A recent report published by China’s National Audit Office reveals that solar subsidies granted under the government’s Golden Sun scheme have been subject to gross misuse and abuse by the enlisted solar PV companies. The report is another signal that the Golden Sun subsidy program is nearing its end after a four-year run since 2009, and a widely rumored and anticipated new scheme that is based on real power production and focuses on low-voltage plants is set to take its place.
Prevalent Subsidy Fraud
The report from China’s National Audit Office indicates that numerous Chinese PV companies have utilized a variety of tactics to deceive the national government into granting them large sums of Golden Sun subsidies – money meant to promote the use of renewable energy in industries and communities, and foster a domestic market for the country’s PV manufacturers.
Projects of Hanergy Solar Group Ltd (HKG:0566) and Dongying Photovoltaic Power Co. Ltd (EPA:ALCNP) are among the notable companies listed in the report’s accusation. The most prevalent tactics used include gross exaggeration of the installed capacity of projects, the inclusion in the application of project files and contracts that are nonexistent, and application of projects that do not comply with the conditions of the subsidy.
Between 2011 and 2012, a combined 8.149 RMB billion has been dispatched as subsidies under the Golden Sun demonstration program, a considerable amount that is second only to the nation’s subsidies to automobiles that run on renewable energy. The highest amount of a single swindle is reportedly 60 RMB million.
Hanergy received subsidies totaling 26.37 RMB million for its proposed 10MW power-generation project in 2012, of which, it is found by the National Audit Office, only 5.18 MW was eventually installed and connected on-grid.
Hanergy has subsequently returned the subsidy to the Finance Department of the Heyuan City Government, the effective executor of the subsidy in December 2012. In the company’s announcement on June 22nd this year in explanation of its misconduct, Hanergy cites unfavorable roof-top installation conditions as the main reason for its inability to complete the installed capacity proposed.
Common Tactics in Subsidy Fraud
According to an industry insider in China, four common tactics are used by the companies to swindle Golden Sun subsidies.
1. First, companies win subsidies for nonexistent projects conjured up on false contracts and related documents.
2. Second, some companies are found to exaggerate the capacity of the projects proposed to varied degrees in order to generate more subsidy than is actually needed.
3. Third, some companies are revealed to fast-track and/or push through their subsidy applications through illegitimate means.
4. Fourth, companies are also found to misuse their granted subsidies as loans to a third party or as payment for land purchases, which are both in violation of the terms and conditions in relation to the utilization of the subsidy.
The End of the Golden Sun Demonstration Program?
The ongoing Golden Sun Program was first initiated in July 2009 under a joint initiative of China’s Ministry of Finance, Ministry of Science and Technology, and the National Energy Administration, to promote domestic adoption (both industrial and non-industrial) of solar PV power generation and support Chinese PV manufacturers by creating and expanding the domestic market.
The first batch of the program ran from 2009 to 2011, enlisting 275 PV development projects with a total capacity of 642 MW and an estimated cost of 20 RMB billion. The program granted upfront subsidies to grid-connected rooftop, BIPV, ground-mounted systems and off-grid systems in rural areas that exceed 300KW in capacity size to cover 50% (for on-grid systems) and 70% (for off-grid systems) of their total estimated cost of construction and installation.
On December 11th, 2012, the Ministry of Finance announced the second batch of projects under the Golden Sun Program with a total planned installed capacity of an impressive 2.835 GW.
The Golden Sun Program, however, has come under heavy criticisms\ by China’s PV industry. The prevailing lack of oversight has resulted in severe fraud and abuse of subsidy funds. The one-off upfront payment of the Program’s subsidies on the sole basis of capital expenditure is seen as unable to provide incentives for the companies to build high-performance systems.
The Chinese PV industry, therefore, is in eager anticipation of an overhaul of the existing Program. Meng Xiangan, vice chairman of the China Renewable Energy Society in Beijing, said in an interview in March that a new policy is reported to be in formulation that seeks to replace the one-time subsidies with a new scheme that extends to low-voltage plants, which do not typically generate power for utilities.
Meanwhile, speaking in March at the PV Project Implementation Conference, part of the Solarcon China 2013 in Shanghai, Wang Bohua, Secretary-General of the China Photovoltaic Industry Alliance, expressed pessimism about the continuation of the Golden Sun Program.
Wang Haisheng, chief analyst of Minsheng Securities, expects new PV installations in China in 2013 to be 8GW - a modest estimation according to the Chinese government’s official projection of 10 GW - of which only 3 GW will be contributed by projects under the second batch of the Golden Sun program. He also expects large-scale ground-mounted solar farms to contribute 50% of the estimated 8 GW new installations and distributed PV to contribute 1 GW to the total.
