Solar industry braces for impact of Inner Mongolia’s shift on power prices


The Chinese authorities announced a sudden shift in energy policy for the Inner Mongolia region on Aug. 30, when the National Development and Reform Commission (NDRC) decided to terminate discounted power prices, effective immediately. It marked a sharp departure from earlier plans to attract investment in “strategic emerging industries” in the relatively underdeveloped region.

Inner Mongolia has rich power resources and has already attracted a lot of solar investment, especially from upstream players. Its polysilicon output ranks second in China. According to the China Nonferrous Metals Industry Association (CNMIA), Inner Mongolia's polysilicon capacity reached 74,000 metric tons (MTs) at the end of 2021. It said that is set to grow to 320,000 MTs and 522,000 MTs by the end of 2022 and 2023, respectively.

In 2021, annual polysilicon output in the region hit 66,000 MTs, accounting for 13.2% of China’s total. This figure is expected to reach 358,000 MTs in 2023, representing an estimated 24.5% of the nation's total projected polysilicon output at that time.  

Most major solar companies – including Longi, Tongwei, GCL, Daqo, TBEA, East Hope, Zhonghuan, JA Solar, Trina Solar, Canadian Solar, Risen, Shangji, and Shuangliang – have invested in Inner Mongolia due to its discounted power prices. In the past two years alone, total PV investment in the region has surpassed CNY 200 billion ($28.1 billion).

The government later said the termination of discounted power prices would have “very little” impact on companies in Inner Mongolia. However, the cost impact on the PV industry chain is obvious and significant. Research indicates that the discounted electric power price was around CNY 0.25/kWh to CNY 0.31/kWh prior to September. This month it has risen to CNY 0.45/kWh.  

Jessica Jin, a renewable energy analyst for IHS Markit, told pv magazine that under the new policy, wafer costs will increase to between CNY 0.008/W and CNY 0.010/W. She said that non-silicon costs will rise by 6% to 8%, while the cost of polysilicon production will also rise by 12% to 15%. The anticipated impact can be attributed to the fact that power costs account for about 15% of wafer production costs and around 35% of the cost of producing polysilicon.

Longi and Zhonghuan have since told Chinese media outlets that they are carefully evaluating the potential impact of the policy shift. However, this is not the first time that a Chinese region or province has radically changed its power price policy.

In April, the authorities in hydropower-rich Yunnan province announced the termination of power price discounts. In June, Longi responded by suspending several ingot and wafer projects in the province. In July, the company also sharply ramped up plans for new ingot and wafer capacity in Inner Mongolia. But now, the new pricing policy in the region has cast a shadow on its plans.

Regional governments in China offer preferential pricing policies to attract investment. However, policy uncertainty can often have a negative impact on investor sentiment. 

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