qinghai. Qinghai is unique in that it is a large province (721 thousand square kilometers) and it has the second highest insolation in the country, next to Tibet. The provincial leaders also view PV as a chance to improve the economy and laid out stimulant policies for PV.

Right now, with the PV module price fallen to 5-5.5 Yuan/W, inverter price down to ~0.7 Yuan/W, the total installation cost is estimated to be around 9-10 Yuan/W for solar farms. As pointed out recently by the CEO of a developer company, the PV will surge if the following conditions can be met. The first is that all the electricity generated by the solar farms can be taken by the power grid. The second is that the FIT price can be guaranteed for a long period like 20 years. The third one is that the low interest loans like 5-7% from the banks are easily available. Not explicitly in the first condition, developers/IPPs may sell electricity directly to the grid, not necessarily the power-gen companies.

Out of the 3 conditions, presently the first one is the biggest hurdle. Even though the west is where the solar and wind resources abound and the ideal place for building solar and wind farms, the electricity load center is in the east. Long transmission lines must be built to transmit the electricity from the solar/wind farms. The added transmission costs need to be absorbed by the grid company – SGCC, which is known not to be a supporter of the solar/wind farms. SGCC is particularly unhappy about the several severe accidents at the wind farms last year – which destabilized the grid. The second condition seems to be weird to countries with established FIT policies. It stems from the language of last year’s FIT plan which did not explicitly state the power-purchase period. However, it is rather a moot issue as people who crafted the plan privately said: if it does not state a period, assume it to be permanent. The third condition is important in having private developers in the game as large loans with favorable rates are hard to get for private companies. For state-own companies, loan generally is not a big problem. There are huge interests right now from private companies to enter the game due to the favorable IRRs. Still the above hurdles likely mean the state-own power-gen companies will be the primary force in developing PV projects in 2012.