Solar Panels installed on the roof of the 2010 World Expo Theme Pavilion in Shanghai
By Qiong Xie
China’s energy regulator, the National Development and Reform Commission (NDRC), announced its first nationwide feed-in-tariff (FiT) for solar photovoltaic (PV) installation projects on July 24th, 2011, in an effort that it would boost its domestic solar industry and increase the share of solar power in China’s energy portfolio. The unveiling of the feed-in-tariff policy has shed light on China’s goal to achieve 50 gigawatt (GW) of solar installation by 2020.
Before the first nationwide FiT for solar PV projects was announced this past July, the Chinese government had sponsored two rounds of public tender since 2009. The first public tender in 2009 ended with a single solar project: a 10 megawatt (MW) installed capacity solar power plant in Dun Huang, Gansu province. The Dun Huang tender provides the solar developers with a payment of RMB1.09 (RMB is the abbreviation of Chinese currency, RMB1.09 is equal to approximately US $0.170, including tax) per kilowatt-hour (kWh) for their solar power feed into the grid. Besides, China initiated its second round of public tender for concession solar power projects in 2010. At the end of this tender, 13 projects were announced with a total installed solar power capacity of 280 MW. To be more specific, it is reported that the winning bids ranged from RMB 0.728 per kWh (approximately $ 0.114, including tax) to RMB 0.991 (approximately $0.155, including tax). But the bid price was much lower than some of the solar industry participants expected as RMB 1.1 (approximately $ 0.172, including tax) thus it discouraged energy power companies and private solar equipment suppliers’ investment enthusiasm.
The proponents argue that the new FiT is expected to incentivize the healthy development of China’s solar power industry. According to the new scheme, A FiT of RMB 1.15 (approximately $0.179, including tax) per kWh would be applied to projects approved for construction by NDRC prior to July 1st, 2011. In addition, projects that have finished construction and are in the process of commencing generation prior to Dec 31st, 2011 would also be eligible for the FiT of RMB1.15.
The NDRC also has another category of FiT of RMB 1.0 (approximately US $0.156, including tax) per kWh for solar projects approved for construction by NRDC after July 1st, 2011. The FiT of RMB 1.0 will be given to projects approved for construction prior to July 1st, 2011, but that are unable to produce electricity by Dec 31st, 2011. However, exceptions have been given to projects located in Tibet, saying even if those projects that are approved for construction by NDRC prior to July 1st, 2011 cannot generate electricity by Dec 31st, 2011, they will still receive a FiT of RMB1.15.
China’s solar industry has experienced tremendous growth over the past decade. Detailed in a Worldwatch report, China has rich solar resources across most of its territory. According to a United Nations Environment Program’s (UNEP) global horizontal solar radiation study, the annual solar radiation for most regions of China is between 4.5 and 5.0 kWh per square meter per day (kWh/m2/day). In some of the western parts of China, such as the Qinghai, Yunnan and Tibet provinces, solar radiation reaches between 6.5 and 7.0 kWh/m2/ day, which are similar to the radiation rates seen in Phoenix, Arizona. Generally, the more intense solar radiation is, the more directly it strikes the solar panel, thus, the more electricity is generates. The Chinese government realizes that in order to fulfill its goal of generating 15 percent of its energy capacity from wind, solar and other non-fossil resources by 2020 while producing affordable electricity for residential, industrial and commercial customers, it needs to shift its attention to solar power development, especially given the fact that China has abundant solar resources.
According to National Renewable Energy Laboratory data, 3 percent of Chinese households, comprised of about 30 million people, do not have access to electricity. Additionally, most of these people live in the remote and rural areas of western China. In order to address this urgent problem, the Chinese government initiated the Township Electrification Program, implemented between 2002 and 2004. As a result of this government initiative, 721 small-scale solar PV power stations have become operational in 1,065 villages and towns in 12 provinces that lacked access to electricity and the total installed solar PV capacity was 20 MW in June 2003. And because most of these small-scale solar power stations are not connected to the national grid, they do not require huge investments in grid construction. Thus, this program has been successful in China’s less developed western provinces, such as Xinjiang, Qinghai and Inner Mongolia.
The Township Electrification Program has stimulated China’s solar photovoltaic (PV) development and push solar developers to move toward large-scale on grid solar projects. According to Worldwatch Institute data, the solar PV industry has boomed, with solar cell production growing from less than 100 MW in 2005 to 2.6 GW in 2008, a 20-fold increase in just four years. Meanwhile, the Worldwatch Institute data indicates that even though China has become the largest solar PV producer in the world, it exports 98 percent of its solar PV products. So in order to grow the domestic solar PV market, China has increased its 2015 goal for installed solar PV power to 10 GW in its 12th Five-Year-Plan (2011-2015). To be more specific, China’s total installed solar PV capacity increased from only 19 MW in 2000 to 150MW in 2008. It then grew from 310 MW in 2009 to 893MW in 2010, and many optimists believe the first nationwide feed-in-tariff will ramp up the growth of China’s solar PV industry.
Whether the first national FiT will become the backbone of China’s solar industry is still unclear. But there is no doubt that the FiT policy will encourage solar developers to keep investing in western provinces which have rich solar resources, such as Xinjiang, Gansu, and Qinhai, but those locations are often far away from the eastern coastal cities where the electricity is needed the most. So how to connect solar power from western China to the national grid might present a major challenge to solar developers. However, the FiT policy could offset the impact of the shrinking global solar PV market caused by the financial crisis, as Chinese domestic solar PV manufacturing companies may shift slightly from overseas markets to the domestic market to sustain profits. For instance, Yingli Green Energy, one of China’s solar giants, aims to sell one-fifth of its solar PV production in China this year, compared to fewer than 10 percent in 2010.
Nevertheless, as observed in a previous posting, the Chinese government needs to have robust policies to balance the relationship between its largest power companies (China’s top 5 power companies: China Huaneng Group, China Guodian Corp, China Datang Corp, China Huadian Group and China Power Investment Corp) and the monopolized grid sector. There is no doubt that the grid sector requires extensive market reform in the near future to attract more private capital investment into grid infrastructure. Otherwise, the solar market might get stuck with grid connection just like the case of China’s wind power: for instance, many wind farms in Inner Mongolia cannot be connected to the grid, partially due to the lack of transmission lines. Consequently, it makes a big waste of resources and hurts the wind industry. Thus, the State Grid Corp of China has outlined its plans for smart grid development in correspond with the 12th Five-Year Plan. Hopefully, with the comprehensive smart grid system and cutting-edge technology, China’s solar PV industry will not follow its wind industry path.
