Peaks and troughs

“At least 20 GW of new PV projects were installed in the first half of 2016,” confirmed Wang Bohua, Secretary General of China PV Industry Association. “Though an installation peak was expected in July, this figure is far beyond any previous estimations,” said Wang. In fact, this installation figure is almost triple that of the same period last year, and exceeds the entire annual target for 2016 set by China’s National Energy Administration (NEA).
The unprecedented rush of installations is thought to be due to the fact that significant changes to China’s PV subsidy policy came into force on June 30. The FIT dropped by as much as 11% for some projects. All projects connected to the grid before this date would be able to apply under the old FIT scheme, but anything connected after June 30 is only eligible for the new, lower FIT scheme.
This is a disappointing policy change for PV investors. The revised FIT rate has reduced revenue in some projects and greatly affected both ROI and IRR across the industry. Some projects have had to be entirely reevaluated, possibly even abandoned, as they will no longer be economically feasible.
Others contend that China had no way to continue its subsidy policy to the PV industry. As more and more projects were installed, the cost of maintaining the subsidy climbed ever higher. When the FIT scheme was first introduced in 2012, China was a large manufacturer of PV technology, with very few domestic projects. The policy was introduced to change this by encouraging investment in installation projects within China, something at which it was very successful. By the end of 2015, China was the world’s largest market for PV installations, with more than 43 GW installed. Now, China is facing similar problems to Germany, Spain and other Western solar pioneers, where the level of subsidy promised is more than the government feels it can afford.

Budgetary constraints

The problem developed faster than was imagined. For 2016 alone the required subsidy stands at around $13.6 billion. Of this, $9.1 billion is covered by income from the state grid surcharge, but the other $4.5 billion has to come from elsewhere. China also has subsidy arrears worth an additional $4.5 billion, and a shortfall of at least $6.1 billion is expected in 2017.
Raising energy costs for the consumer would seem like quite a reasonable option, but there are signs that the Chinese government is reticent to do so. Energy prices are falling globally, and China has seen particularly large drops in its oil and coal prices, so increasing electricity costs to support renewables may be politically unacceptable. China’s economic downturn has also weakened the effectiveness of subsidies to provide a boost.
So the decline in subsidies for PV looks set to continue. Hou Sholi, a government official from the National Development and Reform Commission (NDRC), is in charge of electricity pricing in China. At a recent conference he stated that the country plans to reduce and eventually eliminate subsidies to the PV industry over the coming years.
Almost all of China’s major industry players worked flat out to complete as much as possible before the June 30 deadline, which brought about the unprecedented installation rush.
All of China’s key market players have benefited from this installation rush. Financial reports show that major PV manufacturers including Jinko, JA Solar, Canadian Solar, and Trina, as well as other smaller companies, increased their capacities to post new records in equipment utilization, module shipments, sales revenues, and even profit margins.
Now that the June deadline has passed and the mad rush for completion is finished, the industry is cooling off and beginning to look to the future.

Cooling off

Having hit one of its highest peaks just two months ago, the Chinese solar PV market now seems to be in free fall. Due to low order quantities, several key module manufacturers have enacted overhaul and maintenance plans in August and September.
Prices of PV products began to drop in late June, and continued to fall in July and August. Module price, pushed down by lower order quantities, dropped quickly from $0.598/W (mono 280 W) and $0.576/W (poly 260 W) in May to $0.561/W and $0.545/W respectively in June. At a PV project bid in August, two xAdvertisement

leading manufacturers placed bids for multi and mono modules respectively, at only $0.50/W. Module prices are down 20% compared to just three months ago.
Solar cell prices also dropped at a similar rate, hitting $0.311/W (156 mm, 17.8%). This shows a 10% price drop between May and June. The latest reports show some manufacturers quoting as low as $0.275/W. Silicon wafers have also fallen by around 10%. Silicon is perhaps the only exception, because China imports much of it from overseas. Data from Chinese customs, however, show that import volume has dropped greatly since May.
Industry insiders have warned that the market will freeze over in the second half of 2016. Speaking at the Asia Solar Conference in Shanghai, Bohua said that he expects the market to enter an adjustment period, with sharp drops in installations in 3Q 2016. Chairman & CEO of JA Solar, Jin Baofang also expects a slowdown in the Chinese market over the coming months, stating, “JA Solar will more cautiously control capital expenditure and human resourcing.” Ma Gewei, a VP at Solarzoom, said that global PV markets could suffer in the near future, as two negatives hit at the same time. First, China and other major economies are reducing subsidies to PV – Japan, the world’s third largest PV market, is set to follow China in adjusting its FIT policy in early 2017. The second problem is overcapacity, due to the rise and sudden fall in order quantities. Ma Gewei predicts a major global slowdown in PV installation, ultimately resulting in another major industry reshuffle.
Because of the recent rush for installation, and already high capacity of current projects, gaining more orders over the coming months will be a difficult task.
The NEA placed a cap on 2016 installations of 18.1 GW, with 12.6 GW in standard arrays and 5.5 GW set aside for the Top Runner Program. Those projects are likely to attract huge attention, and bidding will be fierce. Larger brands are most likely to prevail. China’s state poverty alleviation project could open up another 1.8 – 2.5 GW, giving smaller manufacturers a chance.
Though distributed PV projects were included in the NEA’s annual plan, only a few were finished in the 1H 2016. Distributed PV has been problematic for China in the past, but is likely to become more popular from now on, as there is no other quota left for market players.
Looking back in five years’ time, June 30, 2016 may well turn out to be an important milestone for PV in China: the day the state started to move towards winding back subsidies to PV, pushing the industry to find its own feet and compete with other energy sources.