After China announced the "531 Policy," the FIT for PV plants and distributed generation (DG) systems was revised downward RMB 0.05/W. Projects that are excluded in the nation’s target and failed to connect to the grid before June 30 will no longer benefit from the FIT. However, projects that complete grid-connection before June 30 are still eligible to the 2017 subsidy. Lower FIT is applicable for projects connecting to the grid after June 30.
One of the major purposes of the new policy is to accelerate the decline of PV subsides. The intention is not to control PV development. In the official document released on May 31, it only mentioned that all projects which need the government aid will be put on hold; it didn’t specify anything about project limitation. Before late August, the National Energy Administration (NEA) issued several documents related to matters concerning projects that do not need the government aid and a plan related to demonstration projects of PV grid parity. The former specified that the local government can come up with a plan themselves based on the nation’s renewable energy policies in combine with power market reform. The local government can go-ahead any projects as long as the project meets the land/grid requirement. The later pointed out to assign a scale of 300-500MW grid parity demonstration project target in each province. The National Development and Reform Commission (NDRC) will coordinate the cost reduction of land, financial, grid, and guarantee the grid-connection.
All the new policies mentioned above show the determination of the Chinese government in cutting subsidies and accelerating grid parity. Aside from the first un-subsidized project in Hekou District, Dongying City, Shandong approved by the NEA, what are some other regions that can continue with the PV development without subsidies? We will discuss each region’s innate and grid conditions, local policies, and developmental goals below:
PV relies on sunlight to generate electricity. Therefore, the more abundant the sunlight the greater the gain. Sunlight is even more important when subsidies are cancelled. Meanwhile, local electricity can be another concern for project construction. If a region has abundant sunlight with relatively higher electricity prices, it’s a proper region for PV development. The following is the electricity price and sunlight condition of each region in China:
Looking at resident electricity price and sunlight condition of each province as a whole, we can see that Tibet, Hainan, Xinjiang, Gansu, Shandong, Hebei, and Guangdong have better conditions for PV development and gains. However, Xinjiang and Gansu also face the problem of light abandon (Please refer to the next paragraph for detail). This problem has to be included in the consideration.
Unlike hydro or thermal power, PV does not have stable power output and stability is an essential condition for power transmission. Therefore, shares of intermittent energy sources such as PV and wind power cannot be too high on the transmission line, with the maximum upper limit reaching 20%.
As a result, even in regions with more land sources and abundant sunlight, if the region witnesses weak electricity demand and grid-connection capability, PV power load is limited due to restricted cable distribution. In addition, sending power is not an easy task. Even if a region has huge power generation capacity, not all can be connected to the grid, leading to light abandon issues. Among all regions in China, five northwest regions witness the most serious light abandon problem.
According to data released by the NEA, in 1H18, 22 provinces do not have light abandon issues. Six provinces saw a light abandon rate of below 5%. Only Gansu, Xinjiang, and Shaanxi witness a light abandon rate of over 5%.
China is likely to announce target adjustment for the 13th Five-Year Plan in late-November. But before that, many provinces are still far from the 2017-2020 installation target specified in the 13th Five-Year Plan previously announced by the NEA. For example: Hebei, Shanxi, Heilongjiang, Jiangsu, Zhejiang, Jiangxi, Shandong, Guangdong, Sichuan, and Shaanxi. In order to achieve the installation target of the 13th Five-Year Plan; provinces still have to install a total of 40GW capacity of PV plants in the next two years. This part will be arranged by each province. In other words, each province’s finance or support toward PV companies are crucial.
Aside from the power plant demand brought by the 13th Five-Year Plan, many provinces, municipalities, and counties provide local subsidies mostly for distributed generation systems. This can either attract investors or local residents to invest. The following is a list of local subsidies:
To conclude all of the above, since there’s a total of 40GW power plants remaining for provinces to install and many provinces still provide local subsidies for DG systems, there’s still demand support to the market even though the national subsides are lowered or terminated.
In terms of the impact of the above-mentioned policies on the industry, the overall manufacturing cost of the supply chain has been reduced substantially after China announced the Policy adjustment on May 31st. Yet, the non-technical costs including land, finance, and grid take up almost 20% of the total investment cost in the project development. In the document related to demonstration projects of PV grid parity, it mentioned that the NDRC will coordinate the cost reduction of non-technical costs like land and grid costs. This way, they hope to reduce non-technical cost to attract investors.
Apart from the reduction of costs (manufacturing and non-technical), following the lower subsidies, investment payback period has bigger impact on projects. As a consequence, companies will not just continue to develop high-efficiency products to fulfill the demand of the “Top Runner Program,” products with low investment cost in the earlier phase may start to rise too.
Appendix_《Documents Related to Matters Concerning Projects Do not Need the Aid from the Government》
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