China’s Draft Solar Manufacturing Guidelines May Lead to Consolidation

The country’s new projects list exceeds the existing grid infrastructure capacity


The share of installed renewable power generation capacity in China amounted to 40% (hydro 17.7%, wind 10.4%, solar 10.2%, and biomass 1.5%) for the calendar year (CY) 2019.

According to a report published by the National Energy Administration (NEA), the share of renewable energy in the power generation mix reached 28% (hydro 17.8%, wind 5.5%, solar 3.8%, and biomass 1.1%).

As per the latest Asia Europe Clean Energy (Solar) Advisory Co. Ltd. (AECEA) report, the construction of a national network of long-distance ultra-high-voltage lines was started to connect China’s western regions with load centers along the east coast. According to the report, over the past few years, bringing the grid curtailment under control has been the top priority for the NEA. But things took a turn as the coronavirus spread, and the electricity consumption in the country dropped by 6.5% in the Q1 2020. This led to the curtailment for solar power, reaching 2.8%, 5.6%, and 1.8% in January, February, and March, respectively.

According to AECEA Director Frank Haugwitz, ensuring minimum curtailment for the financial viability of grid parity projects, NEA’s new policy marked a shift from subsidy-driven to subsidy-free market development. As a part of this initiative, earlier this year, the two national grid operators were asked to reassess the additional GW installations the grid infrastructure could take. The findings of 48.5 GW will now serve as the bottom line for NEA while approving feed-in-tariff (FIT) supported and grid-parity projects in 2020.

However, the total projects submitted, (which include approximately 20 GW in 16 provinces and 32 GW of bidding projects in 21 provinces) have already passed the threshold of 48.45 GW mentioned above. The deadline for filing the full list of projects was June 15, 2020, and full-year targets will be announced in the latter half of June.

According to the AECEA report, during the Q1 2020, an additional 3.95 GW of solar projects were installed, which represented a decline of 24% year-on-year. Installations in April and May reached 1-1.5 GW and 2-3 GW, respectively. The report further states that because the feed-in tariff supported projects will have to be grid-connected before June 30, 2020, the month of June is likely to witness a surge in installations. However, during this period, the cell and module prices are expected to remain low. From January to May this year, the cell and module prices dropped by 20% and 10%, respectively.

The report further notes that during the first three months of the year, domestic module production output increased by 17% YoY, whereas the exports remained stable at 15.6 GW YoY. The report states that this might be the reason that led the Ministry of Industry and Information Technology (MIIT) to come up with a draft for streamlining the manufacturing capacity of solar components in the country.

As per the ACECA report, if these guidelines are enforced effectively, it will lead to an uncertain future for many manufacturers, and they may have to think about exiting the industry. The main aim of MIIT is to provide a solid ground for the development of the domestic solar industry and stop companies from making irrational investments, leading to massive overcapacities.

In this context, the National Development and Reform Commission’s (NDRC) recent decision to reduce enterprise income tax by 10% to 15% for companies generating 60% of their income in western China might provide the much-needed boost to the expansion of production capacities there.

It is expected that in the government’s 14th Five-Year-Plan, the government will prioritize the utilization of distributed renewable energy sources and also plan large-scale renewable projects in the Northern and Western regions of the country. The draft of the plan will be made available to all the stakeholders to seek their feedback by November, and the final plan will be endorsed by March 2021.

According to ACECA, the 14th Five Year Plan will change the landscape of the solar market. The guidelines announced by MIIT might lead to the consolidation of the industry to unprecedented levels. At the same time, it might also open doors for large power utilities that may drive the smaller privately-owned players out of the market.

ACECA also maintained that new installations would remain in the range of 23-31 GW for the year, which will be a decline of nearly 23% YoY.

Recently, the National New Energy Consumption Monitoring and Early Warning Center announced the projected addition of new solar and wind power capacities in China in 2020. According to the announcement, China will add 85.1 GW of solar and wind capacity to its grid in 2020, which includes 35.1 GW of wind capacity and 48.45 GW of solar capacity.

Earlier, China’s NEA had announced that it plans to provide subsidies of RMB 1.5 billion (~$216.1 million) for new solar power projects in the country this year, according to its ‘construction plan for photovoltaic power generation projects in 2020.’

Image credit: LONGi Solar