China’s National Development and Reform Commission (NDRC) announced this week that it will cut the amount of money it pays to developers of solar farms by as much as 19% next year in order to reflect falling construction costs for solar.
The proposals will also apply to wind farms, with a cut of 15% expected in 2018 based on current tariffs.
According to the NDRC, this reduction in subsidies will save the government around 6 billion yuan ($863 million) a year. With the price of solar modules falling by around 30% in 2016, developers have been offering record-low bids for solar in many parts of China, and hence a reduction in the support offered by the NDRC was always a possibility.
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China also recently announced that it is to lower its 2020 solar installation target from 150 GW to a minimum of 105 GW in the wake of a massive oversupply of modules and increasing rates of curtailment of solar power in some regions.
The NDRC will continue to encourage local authorities to select renewable energy developers at auctions, however, in a concerted effort to drive down the cost of solar and wind power further.
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Something here does not add up. The price of modules has fallen by 30%. BOS costs have certainly fallen too, by rather less. Let’s guess a 20% fall in the system cost. At first sight, that matches the 19% reported cut in tariffs. Effectively, there is no net cut in incentives. Yet the installation target has been cut and everybody is predicting a fall in installations. The government has been wrong so often on its solar targets that prudence suggests basing forecasts on fundamentals, not Beijing policy statements. That would lead to level pegging at worst, not a fall.
One issue I’ve not seen discussed is how the pv market in China will change below grid parity, which must be close. Many customers don’t pay wholesale rates, and the self-consumption calculation is looking better al the time. Policymakers haver been trying for years to shift installation from utility farms in the sunny but remote interior to the densely populated coastal provinces, with little success. However, there is some price at which a typical factory owner in the Pearl River (the largest manufacturing conurbation in the world) will decide it pays to buy a solar roof. Perhaps 2017 will be the year.