The State Of The Chinese Solar Market

by Trefis Team
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The Chinese solar market has been booming over the  past few years, driven largely by a favorable policy environment intended to meet a greater portion of the country’s growing energy needs from cleaner sources, while also driving demand for domestic solar panel manufacturers. Last year, China installed a total of about 12 gigawatts (GW) of new solar capacity, up from just about 3 GW in 2012, making it the worlds largest solar market by far. In this note, we take a brief look at some of the current trends in the Chinese solar market.

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Current Incentives For Solar Generation: Growth in the Chinese solar market has largely been incentive-driven. At present, the country offers a feed-in-tariff for both utility-scale power plants as well as distributed generation installations. The  feed in tariffs for large-scale ground mounted power plants stand at between 0.9 yuan ($0.14)  and 1 yuan ($0.16) per kilowatt-hour (kWh) of energy generated, based on the radiation levels at the location of the plant.  On the other hand, distributed projects get a payment of between 0.62 yuan  ($0.10) to 0.78 yuan ($ 0.12)  per kWh. These subsidies will be valid for the next 20 years and this is likely to be a positive attribute for project developers, since it would safeguard the rate of return on their PV projects. [1] China also provides other incentives, including free grid connectivity for small and medium-scale distributed photovoltaic solar power producers.

Consolidation Could Help Pricing: While average selling prices for panels in the Chinese market have traditionally been about 10% lower compared to international prices, the gap has been narrowing of late, given the growing demand and the slow rate of manufacturing capacity expansion in the country. Many Chinese tier-1 manufacturers have been choosing to lease or buy excess capacity from struggling players or just run their manufacturing facilities at above 100% utilization levels, instead of investing in building out new plants. Chinese solar manufacturing capacity is estimated to be above 40 GW, while global solar demand is expected to be around 49 GW for this year. This could help to increase panel prices further.

2014 Installation Target Seems Ambitious: For this year, China’s National Energy Administration will provide incentives for the installation of about 14 GW of capacity. However, there could be some challenges to meeting the target, since a large portion (about 8 GW)  of the government’s incentive quota is directed towards the distributed generation segment, which is still largely underdeveloped, while a smaller portion (about 6 GW) will be directed at the burgeoning utility-scale sector. [2] This could be an issue, since the market for distributed solar in China faces obstacles, including the possible lack of rooftops capable of mounting solar systems and a dearth of financing for solar systems. [3] However, there is a possibility that the government could revise the proportion going forward.

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Notes:
  1. China Feed-In Tariff Brings Solar Shares Higher, Seeking Alpha, September 2013 []
  2. China Confirms 14 Gigawatts of Solar Incentives for 2014, Greentech Media, February 2014 []
  3. China Solar: 2014 Demand Challenged And Policy Driven, Says Nomura, Market Watch, April 2014 []
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