Figures from China’s National Energy Administration (NEA) show the total amount of new PV capacity added in 2017 was 53.06 GW, a year-on-year (YOY) increase of 53.6%. Even more impressive, this figure represented more than half the total amount of solar PV installed globally in 2017, which according to recent data by SolarPower Europe was 98.9 GW. It also meant that China ended the year with cumulative PV installations of more than 130 GW – a figure that exceeds the target of 105 GW laid out in the 13th Five Year Plan (2016-2020).
The goal was to hit 105 GW by 2020. China is two years and 25 GW ahead of the game, and now the government needs a new target for the solar industry to strive for.
Building with balance
The record-breaking solar growth experienced in China last year was evident across almost all of the PV supply chain. Currently, the nation’s annual polysilicon output is approximately 242,000 metric tons (MT), a figure that represents a YOY increase of 24.7%. Wafer capacity now stands at over 87 GW – a YOY increase of 34.3%. For cells and modules, current production capacities are 68 GW and 76 GW respectively, a YOY growth of 33.3% and 31.7%.
Data from the National Statistics Bureau also revealed that the cumulative solar generation capacity for 2017 reached a new record of 96.7 TWh, which is a massive 57.1% increase on 2016. These statistics point firmly to the fact that solar is becoming an essential part of China’s renewable energy landscape, and an important player in the overall energy mix.
Such fast-paced growth across the entire spectrum was underpinned, of course, by record levels of investment in solar. A report from Bloomberg New Energy Finance (BNEF) published in April found that China’s total investment in solar in 2017 was in excess of $86.5 billion – a figure that represented a YOY increase of 58% and also accounted for more than 53% of the global total; a global total that increased by ‘only’ 18% altogether against 2016 investment figures.
Not only are these figures impressive, hinting at a market that is confident and dominant on the world stage, but the data also reveal how the solar industry in China is evolving as it matures. Of the total 53.06 GW of new PV capacity, 33.62 GW was installed in the ground mounted PV sector, representing a relatively low annual increase of 11%. Meanwhile, the fastest-growing sector in China was by far distributed generation (DG) PV, which recorded YOY growth of 360% with installations reaching 19.44 GW.
This figure alone is more than half of all previously installed DG capacity in the country. Last year might well be looked back on as the occasion that really kick started China’s DG solar boom – a boom that has been long overdue. The majority of DG solar projects are located in China’s more populated central and eastern regions and therefore have fewer problems with curtailment or transmission losses, with power being consumed at or near to the point of generation. This is in stark contrast to the vast solar projects located in the sparsely populated west.
The chief beneficiaries of China’s deepening thirst for solar were, of course, the leading PV manufacturers themselves, many of which posted encouraging financial results. Total module shipments of Jinko Solar, Trina Solar, and Canadian Solar – ranked the three largest producers in the world – were 9.8 GW, 8.6 GW, and 6.7 GW respectively.
Domestically, however, for the first time ever Longi Solar recorded the most module shipments, due largely to the fact that an increasing amount of Chinese customers have begun to turn to high efficiency mono-cSi products. Because of this growing trend, Longi was able to ship a total of 4.5 GW, followed by Trina Solar and Jinko Solar.
On the PV inverter front, GTM Research ranked Huawei as the world’s leading supplier of inverters, attaining in 2017 an impressive shipment figure of 26 GW total. Fellow Chinese inverter firm Sungrow claimed the number 2 spot with shipments of approximately 16.7 GW.
Further noteworthy news in the inverter space in 2017 was GTM Research’s finding that for the first time ever shipments of string inverters exceeded those of central inverters – a fact not unrelated to Huawei’s surging growth.
Elsewhere in the PV supply chain, GCL and Longi retained their positions as leaders of the wafer production space following some notable capacity expansions from both firms.
Problems addressed, problems remain
Despite what sounds like unstinting positivity, 2017 was also a year in which some stubborn problems remained, while other long-standing issues for the Chinese solar industry were either resolved, or at least plans and strategies were put in motion to bring about change this year.
China’s curtailment issue has been a feature of the industry since its inception, but rather than easing, the problems have become more acute as the sector has grown. It is now one of the major issues facing the Chinese PV industry.
However, statistics from both NEA and the national grid reveal that the situation was significantly relieved in 2017. Because of the strong increase of power demand throughout China in 2017, the total curtailment ratio for PV dropped by 4.3% to a mere 6%. Considering the 53.06 GW of new installations recorded over the year, this is a remarkable
improvement. Several industrial research institutions predict that the trend for
declining curtailment will continue in 2018.
The issue of subsidy arrears is another key challenge facing China’s PV industry, and one that has had an impact on growth and forecasts. The only financial source for a PV subsidy is called the renewable energy surcharge. For a long time, the surcharge rate has been lower
than expected and has lacked proper support from the central government. These two-pronged issues have led to insufficient funding for the PV subsidy in many parts of the country.
The latest calculations show that the total subsidy arrears amounted to approximately $17 billion at the end of 2017, and with more and more PV projects being finished, it is expected that there will be around the same amount each year for the foreseeable future unless
drastic action is taken.
The government has suggested that it will increase the surcharge rate and improve funding to fulfill the subsidy requirement. Key government departments such as the National Development and Reform Commission (NDRC), Ministry of Finance, and the NEA have each expressed a desire to investigate and introduce potential policies designed to reach a settlement on the arrears issue in the near future.
A look ahead
With many years of sustained solar growth under its belt, is it simply a question of “the same again in 2018?” There are conflicting forecasts on whether this will be the case. Optimistic observers – of which there are many – believe that the estimation for the future is very positive: In 2018 growth may not be as steep as that seen between 2016 and 2017, but the final installation figure could be above 60 GW, even reaching as high as 70 GW.
