Has China extended solar grid-connection deadlines by a year?

China's National Energy Administration (NEA) has thus far refused to confirm whether the deadline for connecting solar projects in time to secure incentive payments has been extended into next year, as has been suggested by industry body the China Photovoltaic Industry Association (CPIA).

The CPIA, a semi-official body and trade organization, has claimed the deadlines for connecting up subsidized and ‘grid-parity‘ solar projects which are registered, and/or have begun construction, have been extended by a year.

The industry group's assertion is based on one line from the Notice on Development and Construction of Wind and Photovoltaic Power Generation in 2021 policy promulgated by the NEA on May 20.

The sentence in question reads (in translation): “All existing projects which are not finished [with a grid] connection within the year will be counted by provincial government and approved [for] the postponement to connection, [with a] scope of next year.”

The CPIA has interpreted “existing projects” as all facilities which have been registered since 2019 and/or upon which construction has started. As it stands, projects which have been approved for central government incentives must obtain a grid connection this month to receive their payments and unsubsidized ‘grid-parity' solar arrays must connect to the grid this year to benefit from the favorable policy treatment they qualify for under such status.

The Chinese solar trade entity has said the industry has not paid enough attention to this apparently significant concession to the sector by Beijing at a time when rising component prices are threatening to render approved projects unviable.

Many solar project investors and engineering, procurement and construction companies have suspended work amid rising solar costs which have included a quadrupling in the price of panel raw material polysilicon this year. Without an extension to grid connection deadlines, it is feared many projects could be abandoned entirely.

A glance at the business case for solar in a western province of China illustrates the dilemma facing investors. It has been estimated a 100 MW project connecting to the grid by December 31 in that region would offer investors an internal rate of return (IRR) of 6.6%, based on a purchase price of RMB0.2595/kWh ($0.0405) for the electricity generated at the site versus a solar module cost of RMB1.80/W ($0.28) of generation capacity, and a total solar system cost of RMB3.70/W ($0.58).

If, as the CPIA has stated, developers wait until the end of next year to connect the same system, the electricity sale price might only fall RMB0.0095/kWh ($0.0015), to RMB0.25, but module costs by that point may have stabilized back to RMB1.40/W, for a system cost of RMB3.10/W. That would mean an 8.21% IRR in the second half of 2022.

All eyes are on the NEA at this point.