Chinese manufacturers winners under China’s FIT06. August 2011 | Industry & Suppliers, Top News, Markets & Trends | By: Jonathan Gifford
Monday’s announcement that China is to introduce a national photovoltaic feed-in tariff (FIT) scheme was received well by many in the industry. However, analyst opinion is that the Chinese tier-one manufacturers stand to gain the most.
The national FIT will be applied at two rates. The first will be 1.15 Renminbi per kilowatt hour (rmb/kWh) (US$0.18) that will be paid for projects approved before July 1 and completed by the end of the year. The second rate will be one rmb/kWh (US$.156/kWh). The Chinese Government’s Renewable Energy Development Fund (REDF) will fund the FIT.
Impact on global market
While there remains a number of questions as to the details of the Chinese FIT scheme, some analysts immediately revised up their predictions for 2011 installed capacity. IMS Research was one of the first, increasing its outlook for worldwide capacity by one gigawatt (GW), to 22 GW. IMS Research’s Ash Sharma explained to pv magazine, "We were always expecting a FIT to be introduced, but not until next year at the earliest, due to costs of PV. We expected it to develop in a similar way at the wind market but it was introduced slightly earlier than we’d expected and modeled for, which is why we revised up our forecast."
Research analyst with pvXchange International Goekhan Demirci said that it should not be a surprise that some short and middle term forecasts have been increased as a result of the Chinese FIT announcement. "It will create another market that will be a significant one. Earlier China was rated as a mid-sized market that would gain significance in 2015 […]. Now after this announcement many have put China as one of the top markets as well."
However, some photovoltaic market analysts offer a word of caution as to the short-term impact of the FIT announcement. Lux Research’s Pallavi Madakasira told pv magazine, "I don’t think it will significantly add to demand predictions," in the short term. She continued that there is a decided lack of detail as to project volumes and how they will affect the FIT rates.
Lack of detail in plan
There remain a number of question marks as to how the China FIT will work. In particular, the process by which projects will be approved by the government’s REDF. In this respect domestic integrators and project developers have a clear advantage, according to Demirci.
"The way it worked in the past is that you really needed to have good contacts in the region and you also had to go through a certain permission process. Chinese companies already do that, they know about it." However Demirci noted that some European integrators already have begun developing projects in China. Lux makes the same observation and IMS Research’s Sharma agrees also. "There’s nothing to prevent them [non-Chinese firms] from doing so, but I would say that the odds are stacked in the Chinese firms’ favor."
In particular, Madakasira makes the case says that more detail is crucial before major conclusions can be drawn from the China’s FIT. "There are too many moving parts and more clarity is needed, no-one is holding their breath." She also observed that Lux does not anticipate any of the manufacturers increasing production on the back of the announcment at this very early stage.
Tier one manufacturers in pole position
Where there genuinely appears to be no doubt is that Chinese tier one manufacturers are ideally placed to profit from the Chinese FIT. "The best leveraged companies are the domestic producers," concluded Madakasir. Sharma agrees, "we will see local module and inverter companies and integrators benefiting the most from this new tariff." pvXchange’s Demirci pointed out to pv magazine out a nuance to this however as external project developers using modules for tier one manufacturers, such as Yingli or Suntech, have already had some success in initiating projects in China.
On the day of the FIT announcement, market analysts Jefferies issued a statement saying that a Yingli, JA Solar, Suntech and Trina were well positioned to profit from the scheme. Suntech’s Bjoern Ende, responded to the announcement by saying that, "we had been lobbying this for quite some time," and that the scheme delivered, "a lot of what was asked for." IMS Research’s Sharma believes the difficult first six months of 2011 had made the Chinese firms’ case compelling to the government.
Lower rates but lower costs
While the Chinese FIT rates may seem meager in comparison to some of the rates seen in Europe and elsewhere, the analysts observe that with high sunlight levels in certain parts of the country, low labor costs for installation and cheap or even free land for power plant sites, the prospects in China look good. Demirci also added to this that Chinese made modules are sold at lower prices than they are in overseas markets. All of this makes the scenario of investing in Chinese photovoltaic plants attractive and profitable under the FIT Scheme.
While Lux maintains that the FIT scheme is certainly no "game changer" in the near term, predictions for Chinese installations now stand at around 1.3 GW in 2011, rising to 2.5 GW next year and eventually growing to 5 GW to 10 GW in 2015. These middle term progressions span a very wide range, but with a scheme for which there are many unanswered questions, in a country that often lacks governmental transparency, there is a large margin of error. What is certain and many analysts agree on, is that many parts of the photovoltaic industry are watching China closely.
There will be extended analysis of the Chinese FITs in the September issue of pv magazine.
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