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Breaking: Adjustment to China’s PV FIT under discussion: NEA

China’s National Energy Administration (NEA) convened several meetings to discuss management of this year’s PV projects with related enterprises, experts, associations, and financial institutions, as well as media outlets from Feb. 18 to 22. Here’s a summary of the three meetings being held so far: 

Three adjustments will be made to Solar PV FIT policy

1. FIT will be adjusted two times instead of the current three times.

Considering the target distribution of PV projects should be released in 2Q19, the current FIT adjustment, which is adjusted quarterly in Q2, Q3, Q4, will be changed to adjust two times only in Q3 and Q4.

The new FIT will be:

  • Q1-Q2: RMB$0.4/KWh, RMB$0.45/kWh, RMB$0.55/kWh 
  • Q3: RMB$0.39/kWh, RMB$0.44/kWh, RMB$0.54/kWh 
  • Q4: RMB$0.38/kWh, RMB$0.43/kWh, RMB$0.53/kWh

2. Time for obtaining FIT reference will change.

The current policy allowed PV projects to determine FIT upon the targets obtaining time and apply the pricing as long as it was installed within four quarters, resulting in deliberately delaying the schedule of grid connection to 2020 for cost down. To spur more PV projects to complete grid connection in 2019, the new policy will allow bidding based on the FIT determined upon completion of grid connection.

3. Special offer will be given to enterprise’s grid connection project delay.

Considering enterprises won’t be able to obtain the project targets until the end of Q2, there will be only roughly a six-month time (including seasonally frozen ground period) to put all PV projects into practice in order to achieve grid connection by the end of 2019. Thus, despite enterprises’ full effort to push for projects, it is inevitable to postpone some large projects to 2020. As a result, the new policy will reduce FIT by RMB 0.01/kWh for extending one quarter; 5% for extending two quarters. 

After several negotiations, the new policy will determine the installation capacity with subsidy quota to ensure the amount of capacity meets that of subsidy. Also, subsidized auction projects will be distributed by the central government instead of local sectors. Residential projects, on the other hand, will be implemented by local sectors, which will be the main supporter of China solar energy development in the coming years. This year will focus on projects included in incentives scheme while installation capacity of grid parity will remain low. 

Among projects in incentives scheme, though residential projects are listed exclusively, the amount of new residential projects this year is uncertain if taking last year’s “531” policy changes, which excludes it from subsidized items, into consideration. Judging from the information unveiled so far, the major policy changes this year include reduce subsidies (auction mechanism still applies for commercial DG and PV plant projects) and push projects for grid connection on time to avoid deliberately delay.

Overall, reducing subsidies has been commonly accepted by the PV market, which is waiting for the announcement of targets to ease market uncertainty. In terms of credibility, if the government could guarantee the financial quota for subsidies, it will help improve downstream development and increase financing investor confidence. At current pace, demand will rise in 2H19 considering procedure of all projects in China. Pushed by the new policy, most PV projects are expected to complete grid connection by the end of this year, driving demand to increase gradually.

To conclude, this year’s plan is to budget for incentive program first before opening for tenders and determining installation capacity. As a result, there will be more installation capacity as the bidding price goes down. Apart from projects such as residential system and poverty alleviation might have an official target of totally capacity, the final installation capacity for auction projects might be higher than predicted due to bidding price is lower than market forecast. For now, PV InfoLink predicts China market demand for modules falls at a neutral to positive level between 36-45GW.

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