Fitch Solutions points out that solar utility scale projects won the largest capacity share in the first bidding round for subsidies in 2019 in China. But as the country phases out subsidies and focuses on cost-competitiveness of projects, inland provinces are likely to make a comeback in the coming decade. (Source: Fitch Solutions Macro Research)
- An analysis by Fitch Solutions Macro Research on Chinese solar power development sees inland provinces to experience growth in renewables, especially solar in the coming decade
- As coastal regions took over PV development post 2014 driven by distributed solar, inland provinces suffered from grid curtailment and insufficient grid infrastructure issues
- But now as solar PV development in the country undergoes a subsidy-free phase and land constraints issues in coastal regions rise, the analysts expect inland regions to make a comeback in the utility scale solar space
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Availability of land and high solar irradiation in areas as Xinjiang, Gansu, Qinghai and Inner Mongolia is likely to centre renewables growth in these inland provinces of China over the coming decade as the country phases out subsidies for solar PV development and focuses on cost-competitiveness of new projects instead.
An industry trend analysis from Fitch Solutions Macro Research points out that as of 2014, these inland provinces accounted for 56% of total installed solar capacity in China, dominating the top 10 provinces by installed capacity back then. The leaders were Gansu, Qinghai, Inner Mongolia and Xinjiang.
Between 2014 and 2016, the installation activity was more diversified across the country leading to the big four representing only 37% of total installed capacity by the end of 2016 which was mainly due to grid infrastructure not being improved enough to accept large capacities of renewable energy. At the same time, the Chinese government encouraged substantial grid curtailment for renewables in inland regions. The analysis states this ensured that between 2016-end and 2018-end, most inland provinces in the country did not see much solar PV development.
“We expect this growth surge in coastal provinces to be replaced with a greater emphasis on inland provinces again as solar subsidies are phased out. Notably, we highlight that growth over 2017 and 2018 was aided by distributed solar capacity (projects <20 MW) which had access to more incentives than utility-scale solar capacity which faced steeper feed-in-tariff (FiT) cuts over this timeframe,” said the authors of the analysis.
Land is limited in coastal areas where most of the growth has been led by distributed solar but now Fitch Solutions anticipates emphasis on developing larger projects in inland regions where land is ample. It also believes the inland regions have been working on improving grid availability for renewable energy. At the same time, the government is working towards reducing the cost of renewable energy development since it owed a whopping $18 billion in FIT payments to renewable energy generators as of 2018-end, note the authors.
In January 2019, China said it won’t approve subsidized wind and solar power plants post 2020 but allowed provinces to promote such projects. However, the federal government also said back then that it won’t allow new solar projects in Xinjiang and Gansu because of huge curtailment issue in these provinces (see Beijing Announces Solar Support Measures).
Referring to the first bidding round for solar PV in 2019 when over 22 GW of projects were approved by the government and 80% were utility scale plants, Fitch says Guizhou and Shaanxi dominated the tender but this may only be ‘temporary in scope’ even as Gansu and Xinjiang were not considered for the bidding round (see Subsidy For 22.79 GW Chinese Solar Projects In 2019).
The analysis argues, “As challenges such as curtailment are mitigated further, we expect solar growth in China to return to where it took off in the earlier stages of the country’s solar expansion – namely the inland provinces.”