On August 30, China announced to implement a new Feed-In Tariff (FIT) for solar photovoltaic (PV) power including utility ground power plant and distributed generation (DG). This long-expected pricing scheme will make China PV market more solid as it safeguards the PV project's return rate. Most of Chinese PV stocks, like Yingli green energy (YGE) and Trina solar (TSL), have been up at least 10% in the week following this FIT policy release. With the FIT in place, a catalyst to the PV industry, Chinese PV incentive policies are going to a finale.
Chinese new PV FIT
China officially initiated PV subsidy of 1.15 yuan (19 U.S. cents) per kilowatt-hour (KWh) in 2011, and the subsidy was lowered in the same year and kept to 1 yuan (16 U.S. cents) per KWh till the new FIT ready. The original subsidy is only suitable to utility ground power plant, while the new FIT covers both utility (usually ground type) and DG (usually roof-top type).
For utility PV ground power, the new FIT has been set at 0.9 yuan (14 U.S. cents), 0.95 yuan (15 U.S. cents) and 1 yuan (16 U.S. cents) per KWh based on solar radiation levels where the plant locates. The distributed PV projects get a subsidy of 0.42 yuan (7 U.S. cents) per KWh generated, plus coal-fire power price which is around 0.20 - 0.36 yuan (3 - 6 U.S. cents) per KWh if surplus electricity feeds back to the grid.
The FIT, scheduled to last 20 years, will apply to all PV projects registered after September 1 this year. Those, registered before September 2013 and connected to grid by the end of 2013, will enjoy the previously universal FIT of 1 yuan (16 U.S. cents) per KWh. Therefore, a rush installation in China could be expected in the remaining of this year, which is estimated at 5GW.
The FIT driver to China PV market and industry
FIT schemes have been applied in many major PV markets across the world, which is proved to be practical and effective to stimulate the market demand. The PV markets of Spain, Germany and Italy were boosted as soon as their national FIT policies were implemented. The same thing happened to Japan when it announced a rate of over 50 U.S. cents per KWh subsidy last year. China sees Europe PV market demand up and down in line with the FIT changes and understands that how to keep the market sustainable is more important. Though the Chinese new FIT rate is not so attractive as Japanese, it makes the investors of PV projects in China have a foreseeable return of 8-10%. So the boom of China PV market is expected as a result of FIT mechanism, along with the 35GW domestic installation plan by 2015.
The Chinese PV manufacturers will benefit from this new FIT and consequently the domestic market booming. Other than Europe, U.S, Japan and other emerging markets, the Chinese PV manufacturers have more business outlets now and are motivated in the domestic market that will be a big stake in their portfolio.
TSL will have 27% of its annual shipment this year for China, up from 12.9% of 2012. Besides its 50MW project in Gansu province to be finished this year, TSL reached an agreement with Hunan province to develop 1GW distributed generation on roof-tops of commercial and industrial building in 5 year period of time.
YGE traditionally takes domestic market seriously, and its shipment contribution from China has been above 20% since 2011. This year YGE forecasts a 27% of its total shipment to China. In China, YGE has got a pipeline of 500MW to be completed in 2013 and 2014, and YGE has been expanding its downstream business dramatically.
Canadian Solar (CSIQ) that has been concentrating on overseas projects is going to invest 6 billion yuan to develop a 500MW project in Xinjiang province as the domestic industry fundamental is getting better. With all of a sudden, CSIQ has got the largest pipeline of China in its project business portfolio.
Other Chinese PV makers are also very active in domestic market after a series of regulatory and incentive policies released and infrastructure improved.
Policy windfall to a finale
The new FIT implementation is a major cornerstone of the Chinese PV market development. The Chinese government moves its supports from PV manufacturing to PV downstream application due to the restrained overseas demand resulting from FIT reductions across Europe and anti-dumping/countervailing duties (AD/CVD) from U.S. Whenever a statement or policy about supporting China PV market issued in the past three months, the Chinese PV stock share prices was pushed up. Now this policy bonus is closing to an end with the FIT finalized.
Because of the PV industry oversupply and oversea market shrinking, China government has taken measures to support the Chinese PV manufacturers, including lobbying EU to solve the trade dispute, expanding domestic demand to 35GW by 2015 and the FIT fulfillment. In the past three months, each policy unveiled made the Chinese solar shares rally. Now the supportive framework for Chinese PV manufacturers are almost finished, and further performance of Chinese solar shares will depend upon their own competitiveness.