In the first week of June, the china dropped bombshell solar policy change that sent ripples across the board. The country rolled back the subsidies solar developers would enjoy from the government. The change in the Chinese solar policy will also mean the halting of approvals for new solar projects across the country in 2018.
This would mean ease of pace of expansion of solar industry and management of around $17 billion in subsidy bills. The announcement of guidelines for the solar industry was made by the country’s National Energy Administration, the National Development and Reform Commission and the Ministry of Finance.
The market in China is expected to slow down and would compel the manufacturers to look for overseas shipping of their panels and other equipment. Also, with the tap on government subsidies turned off, and the subsequent decline in the costs of equipment Chinese developers will surely look for international investment.
The Chinese government in their statement said, the measure is aimed at promoting the solar energy sector’s sustainable development, enhancing its development quality and speeding up the reduction of subsidies.
It was only in 2015 when China became the global leader in solar capacity. It accounted for nearly 54 % of global PV installation in 2017 and is growing to show upward trends since then. In one of the GTM research, the analysts say that the reduced demand from China will lead to an oversupply in the global market.
Reinforcing the assertions of Chinese authorities an analyst said, “This not only sets the market up for an oversupplied second half of the year but since China is such a large driver of global demand, it also suggests that suppliers need to slow down manufacturing investments, lest they extend the oversupply cycle beyond 2018.”
Although the drop in local demand in China will help the developing countries like India, due to the cost reduction, however, it has chances of remaining static due to the restart of EU’s solar program.
According to Sir John T Martin of Talesun,“Europe has restarted its solar program and Chinese manufacturers prefer selling their panels to the European market than to India because they get a better price.
So I don’t see that the prices are going to go down that much for the imported panels in India.” Having said that prices in the global market can still go down given the fact China’s local demand will be less and global market will be overflowed.
There are international ramifications of the Chinese new solar policy as well. The oversized positioning of China and the sudden changes in the policies would have short-term ramifications as well. There is a possibility, at least in the short term, of shortage of the equipment.
Because of China’s outsized positioning, the global market will certainly take a hit, at least in the short term. In the times when there were changes in the US in solar tariffs which during their early months caused some disruption in the market, similarly, the disruption in the market is expected due to these policies.
The near-term market turmoil due to change in policies would also propel grid parity and has a potential of higher penetration of PV in the newer markets. The decline in price would not be confined to PV only but would affect the entire solar supply chain including solar modules.
In a 2017 study, Bloomberg New Energy Finance (BNEF) wrote, “Over 70% of China’s large-scale wind and solar projects have been installed in the resource-rich northern regions featuring low electricity demand and low export capacity.” Moreover, China’s “lack of transmission lines to export electricity from the renewable energy mega-bases has been the major cause of renewables curtailment.”
Curtailment is stranded power that is generated but cannot get into the grid. BNEF says China’s renewable power generators “face the worst curtailment rates in the world, with the national average curtailment ratio in 2016 at 17% for wind and 10% for solar.”
Policymakers and market analysts are keeping their eyes on the outlook of solar industry for next two to three years to gauge the real damage or benefit of the solar policy change in China. It is imperative to mention here that global solar market is very competitive.
In most of the countries, the solar power is among the cheapest source of electricity and from last two years it is the biggest industry in terms of net-addition and capacity. The international solar market will become more competitive once the effects of the new policies are gauged properly.
There is, however, good news for India visà-vis Chinese policy changes in the sector. India imports almost 70-80% of photovoltaic panels from China and Malaysia, of which 50-60% are imported from China only. Any alteration in the policies or the local market in China will directly affect, positively as well as negatively, Indian market.
First thing first, the reduction in the products like photovoltaic panels is inevitable. Similarly, the other equipment like cells and glasses that are imported from China will also see the reduction in prices.
Similarly, the tariffs in India, which hit Rs 2.44 per KW in May 2017, may go below than that. The reduction in overall prices may help in many ways. Indian has set the target, under Narendra Modi dispensation, for 2022. The country has pledged to double its renewable power capacity to 175 GW by the end of 2022.
The target will make India second to China in terms of calmative production in the industry. Whatever the manufacturing capacity of China may be, their holding back certainly flood the global market with their manufacturing capacity, this will have a direct impact on prices, and will, in turn, reduce the tariff prices across the board.
According to the statement by Ministry of New and Renewable Energy, India’s maximum annual solar-cell manufacturing capacity is about 3 gigawatts while average yearly demand is 20 gigawatts, meaning the remainder needs to be procured from the international market.
Given the fact China has changed its solar policies, it may compel them to curtail their exports and the countries that see grid parity like India will get a boost in installation because of the cheaper prices.
Although there are multiple hurdles in terms of policy and regulations, despite all that solar power sector in the country has seen a boom in the last couple of years and the growth trajectory is showing upward trends only. India now stands at 22,000 MW of solar capacity and in 2017 alone nearly 40% of the total addition in the grids came from solar projects only.
There are certain segments in which India has started to move ahead of China; however, the head start of China has kept them ahead of overall solar power capacity. Similarly, in terms of setting up of solar parks India is leading and among top world’s largest solar parks are being built in India.
The under-construction parks include Bhadla Industrial Solar Park with 2225 MW capacity, Pavagada Solar park with the capacity of 2,000 MW, Ananthapuram- I Solar Park with 1500 MW capacity, Kadapa Ultra Mega Solar Park with 1,000 MW capacity and Rewa Solar Park with 750 MW capacity.