China’s Sudden Solar PV Policy Change

Published on 05th June 2018

On May 31, China’s National Development and Reform Commission (NDRC), in coordination with Ministry of Finance and National Energy Board released a statement terminating all subsidies for utility-scale solar power projects in favor of competitive bidding, and greatly reducing feed-in-tariffs. 


This surprise move by the Chinese energy regulator and the country’s top planning commission will likely cut demand in the world’s largest solar market. 


In 2017, China accounted for roughly half of the Solar PV demand worldwide. It is anticipated that the next major players the US, India, and Japan will not be able to counter the downfall in demand. This abrupt shift in the policy combined with China’s dominant position in the Solar PV market means the price of solar PV module will see a significant fall in the following months. 


The oversupply in the industry can also have further consequences for PV manufacturers and solar cell suppliers in terms of inventory stockpile, revenues, and cash flow. 


The May 31 notice sets a cap of 10 GW for distributed generation projects for the next year, canceling at the same time its targets for utility-scale solar targets for the year.  


The country has a cumulative 130 GW installed Solar PV capacity at the end of 2017 and leads the World in new installation. The Chinese government provided support grants and subsidies to the Solar PV industry in the past decade, causing an explosion in new annual solar PV installation. 


This major policy change coming from the country’s economic planners is a result of ballooning subsidy costs accrued by the government. The trust fund that finances the subsidy remains at a $15 billion deficit. The government has been looking to drive out inefficient projects for some time, caused to some extent by a lack of transmission lines from the source to the final consumer.  


China’s efforts to curtail renewables (energy generated but kept off-grid) are also because of its inability to create a network and replenish the transmission lines connecting the source in Northern provinces to users across the country. 


China’s plans to overhaul the grid system should enable it to reap the full benefit of the staggering capacity that has built up in the last three years. 


Overall, these changes will have a steep impact in the Solar PV industry in China and around the World. 

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