More conservative observers predict lower figures, however. These market watchers – which include IHS Markit – presume that PV installations in 2018 could dip below the volumes seen in 2017 to somewhere around 48 to 50 GW. If this were the case, it would be the first ever contraction in the Chinese solar market recorded since the sector began to add significant numbers, although installation volumes above 45 GW should not be sniffed at.
So why do some observers feel that a slight contraction could be on the cards?
There are at least three major reasons for such doubts. China’s PV industry still suffers substantive curtailment and subsidy arrears issues, as mentioned. Ground-mounted PV plants are still under strict quota management, and this will not change in the short term, at least not in 2018. An additional uncertainty stems from the possibility that DG solar PV projects could also be placed under quota management in 2018.Let’s take a closer look at the details. In 2018, the quota for ground-mounted PV plants is 12 GW.
Projects under the Top Runner program are set at a total installation amount of 8-10 GW. Poverty alleviation PV projects account for between 6 GW and 8 GW. Distributed PV is not currently quota managed and could reach 12 GW or more based on a neutral estimation. The residential sector, which could well be a new darling of the PV industry in China this year, could achieve between 7 GW and 8 GW of new installations.
Calculations based on these assumptions result in a combined total estimation of between 46 GW and 50 GW of new solar capacity for 2018.Because of the quota management regulations associated with ground mounted PV plants, the DG PV sector will no doubt continue booming and attracting investment this year – provided it remains free from similar restrictions. Q1 2018 figures released by NEA on April 24th show a robust start for DG; of the 9.65 GW of PV installed in Q1, only 1.97 GW concerned utility-scale PV (a YOY decline of 64%). DG PV represented 7.68 GW, a very impressive 217% increase compared to the Q1 2017 figure.
An additional problem that may lay in wait for China’s PV industry in 2018 could stem from the rapid expansion in production capacities domestically, ranging from polysilicon down to module production. After experiencing a few years of continuous prosperity, it made sense for major PV players in China to expand their production capabilities. In the upstream segments, firms such as GCL, Tongwei, and East Hope Group will have added vast new capacities of polysilicon production this year, amounting to 40,000 MT, 50,000 MT, and 30,000 MT respectively, and respectively with 20,000 MT, 50,000 MT, and 80,000 MT of new capacities still under construction.
Longi will increase its wafer capacity of monocrystalline silicon production from 15 GW to 28 GW in 2018, and will reach a total capacity of 45 GW by the end of 2020. Zhonghuan Semiconductor has a similar plan to expand to 23 GW by the end of the year. In the downstream segment, JinkoSolar plans to add 8 GW of diamond wire cutting line capacity and an additional 8 GW module capacity. Longi will expand to 8.5 GW of monocrystalline silicon module capacity. Others, like Canadian Solar, JA Solar, and Risen Energy have released equally bold expansion plans.
China’s NEA is very vigilant in regard to the situation of overcapacity, and responded in March with an emergency notification to strictly limit the execution of new expansion plans in order to avoid the potential overproduction crisis, of which the memories of the last one in 2011 are still fresh, and painful.
Another noteworthy issue that could well shape 2018 is the process of issuing shares on China’s stock market for several big PV companies that were previously listed on foreign stock exchanges, such as the New York Stock Exchange (NYSE). It would appear that Trina Solar, JA Solar, and Canadian Solar grew dissatisfied with their undervalued market price on the NYSE and after a series of often complicated privatization rounds, all three are now ready to float on China’s stock market. However, there remains a complicated process ahead of them in order to gain approval from China’s Securities Regulatory Commission. Will all of these steps go smoothly? And what will each company do once they regain official financing capacity on China’s stock market? Many important questions remain unanswered.
A dose of reality
Amid the enthusiasm for PV’s gold rush in China, it is pertinent to take a cool view when assessing possible threats to China’s growth.
In addition to the signs that the NEA intends to incorporate DG PV under the quota management rules comes the growing possibility of an elongated U.S.-China trade war.
Considering the unpredictability of the Trump administration and the increasingly hawkish stance of China’s government, it is hard to say how, if, or whether such sensitive trade issues will be negotiated and settled in a manner which is satisfactory to both parties, despite concessions having been reached in the past. This time, things may well be different.
Even if the solar industry can prepare for the unexpected, there may still be great shocks on the horizon for both countries: China could lose out on sales and the U.S. could lose out on installations.India is another potential risk. The Indian government initiated an antidumping case on imported PV products in the of middle of 2017 and then withdrew it, only to restart it again based on certain interpretations and preferences on how India wishes to proceed – does it embrace Chinese technology to the detriment of its own domestic manufacturing industry, or does it put up barriers and hope that the sector can continue to grow based on its own, and future domestic, capacities? The complex situation, and the government’s contradictory actions show a vast market facing a tough dilemma.
What choice will Prime Minister Modi make? Experts are split down the middle, while China watches on. Unlike a few years ago, the most decisive market factors and forces that do matter to China’s PV industry are now all located within China, i.e. outside forces are no longer as influential as they once were.
Whether China’s economy flourishes or begins a downturn is certain to be much more influential on the solar industry than any external factor could be. Statistics for the first quarter (Q1) from China’s national grid show continued strong growth in power demand. Does this mean the nation’s economy is poised to continue its boom? Or is it only a temporary upturn? Only time will tell.More importantly perhaps, will China stand by its word and persist with its emissions reduction commitment made under the Paris Agreement? Even if the trade war threat from the U.S. persists? There will certainly be future ups and downs on the horizon, along with uncertainty and periods of great certainty – but overall, PV’s promise looks set to be fulfilled, and then some, in China over the next few decades.
By Vincent Shaw