The China Question: What are the current restrictions from government?
After four years of fast-paced development (2014-2017), cumulative solar PV installations in the main provinces of northwest China (Xinjiang, Qinghai, Gansu, Ningxia, and Shaanxi) reached 35 GW, according to data from the National Energy Administration (NEA), with almost all capacity being large-scale projects. However, considering that current limitations include a lack of local consumption of power and limited grid transmission capability, the central government and the NEA has almost abolished permissions for new large-scale solar projects in these provinces.
For other provinces, such as those located in central and coastal China, the government has also been very cautious in granting permission of this kind of large-scale project in order to avoid potential economic difficulties now, or in the near future. The central government, along with the NEA, intends to control the big PV projects with the Top Runner Program, which gives the authorities a handle on the progress of the industry, from industrial standards to product quality, transmission efficiency to attenuation rate, and project size to location.
The intention of government is to gain greater control in the scale and direction of China’s large-scale solar sector. In 2017, NEA data showed that the increase in large-scale between 2017 and 2016 was very small, and industry observers forecast there will be around 8-10 GW of Top Runner total capacity in 2018, 6 GW of which will be for large-scale.
The reason for this comparatively skinny installation pace is that prices in central and eastern China are much higher than in northwest China, so investors have vastly reduced internal rates of return (IRR). And considering the current situation, large-scale solar installation growth could be quite flat through to 2020, until the market conditions in northwest China improve and restrictions are eased as consumption grows and grid transmission capability improves.
One remaining major issue impacting large-scale development is grid curtailment, particularly in the northwest of China. Statistics from the NEA in February show that in 2017, the general average grid curtailment for PV projects across China was around 6.1%, but for the five aforementioned northwest provinces that figure rises to about 14.1%. Within this, Xinjiang and Gansu saw curtailment exceed 20%. However, compared to 2016 curtailment figures of 10.3% nationwide and 19.8% for the northwest five, the situation was vastly improved last year, and will likely do so again this year. The NEA has stated its goal of reducing curtailment in the northwest to below 5% by 2020.
The U.S. Question: Is there much to fear from Section 201?
Strata Solar, a leading developer of large-scale solar projects in the U.S., identifies for pv magazine three key areas that the sector should keep an eye on in the post-Section 201 landscape of the U.S. The first is obviously policy, says Strata Solar SVP Strategy and Government Affairs, Brian O’Hara. “The imposition of tariffs as a result of the Section 201 trade case is terrible public policy, but at least we have some certainty for business planning,” he says. “At the same time, several in the industry are supporting an effort to create exemptions based on cell count or technology that would provide some relief to the utility-scale PV market in the U.S.”
O’Hara adds that the Public Utility Regulatory Policies Act (PURPA) will continue to be a hot topic in 2018. “What could be different this year, however, is that the industry will begin playing offense instead of just defending against attacks on PURPA. We could see more industry efforts to proactively push for requiring lawful implementation of PURPA where it is not happening now.
“State level policies will continue to outweigh federal policies as drivers of renewable energy demand. The economics of solar have gotten so competitive, the policy focus could shift from mandates to simply enabling market access and allowing competition.”
Another area of focus is development opportunities, which is something that Kevin Day, Strata Solar’s VP of Development, sees expanding in 2018. “Large-scale solar deployment will continue to grow due to declining costs for both modules and balance of system components,” Day says.
“Corporate buyers account for the majority of the offtake opportunities in liquid wholesale markets, and the contractual structures used in these agreements have created new opportunities for hedges and insurance products that are fundamentally changing the definition of a PPA.” Day adds that the tariffs imposed by the Trump Administration on imports of solar modules and cells will impact pricing of modules that will delay development in some markets where solar energy is on the margin (for example in Texas) in 2019 and 2020, and the roll-back of the ITC starting in 2020 mandates that costs continue to decrease. “Solar plus (battery) storage is becoming the new norm, with most new interconnection requests contemplating some form of battery storage to firm up the power or add incremental output in the late day peak hours,” he stresses.
Finally, Mike Loeser, Director of Operations at Strata Solar Services, remarks that intense price pressures over the past few years have made their mark on the operations and maintenance (O&M) market for large-scale solar, and now with Section 201 there could be even more comings-and goings of major equipment makers, as well as new innovation in testing and inspection services.
“These forces have led to ongoing consolidation in the industry, with only those providers with the technical expertise to be equipment-agnostic and the scale to price their way into asset owners’ financial models expected to survive in the long run,” Loeser warns. “Solar asset owners have also developed increased technical awareness over the years, only considering providers with a track record of cutting-edge plant optimization approaches for their shortlists.”
The European Question: Will large-scale growth return any time soon?
Benedikt Ortmann, MD for BayWa r.e. Solar Projects, writes: “Globally, large-scale solar has seen incredible growth, with new markets continuing to emerge. The Americas and Asia South Pacific are particularly exciting markets for BayWa r.e. Overall, the picture for utility-scale solar is very positive. When we look at Europe specifically, however, it’s a much more mixed picture.
“In the U.K., for example, we did see significant growth over the last five years, but we do not now anticipate any further utility-scale solar there in the near term. Whereas in Spain, we have recently started construction of the 175 MW Don Rodrigo project, which will be one of the largest in Europe and one of the first projects to achieve grid parity.
“The key challenges across Europe chiefly comprise the differing regulatory regimes, approach to tenders and procurement, electricity prices, and restrictions regarding land.
“In some countries, for example Germany, the development of solar has been restricted in terms of size and land use in a way that imposes higher costs for development and construction. This slows down, or even turns around, the latest achievements in lowering the levelized costs of electricity (LCOE) for solar.
“Even within the EU, we see very different regulatory regimes. In some countries, trading power via wheeling, direct wire, direct PPAs and similar, is still restricted or forbidden. This is seriously hindering grid parity markets to take off.
“While the LCOE of solar has come down significantly over the last decade, electricity prices have also come down. As a result, grid parity markets are only feasible in the south of Europe at present. “Power price developments are also more and more difficult to predict, not least because of the growing portion of renewables in the system. That predisposes developers to significantly higher development risks, which normally would have to be compensated for through higher project prices. This again is contradictory to the power prices dropping constantly.
“The tender regimes for tariffs also impose a higher business risk to developers. In some countries, there is a prerequisite for development works to be almost finalized before being able to take part in the tender process. This forces developers to stretch pricing enormously so as not to lose their up-front investment, and leads to very competitive conditions in the tenders.
This is not sustainable for the market, as developers will overstretch risks and will get shaken out. “To summarize, while Europe has seen, and in a number of countries will continue to see, growth in utility-scale solar, overall it is a picture of unfulfilled potential.
BayWa r.e. is actively working with sector trade organizations and policy makers to find ways to address each of these challenges and have a more consistent, open, and fair approach across the EU. With that in place there is no reason why utility-scale solar should not thrive and play a significant part in a carbon free Europe.”
Additional reporting by Vincent Shaw.