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September 6, 2013

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Home » Business » Biz Special

Prices, subsidies brighten solar prospects

By Richard Fu | September 6, 2013, Friday | Print Edition

China’s newly announced, higher-than-expected prices and subsidies for solar power generation mark the government’s latest effort to shore up a struggling industry by bolstering the domestic market.

The new policies are also a step forward in the government’s efforts to achieve a target of 35 gigawatts of solar installation by 2015 — part of China’s strategy to reduce reliance on coal, analysts said.

The National Development and Reform Commission, the top planning agency, announced last week three sets of on-grid solar tariffs based on resource availability.

The on-grid price is the fee charged to grid companies by power generators.

Solar power stations in regions with the highest number of hours of sunlight, such as Ningxia Hui Autonomous Region and part of Xinjiang Uyghur Autonomous Region, both in northwest China, will have on-grid prices of 0.90 yuan (15 US cents) per kilowatt-hour. Those elsewhere will pay 0.95 yuan or 1 yuan, the commission said. The price in Tibet will be set separately.

These compare with a prior single rate of 1 yuan per kilowatt-hour.

The new rates will become effective for projects approved after September 1 and for projects approved before September 1 but completed after 2013.

The commission said it would gradually lower tariffs in future as costs fell.

Qian Jing, global brand director of New York-listed Chinese solar panel manufacturer JinkoSolar Holding Co, said the new rates are higher than expected.

Initially, the industry expected an on-grid price of only 0.75 yuan for projects in regions with the most sunshine, she said, adding that solar companies are set to benefit from the new rates.

Returning to profitability

China is the world’s largest solar panel maker and exporter, but for the past two years, the industry has been losing money because of overcapacity, falling prices and a slowdown in financing for projects in Europe and the US. Added to the woes were trade disputes with the US and Europe over the pricing of Chinese solar panel exports, prompting China to look to its domestic market for industry growth.

With government support and rising domestic demand, some leading solar panel makers are now returning to profitability. Yingli Green Energy Holding Co, the industry leader, reported a gross margin of 11.8 percent in the second quarter, up from 4.6 percent a year earlier. JinkoSolar is already profitable after its gross margin doubled to 17.7 percent in the second quarter.

The Ministry of Industry and Information Technology said last month that the solar industry’s operations are stabilizing, citing a slow recovery in product prices and falling production costs.

Jason Tsai, research director at SolarPVInvestor, said the new pricing policy would lead to a construction rush before the end of this year, and a supply shortage of modules from leading solar companies in the fourth quarter.

Accelerate process

There are currently more than 12 gigawatts of projects under construction, he estimated in a note. The new rates are expected to accelerate the process, with 6.2 gigawatts possibly rushing through during the second half of the year.

China installed 2.8 gigawatts of solar capacity in the first half.

The development commission also announced a subsidy of 0.42 yuan per kilowatt-hour for solar power generated from distributed projects, higher than the 0.35-yuan level suggested in a consultation document earlier this year. The higher level is aimed at encouraging the production of the clean energy.

The announced timeframe for both the on-grid tariff and the subsidies extends 20 years — longer than expected.

The subsidies and tariffs are an “essential component” of the government’s 35 gigawatt solar capacity target for 2015, with annual installation expected to reach 10 gigawatts a year on average between 2013 and 2015, Deutsche Bank analyst Eric Cheng said.

“We believe the installation would be more back-end loaded as the 10 gigawatt installation still looks a bit challenging for 2013,” he said.

In another move to boost investment in the renewable energy sector, the development commission also said it would raise a renewable energy surcharge to 0.015 yuan per kilowatt-hour from 0.008 yuan, effective from September 25. This is the first adjustment since 2011.

The surcharge, which targets all electricity end users except residential and agricultural users, is collected by the government’s renewable energy fund, which pays subsidies for developers of solar and wind projects, among others.

Due to the fast development of renewable power in China, analysts said there would be a funding gap if the surcharge had not been lifted.

 

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