2009 – A sunnier year for Chinese solar power manufacturing?

In the first of a series of articles on China’s solar industry, Radomir Tylecote, partner at Mint Research, describes how China’s solar power industry is evolving from an export-focused industry to supplying government projects funded by the economic stimulus package.

Slowly emerging from the shadow of the global financial crisis, China’s solar power industry had an unexpectedly positive year. In 2009, China launched an unprecedented stimulus package – nearly $600bn – dedicated in part to new energy development, including solar power installations.

China manufactures 40% of the 2008 world’s solar photovoltaic (PV) panels and while the  majority are exported, new incentives and feed-in tariffs seem set to launch a boom in the domestic market with improving technology bringing down the price of PV panels.

A promising spring

In March, China announced its first solar concession bidding project in the desert province of Gansu. But of the 13 bids, 12 were  from state-backed companies who entered bid-prices at levels well below break even point. As with most wind projects, most foreign solar developers will find it hard to get into the low-budget action for now. The main concern is that the low bids for this first solar concession project will lower tariffs set by government agencies for upcoming solar projects.

Later, in April, Jiangsu province made clear the value it places on solar as a valuable industry. Many leading companies such as Renesola and Suntech are based in the province, but have been hard hit by the crisis. Jiangsu launched major incentives for 260MW solar capacity and 30,000 tons p/a production of polycrystalline silicon by 2012, announcing a RMB1bn p/a solar subsidy as a feed-in tariff. Based on a feed-in rate at RMB2 per watt, this could indeed translate into 250MW over the coming two years.

A number of other localities followed with their own programmes, and the two national incentive programmes to hit the news, the Golden Sun and Solar Roofs programmes, created their own buzz. One major American journal gushed: “China said it will introduce a preferential tariff that… aims to make solar competitive against fuels such as coal, which accounts for two-thirds of China’s electricity”.

While US company First Solar has agreed to build a 2GW a thin-film solar panel plant in Inner Mongolia, Chinese companies are being aided by readier credit than their western counterparts. Chinese company Solarfun meanwhile plans to develop a 600MW plant in the same province. Solarfun and Trina Solar are known to have secured large credit facilities from domestic state-owned banks to expand manufacturing.

The reality on the ground

The Golden Sun Programme sees a 50-70% subsidy for large-scale solar projects (at 300kW+). It sounds promising, but the programme aims at just 500MW nationwide, with a maximum of 20MW per province.  China will probably up its total 2020 target to 20GW.

The Solar Roofs Programme gives a 20RMB per watt feed-in tariff for large roof projects, but in poor rural areas these will be limited, with the proportion to be paid by provincial government still unclear. Each project has to be vetted, and will proceed on a “demonstration project” basis.

So in fact, the programmes seem relatively cosmetic thus far.

The major concern for investors in Chinese solar power is still over-capacity in domestic manufacturing. After all, who will buy Chinese  exports without sufficient developed-world subsidy programmes? There are promising shares for the well-informed investor nonetheless. A good distribution network – and a politically well-connected business – is making the difference. Should they adapt quickly to new subsidy opportunities, these firms may well find themselves in an excellent position.