China Issues Draft Policy For Solar/Wind Projects

• China's NEA is seeking public consultation on the development of subsidy-free and grid parity solar and wind power projects
• Provincial electric utilities will prioritize unsubsidized projects that can be accommodated into the local grid, compile the list and leave it to the NEA for approval
• Roth sees this as a negative for the solar industry, especially for upstream players concentrated in China, despite the country confirming RMB 3 billion ($448 million) of subsidies in 2019 for solar projects, reducing its solar installation forecast for China from 50 GW to 40 GW in 2019
• PV InfoLink believes this timeline may delay domestic demand till July-August 2019, while market peak season is likely to be in Q3/2019 to Q1/2020

China's National Energy Administration (NEA) has come out with a structure on the rules it proposes for the development of subsidy-free wind and solar power projects gearing them towards grid parity. The draft rules are titled 'Work plan for promoting the construction of unfunded and affordable online projects for wind power and photovoltaic power generation'.

Comments on the draft rules will be accepted before April 23, 2019. Soon after releasing this document, the NEA came out with another draft document titled 'Notice on the relevant requirements for wind power and photovoltaic power generation construction management in 2019'. The second draft details requisites for the construction of such projects for which feedback will be accepted till April 26, 2019.

Points to be noted

Under the 2 drafts, provincial electric utilities will be responsible for overseeing, allowing and accepting the scale of renewable energy needed in the respective grids, prioritizing projects that voluntarily convert to an unsubsidized status, followed by those unsubsidized projects that can commence construction in 2019. Lastly, projects requiring state subsidy will be considered.

Provincial level energy authorities will work out a list of eligible projects and submit it to the NEA for approval which the latter will do after ranking the projects.

Reuters reported the draft rules say projects that require government subsidy will have to compete with each other on prices. The NEA has also proposed imposing differential policies for large solar stations, distributed solar projects, solar plants designed to help alleviate poverty and government-led pilot schemes.

At the same time, projects that have secured approval for the past 2 years but are yet to start construction or those that have secured extension and yet not started construction within the extended time line and those that have not sought any extension will find their approvals scrapped.

Roth Capital lowers China guidance to 40 GW

In February 2019, China was reported to be considering moving towards competitive auction system to allow utility scale solar power development replacing state support scheme with an initial amount of RMB 3 billion ($448 million in 2019 as subsidies. That prompted Roth Capital Partners to forecast annual PV addition for China in 2019 to reach 50 GW (see China Solar Moves To Auctions).

Roth now sees these proposed changes by the NEA as a negative, bringing down its forecast from up to 50 GW to 40 GW in 2019. This is despite the fact that the government has confirmed its RMB 3 billion subsidy level for 2019 divided between traditional projects with RMB 2.25 billion ($335 million) and residential systems with RMB 750 million ($111.8 million).

While terming the confirmation of the subsidy level for 2019 as a positive, about the work plan analysts at Roth said, "We believe this is an incremental negative for the upstream manufacturing complex as it likely represents weaker China demand resulting in greater than expected downside pricing pressure, and those with the greatest China exposure could get hit the most."

Roth further believes China solar installations till June 2019 will be slow, followed by a likely rush by year end 2019 – assuming 9 GW in H1/2019 and 15 GW each in Q3 and Q4.

According to solar PV market research firm PV InfoLink, "Based on such time schedules, this year domestic demand may be delayed until July-August, and the market peak season is expected to be in the third quarter of 2019 to the first quarter of 2020."

In January 2019, China said it won't continue with its feed-in-tariff (FIT) scheme for large-scale solar and wind power capacity. The NEA and the National Development and Reform Commission (NDRC) stated conditions that will be the premise to give a go-ahead to new solar and wind power pilot projects for 2019 and 2020. Post 2020, it said the policy will be adjusted basis the situation then (see Beijing Announces Solar Support Measures).