China’s recently announced changes to national solar
policies will bring significant impacts for the global PV market and possibly
the first contraction in global PV demand since before 2000, according to GTM
Research.
The country’s National Energy Administration, the National
Development and Reform Commission and the Ministry of Finance released new
guidance that terminates any approvals for new subsidized utility-scale PV
power stations in 2018.
China will
also reduce its feed-in tariff for projects by RMB 0.05 per kilowatt-hour (a
fraction of a U.S. cent), cap distributed project size at 10 gigawatts (down
from 19 gigawatts), and mandate that utility-scale projects go through auctions
to set power prices. Projects connected to the grid past June 1 will not
receive feed-in tariffs.
In all, the changes will significantly chill growth in a
country that’s driving the global solar market.
“When the industry talks about China, it’s always about how
demand in the region exceeds expectations,” said Jade Jones, a senior solar
analyst at GTM Research. “That is not going to be the case anymore.”
The changes could cut China’s capacity forecast by 40
percent, to 28.8 gigawatts from 48 gigawatts, according to GTM Research. Wood
Mackenzie projects a cut of 20 gigawatts this year, down to just 30 gigawatts.
Other projections put 2018 capacity closer to 35 gigawatts.
Because of China’s outsized positioning, the global market
will certainly take a hit, at least in the short term. Three
years ago, China became the world’s leader in solar capacity. In 2017 it
accounted for nearly 54 percent of global PV installations.
The policy changes are an effort to stem the country’s
ballooning subsidy costs, which rang in at RMB 100 billion (about $15.6
billion) last year. China hasn’t been able to pay out those sums. Wood
Mackenzie projected they may reach RMB 250 billion (about $39 billion) by 2020.
Wood Mackenzie called it a “shock to the industry” that
China has aggressively supported in recent years through
national policy and incentives. The unexpected June 1 announcement also spurred
a drastic 15 percent drop in share prices for solar companies in the days
following.
With the change in policy, it appears that some responsibility
will now shift to local governments to approve projects, as the directive asks
for “DG projects not realized by the central government to seek financial
support from respective local governments.” But it’s unclear how local
governments will proceed.
Oversupply issues and opportunities
GTM Research analysts said that the reduced demand from
China will lead to an oversupply in the global market.
“This not only sets the market up for an oversupplied second
half of the year, but since China is such a large driver of global demand, it
also suggests that suppliers need to slow down manufacturing investments,” said
Jones, “lest [they] extend the oversupply cycle beyond 2018.”
Roth Capital projects the oversupply in 2018 at 34
gigawatts. Jones said oversupply pressure will likely push prices down 32
percent to 36 percent, more severely than the last cycle in 2016 when prices
dropped 28 percent.
While demand in the global market had been high, a shortfall
from China means that’s no longer the case.
“As well as the demand-side effects, there'll be an impact
on module costs and tariffs emerging from PV auctions, too, with large volumes
of modules that had been destined for the Chinese market now looking for a home
elsewhere,” said Tom Heggarty, a senior solar analyst at GTM Research.
But that drop in demand could help the industry, especially
in emerging markets, because of a subsequent fall in costs and Chinese
developers looking for international investment.
“We're also likely to see an increase in the number of
Chinese PV developers participating in other global markets as their home
market slows,” said Heggarty.
International ramifications
GTM Research solar analyst Benjamin Attia said developers
have already shown piqued interest.
"We're already seeing interest from Chinese industrial
firms in in-progress tenders in Kuwait and Oman, including firms from the
mining, real estate, and defense sectors bidding for 500-megawatt or
1.2-gigawatt projects without much solar project development experience,"
he said.
Heggarty said increased competition, along with lower module
costs, could push auction prices down. Attia said record-low solar bids may dip
below $20 per megawatt-hour in the next 12 months.
That may negatively impact some markets, like in Kenya and
Nigeria, where Attia said "new very low module prices may cause regulators
to seek to unilaterally reduce PPA rates or seek to renegotiate a lower tariff,
as had already started to happen before the changes in Chinese policy, delaying
projects and possibly causing some of them to stall out altogether."
According to Wood Mackenzie, the change may also drive an
increased focus on quality with competitive auctions pushing innovation.
Falling costs could also accelerate China achieving grid parity with advanced
technologies and new projects by 2020.
Much like the solar tariffs that
initially racked the U.S. market with angst, these policies could create a
softer blow than initially expected. While Wood Mackenzie acknowledges the
changes will “cause near-term market turmoil,” they’re also likely to
accelerate grid parity and foster higher PV penetration in newer markets.
No comments:
Post a Comment