China’s PV policy still under discussion

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Anticipated Chinese FITs in 2019 by solar resource region

Class 1

Class 2

Class 3

Q1-Q2

0.40/kWh

0.45/kWh

0.55/kWh

Q3

0.39/kWh

0.44/kWh

0.54/kWh

Q4

0.38/kWh

0.43/kWh

0.53/kWh

All prices in CNY. 1 CNY = US$0.15

Source: PVInfo Link

In mid-February, The NEA convened several meetings to discuss the management of this year’s PV projects with related enterprises, experts, associations, and financial institutions, as well as media outlets. At the meeting, significant changes to China’s PV policies were revealed.

Auction mechanism

At the meetings, it was announced that an auction mechanism will be introduced, with a fixed budget incentive program of CNY 3 billion ($450 million) to control PV installations. Since China had run up a subsidy payment backlog in the past, the new policy will establish a fixed budget incentive program and determine the scale of different projects on the basis of auctions. This way, administrators hope to keep delays to subsidy payments to a minimum.

Although the total subsidy had not been locked in at the time of writing, the total subsidy should stand at about
CNY 3 billion in 2019, after taking a large proportion of past delayed payments into account.

Therefore, China’s installation scale will vary in accordance to FIT bidding results. PV InfoLink maintains the same forecast for the market as previously announced, projecting that Chinese demand may reach 35-40 GW this year.

Quarterly FIT adjustments

Because the Chinese government hadn’t released new PV targets as of February, this year’s FIT won’t be adjusted until Q3.

The FIT will be lowered in Q3 and Q4, respectively. On the basis of the February discussions, 2019 FITs can be expected at the levels in the table to the left.

In addition, China has set grid-connection deadlines with an auction to be held based on the FIT for each quarter. Meanwhile, because of the delayed release of the new target this year, manufacturers will only have six months to execute projects, and must connect to the grid by late 2019. Therefore, China may come up with backup policy for grid-connection postponement. For example, the FIT may be reduced by a set amount for each quarterly delay, such as 5% for grid-connection that is late by two quarters.

Clear distinction

There are five types of projects that qualify for subsidy: “PV Poverty Alleviation Projects,” residential PV, ground-mounted power plants, distributed generation for industrial and commercial sectors, and “Top Runner Program” projects, as well as demonstration projects that connect to ultra-high voltage (UHV) transmission.

The central government will be responsible for projects that are involved in auctions, but local governments will remain in control of installations outside of auction.

Residential target

For the first time, the NEA will assign an annual target for residential PV projects that require subsidies. Meanwhile, every month, grid companies will report installation volumes. When the installation in the previous month surpasses the total scale of installation, the subsidy will end that month. However, although the target of residential PV will be published, we should be more conservative towards the newly-added installations for residential PV this year after deducting the number of projects that failed to apply for subsidies after May 31, 2018 and are expected to apply in 2019.

The numerous meetings held show that the Chinese government is continuing to seek input from stakeholders. It seems that this year’s policy can overcome the many deficiencies in last year’s 31/5 Policy that attracted industry criticism. Yet, overall, judging from a subsidy of only
CNY 3 billion, the total installations in 2019 will decline year-on-year. This will also lead to a lower share for Chinese demand in the global market, falling to 30-35%

With overseas demand increasing on an annual basis, it’s more important for Chinese companies to keep expanding beyond China. Judging from China’s total module exports in 2018, although Chinese demand froze right after 31/5, domestic manufacturers have aggressively expanded overseas, using more competitive prices. This allowed Chinese module exports to hit new record highs in the second half of 2018. PV InfoLink summarized the following points for Chinese module export in 2018.

Export destinations

The top five export destination countries for Chinese modules are India, Japan, Australia, which performed above expectations, Mexico, and Brazil. China’s module exports reached 41.3 GW in 2018. Even though it was temporarily affected by duties, India continued to be the top export market for Chinese modules. In 2018, cumulative Chinese module exports reached 6.7 GW to India, 5.3 GW to Japan, 4.1 GW to Australia, and over 4 GW to Mexico. Export to other markets including Brazil, Ukraine, Egypt, the Netherlands, Vietnam, the UAE, Pakistan, and Spain each surpassed 1 GW.

Increased exports to Europe

When Europe’s MIP was still being applied to Chinese modules, manufacturers mostly shipped their products to the EU from Southeast Asia. But after the MIP was canceled in October 2018, Chinese makers started to ship products manufactured in China instead. The proportion of Chinese module exports to Europe also rose from 6% at the beginning of the year, to 16-22% in late 2018.

Higher high-efficiency

For export products, the share of conventional multi modules continued to drop, reaching only 56% in December. Instead, exports of PERC, half-cut, and shingled modules have increased substantially every month in H2 2018.

Looking ahead for 2019, despite the unannounced new PV policy in February, projects are under pressure from the grid-connection deadline. Overall, reduced FITs have been absorbed by the Chinese PV industry, which is waiting for the announcement of an official new policy and PV targets to ease market uncertainty. In terms of credibility, if the government guarantees the financial quota for subsidy, it will help improve downstream development conditions. At current pace, demand will rise in H2 2019. Many Chinese projects are expected to achieve grid-connection by the end of 2019.

In addition, overseas markets will witness stronger demand in H2 2019, and thus the overall market will still experience relatively lower demand in H1. Since demand is likely to drop slightly in Q2 and may start to rebound in June, the off-peak season will be shorter than in previous years. Therefore, the decline in overall supply chain prices shouldn’t be substantial. Taking lower demand in Q2 2019 into account, prices will be the lowest in April and May.

The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.