China’s market in transition

By the end of 2018, China was home to around one third of global cumulative PV capacity, with around 175 GW of operational PV systems. In the context of China’s power sector, writes Frank Haugwitz of Asia Europe Clean Energy Advisory, the cumulative installed capacity makes up 9% of the total existing power generation capacity and contributed approximately 2.7% to total electricity generation.

From pv magazine 12/2019

Last year, China managed to install approximately 44 GW of PV. However, and not entirely unexpectedly, this has slowed in 2019, due to the new regulatory landscape that took shape over the course of the year. New feed-in tariff rates, the pursuit of grid-parity projects (14.78 GW), and the execution of the first national unified auction – amounting to 22.78 GW – combined to have a significant impact on deployed PV capacity. Accordingly, during the first nine months of 2019, installations dropped by 45% year on year. The latest forecast suggests that during October, around 1.5 GW were deployed, including up to 1 GW of residential PV systems, so that by the end of October, approximately 17.5 GW had been installed.

The reasons for this significant reduction of installation volumes are manifold: the relatively late release of policies and approved gigawatts, combined with relatively long lead times to develop new projects; new approaches such as a national unified bidding system; and continuously falling module prices. Combined, these factors have induced developers to ignore the CNY 0.01/kWh higher FIT for projects installed before Dec. 31, 2019.

The 14th Five-Year-Plan (2021-2025)

Early in January 2019, with the release of its notice outlining the development of wind and solar PV grid-parity projects, China’s National Energy Administration (NEA) provided a first indication of how the domestic PV market is expected to evolve in the future – especially during the 2019-20 period.

The NEA envisages a transition from a 100% subsidy-driven market to a two-year phase featuring both subsidy-support and subsidy-free policy instruments, and then a 100% subsidy-free era starting on Jan. 1, 2021. This progression aligns with the forthcoming 14th Five-Year-Plan (2021-2025).

At the time of writing, a series of major policy announcements still had yet to be released. For instance, during August 2019, the National People’s Congress (NPC) launched a renewable energy law enforcement investigation covering multiple provinces. Findings and recommendations included renewables offtake, tax incentive schemes, and land-use fees. The findings are to be reported to the NPC later this year and will eventually be included in the next Renewable Energy Law amendment.

At the same time, the majority of provincial, city or industrial-zone support policies will terminate either in 2019 or by 2020 at the latest. Equally impactful will be the introduction of a base price + floating mechanism for the coal benchmark price, from Jan. 1, 2020. Accordingly, the coal benchmark can fluctuate by -15% and +10% annually. A decline of the local coal benchmark price by 15% could consequently challenge the competitiveness of grid-parity projects, and eventually may lead to delays or even the cancellation of such projects planned for next year.

Against this background, China launched the third batch of Top Runner projects (1.5 GW) in Jilin, Inner Mongolia, and Jiangsu. Bid prices fell by 8-25% in the course of 16 months since the last Top Runner bidding round. Among the lower prices, the bidding price for one project in Dalad, Inner Mongolia, was approximately 2% below the local coal benchmark price of CNY 0.2829/kWh ($0.04/kWh).

New future growth areas for solar PV in China are emerging. For example, FITs are being offered for PV combined with electrical energy storage in Jiangsu. Due to the swine fever, which led to the culling of more than 1 million pigs, pig-breeding land is now classified as agricultural land, thus offering gigawatts of potential. And the creation of 26 power- trading centers specifically for distributed generation, or the possibility of spot market trading, is driving demand and the emergence of new business models for solar PV in the country.

In short, it has been a rather eventful year to date as far as the changes in China’s solar PV policy landscape are concerned. AECEA’s full-year demand assessment for 2019 is 20-24 GW, with a 2020 demand forecast of about 23-31 GW.

Overall, by the end of October, with approximately 192 GW of operational solar PV power generation capacity, China had exceeded its 13th Five-Year-Plan (2016-2020) target of 105 GW by roughly 82%.

About the author

Frank Haugwitz is an independent solar energy consultant who has been based in Beijing since 2002. He worked as a seconded long-term expert on photovoltaic and renewable energy projects in China from 2002 to 2009, with the support of Germany and the European Union. In October 2012, he founded his company, Asia Europe Clean Energy (solar) Advisory Co. Ltd. His services include working with individual clients to apply his extensive China photovoltaic-focused insights to their specific needs.

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