In September 2020, China’s president, Xi Jinping, announced the nation’s CO2 emissions would peak before 2030 and carbon neutrality would be achieved by 2060, in what has been termed a “double carbon policy.” In December, more details were made available, namely that China would aim to cut carbon intensity per unit of GDP by more than 65% from 2005 levels, and would increase the share of non-fossil fuels in energy consumption to 25% by 2030. Moreover, by 2030 China aims to be home to a minimum of 1.2 TW of operational solar PV and wind power generation capacity. By the end of 2020, China had 253 GW and 281 GW of solar and wind capacity, respectively, installed.
The “dual control policy” refers to the reduction of quantitative targets set for both total energy consumption and energy intensity – the latter representing the amount of energy consumed per unit of GDP growth. In 2020, China limited its energy consumption to 5 billion tons of standard coal equivalent. As a result, provinces are required to meet targets set by China’s National Development and Reform Commission (NDRC) earlier this year.
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Subsequently, in early June and mid-August, the NDRC issued a dual-control scorecard for each province. Accordingly, the scorecard features three indicator colors: red, orange, and green. If a province scores orange and/or red, it is expected to take measures in order to bring the province back on track, such as aiming to become “green-flagged.” Surprisingly, in between the release of the two quarterly scorecards, the number of “red-flagged” provinces increased by four (30%) and Fujian province was twice changed from orange to completely red by mid-August. Overall, by mid-August, only 10 out of 30 provinces scored green twice, and provinces such as Fujian, Guangdong, Guangxi, Jiangsu, Ningxia, Qinghai and Yunnan exceeded both targets.
In light of that trend, in mid-September the NDRC announced updated measures under its dual control policy. Consequently, various provinces have released action plans designed to ensure a realization of those targets before the end of 2021.
Impact of provincial government action plans on the PV supply chain
Yunnan serves as a telling example. The Yunnan provincial government released a notice instructing industrial silicon production output to be reduced by 90% from September to December. Between January and August, Yunnan’s industrial silicon output made up approximately 20% of China’s total domestic supply. Currently, prices for industrial silicon have reached RMB80,000-90,000/ton ($12,400-$14,000) representing a 300% increase on the same period of last year.
Local Yunnan aluminum manufacturers have shut down 200,000 tons of production capacity, from a total of 730,000 tons, leading to price increases of 20% in a single day. At present, aluminum prices are at their highest levels since the mid-2000s. Since January, aluminum prices have increased by more than 50%. Similarly, soda ash has reached its highest price level in 10 years and has increased by 80% since January. Soda ash is a key material for solar glass.
Electricity tariff rising
In order to cope with the situation in future, Yunnan province announced this week that it has increased its electricity tariffs for industrial use by 50%, a measure which is scheduled to become effective on January 1.
Since early 2018, the price for polysilicon had been falling, reaching an all-time low of RMB56/kg ($8.70) in April and May last year. Since then, prices have increased and the latest transaction price came in at RMB270/kg ($41.95). The latter represents an increase of 13.2% compared to before the national holidays.
Consequently, given the price increase for raw materials – which translates to higher prices for polysilicon, EVA, backsheets, aluminum frames, solar glass, junction boxes and so on – prices for solar panels have reached a level not seen in the past 12-18 months. Latest bid prices for a 60 MW, public, solar module procurement tender were, on average, at RMB2.10/W ($0.326) with the highest reaching RMB2.208/W ($0.343). However, and more importantly, the bulk of that 60 MW order is to be delivered by May, thus indicating either that module prices could stay at an all-time high level during the next two quarters, or how reluctant manufacturers are to lower their prices in the coming 6-7 months. It is worth noting, however, that average bid prices for solar panels were at RMB1.55/W ($0.24) in December.
Taking into account the high prices, manufacturers have lowered production output, according to various industry sources. For instance, out of 26 module and 52 cell production lines, average capacity factor was 46% and 43%, respectively. Prior to the national holiday week at the start of the month, the capacity factor of cell lines was almost 30% higher.
Overall, power restrictions now imposed by 20 out of 30 provinces and regions are subject to different deadlines, ranging from just 1-2 weeks to several months, or even until September. It is currently unclear whether, in the coming days or weeks, PV manufacturers will be exempted from power restrictions, given the industry’s strategic relevance and importance.
The Ministry of Industry and Information Technology – responsible for implementing the “Industrial Green Development Plan 2016-2020” – released the fifth batch of 719 nationally approved green factories, and 1,073 green products, in October 2020. Although PV related products are included, it appears that less than a dozen solar PV manufacturers made it onto the national list. Provincial lists for Jiangsu and Zhejiang, both home to hundreds of solar companies, do contain, in total, 98 and 79 companies, respectively, but, similarly, each list contains just a handful of solar companies.
Whether those “green factory lists” will be taken into account when determining whether PV companies are to be exempted from power restrictions remains to be seen. One example which indicates that PV companies could be exempted, is the fact Inner Mongolia was named and shamed in February for having failed to meet its 2019 energy targets. Government officials quickly ordered many companies to either reduce or stop producing altogether. However, after a local solar wafer company argued industries of strategic importance should be exempted, it was allowed to resume production.
Unfortunately, in addition to the double carbon/dual control policies, the forthcoming “Autumn and Winter Air Pollution Comprehensive Plan for Key Areas 2021-2022,” could put further pressure on various industrial sectors, including solar PV. A first draft, just released by the Ministry of Environment and Ecology, is aiming at 60 cities (previous plans merely covered 28) and could result in significant production restrictions and, therefore, could also further negatively impact the overall PV supply chain. That China has more than doubled the number of targeted cities may be a result of the country’s hosting of the 2022 Winter Olympics, which will begin in February. Eager to ensure blue skies throughout the games, measures designed to realize that ambition could not only be far-reaching, but also strictly enforced.
So much for the bad news, on Friday I'll take a look at the possible positive effects of China's emissions reduction measures on the solar industry.
Frank Haugwitz is director of the Asia Europe Clean Energy (Solar) Advisory.
The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.
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