In my previous article "Chinese Solar Photovoltaic Manufacturers No Worse For Wear", I mentioned that the Chinese government's six guideline measures of opening up domestic photovoltaic (PV) market are being specified into every supportive policy, each of which will be a catalyst for China PV makers. The Chinese state council just released a new plan of 35GW domestic PV installation by 2015, a 75% up revision to the 20GW plan of one year ago. Furthermore, it is the first time to put forward a legislative 20-year Feed-In-Tariff (FIT) period for PV generation in China, which ensures the investment return specifically. Those companies that have been cultivated the Chinese PV market will benefit from this plan incredibly. Though the outline of the Chinese PV incentive policies are unveiling, the operability and effectiveness of these regulations need validating due to still lack of related infrastructure, e.g. the specific FIT, grid connection for utility scale project, the accountabilities of investors, operators and end users for distributed PV generation, etc.
What the 35GW Installation means
The 35GW Installation plan will help the Chinese PV industry to reduce its dependence on exports. The cumulative PV installation in China is about 7GW by 2012. The 35GW installation by 2015 means that China has to build PV systems four times of what have been totally deployed in next two and half year. As commonly thought, the plan will enable the Chinese PV market to grow by additional 10 GW annually over the next 3 years, but my forecast of annual installation is 6GW, 10GW and 12GW for 2013, 2014 and 2015 respectively. The original PV installation goal is 10GW for this year and it is reported that only 1.8GW was implemented in the first half of 2013 because the Chinese PV project developers have been waiting for more favorable regulations on board. It is believed that the Chinese PV makers will be busy in the second half of 2013 to attend the domestic PV market.
The 35GW plan will ease the Chinese PV industry oversupply. Almost a quarter of the Chinese PV makers' effective capacity will be consumed by the domestic market this year and the percentage will definitely grow in the following two years.
Companies benefiting from 35GW plan
People may still remember that PV companies that had shares of business in Japan PV market in the first quarter 2013 outperformed their peers that had not involved in. In the following quarters, the similar things will happen to the case of China PV market, which is becoming the most important PV module outlet for PV makers. Of course, the Chinese PV makers will be the main beneficiaries since more and more of them are taking domestic market as the first priority.
Yingli (NYSE:YGE) forecasts a 25% of its shipment for China market in 2013, which is up to 800MW. YGE contracted to supply 288MW for Golden Sun program and 220MW for China Power Investment Corporation. Besides, YGE entered into alliance with Yunnan province for a 3GW solar project and with China Southern Grid for jointly developing PV projects. These strategic moves will help YGE achieve leading share of China PV market.
Trina (NYSE:TSL) aims a 20% of its shipment for China market in 2013, which is about 400MW. TSL has set up regional sales office in Urumqi, Xinjinag Autonomous Region and Chengdu, Sichuan Province recently to drive domestic business. So far, TSL is constructing a 50MW project in Gansu Province and hopes to reap by this year.
It is generally agreed that if a company has no business in China it most likely underperforms in the PV industry, and vice versa. Besides YGE, TSL and most of other Chinese PV makers who enforce their resources in domestic market in terms of module business and project development, First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWR) also attach great importance to China PV market.
FSLR touched China PV market as early as 2009 when it signed a memorandum of understanding with the Chinese government to build a 2 GW solar power plant in Ordos City, Inner Mongolia. Though this 2GW project has got no fruit due to the inefficiency of the Chinese infrastructure, FSLR has not stopped its effort to plow the Chinese PV market. In 2011, FSLR signed a strategic cooperation framework agreement with China Power International New Energy to collaborate on solar PV projects in China. Recently, FSLR partnered with a Chinese EPC company to supply 2MW of CdTe modules for FSLR's first commercial demonstration project in Xinjiang Autonomous Region. Meanwhile being few representatives of overseas PV manufacturers, FSLR actively participated in Shanghai PV Show (OTCQB:SNEC) to bring in its latest product.
SPWR invested USD15M for a 25% stake in a joint venture in Inner Mongolia, to manufacture and sell its C7 concentrating solar-power systems in China. The joint venture will give SPWR a major entry into the Chinese PV market.
The Risks of China PV market
The risks of China PV market should be taken into consideration for PV project investment. First of all, the FIT is still uncertain in China, which may vary project Internal Return Rate critically. The original FIT for utility projects seems on hold and the new one has not been released yet. Secondly, grid connection of utility scale PV power plant is a big issue for developers. A report from China Electricity Council shows that more than 4GW utility PV power plants have been installed by 2012 while only around 3GW are connected to the grid. Last but not least, in terms of commercial roof-top PV projects that China is concentrating with great enthusiasm, there is no infrastructure or business models are available for project investors.
It is no doubt that China PV market is becoming the most important one to the global PV industry and the market evolution will be aggressively up in the following years. PV companies, which are solidly taking part in China PV market, will have a good chance to excel their peers if they could manage the risks of China PV market smartly.
Disclosure: I am long YGE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.