The initial purpose of implementing China’s FBF principle was to stimulate PV projects’ construction progress. However, with 2016’s acceleration of PV expansion and the curtail of state-level scale index, the gap between capacity filed at provincial governments and the index granted by the central government has widened, and the number of projects that have begun construction without index under the FBF principle has grown rapidly.
Studying the relevant policies, PVmen found that, in the "Notice from Anhui Energy Bureau on further strengthening the administration of PV projects development”, the Anhui government stated that "the FBF principle needs to be improved.” It highlighted that the FBF principle only applies to distributed ground-mounted projects under 20 MW. Hence, most PV projects in Anhui that have obtained index under this principle are distributed generation (DG) below 20 MW.
Even within the 20MW scope, according to a "Construction Situation Analysis on FBF PV Projects in Anhui Province” report, by the end of August there were total of 6,622 MW of such PV projects filed to the provincial government, in which only 1,024 MW have obtained scale index. Of that total figure, some 2,554 MW projects are connected or under construction. It is expected that by the end of 2016, grid-connection PV projects under the principle but lacking access to the scale index could be more than 600 MW.
Besides Anhui, Hebei is another province that has implemented the FBF principle. In Hebei, PV projects first need to be listed in the provincial annual construction plan, followed by the scale index subsidy plan according to relevant regulations. Currently, the number of filed project in Hebei Province is significantly greater than the scale index granted by central government. Statistics seen by PVmen indicate that the current gap is around 2 MW.
Over the course of this year most provinces have begun to distribute index through competitive allocation. Hebei province prioritizes those projects that have been listed in the previous year’s annual grid-connection plan but lack subsidy, as well as those projects that have been listed in the previous year’s provincial construction plan, and the main bodies of projects have been completed for grid-connection. FBF remains as one of the most important criteria.
Province by province
According to the early warning data released by Henan Province, there are 3,360 MW projects currently under construction, but the province’s 2016 scale index is a mere 500 MW, leaving a shortfall of 2,860 MW of solar PV lacking subsidy.
Shandong province is another PV hot spot, but PVmen has learned that there is no common PV index for 2016, and poverty alleviation projects also take up much of the index capacity. Thus, the projects that have been completed or are under construction but lack index access have reached 500 MW in capacity.
Similarly, Yunnan province also has no index for 2016, and its first batch of poverty alleviation projects only obtained 131 MW of the index. According to an industry insider, Yunnan completed hundreds of megawatts PV projects in 2015 that are still waiting for this year’s index. However, no such subsidy has been forthcoming.
This year, project construction progress has become one of the key criteria in competitive allocation methods adopted by many provinces. Based on this, starting production early becomes the only choice for many companies. However, with the growing index gap, FBF principle, implicit or explicit, may result in more serious financial burden to such solar enterprises.
The Jiangxi Energy Bureau stated in its “Letter on Requesting Cooperation on Regulating the Ground-mounted PV Power Stations Approval Management” that: “Recently, the National Energy Bureau granted 400 MW PV capacity to our province, but the capacity filed all over the province has been exceeded dozens of times, this in turn, will cause a majority of filed projects to fail to even begin, or be unable to receive subsidies on time.”
A researcher from a Jiangxi company revealed that the capacity of completed projects lacking index amounts to around a few hundred megawatts in Jiangxi.
Similarly, the “Hubei 2016 PV Power Stations Competition Result” announced by Hubei Energy Bureau on October 11 shows that the total capacity of the top 60 projects in the report has reached 2,500 MW, far exceeding the 600 MW index allocated to Hubei in 2016.
Additionally, the official document on PV benchmark FIT adjustment might be released end of this year. This means that if the project completes in 2016 but uses the 2017 scale index, the FIT it obtains will be decreased accordingly, and this will consequently affect the power station’s income calculation.
In summary, the index gap for in-progress or completed projects in Shandong, Henan, Anhui and Jiangxi is close to 4 GW. In Hebei province, the gap between the filed capacity and allocated index is a further 2 GW, with considerably large projects without index having begun under the FBF principle.
These areas are all very attractive for investment. In addition, Hubei, Jiangxi and Yunnan all have significantly exceeded their respective index allocation, and Gansu still has hundreds of megawatts of PV projects built but still waiting for index; the total capacity of projects in-progress or completed but lacking subsidy index will exceed 5 GW.
With the PV benchmark FIT adjustment around the corner, the policy risk of PV projects under construction is gradually increasing. The policies recently issued by Henan and Anhui Province requesting strict management of projects filing come at the right time and are appropriate to the current situation. However, the uncertainty of future index and tariffs will inevitably bring even harsher challenges to PV investors.
Article reproduced with permission by PVmen. Edited by Ian Clover.