Beijing Announces Solar Support Measures

China has come out with positive news on its solar restructuring program. The federal government of China has confirmed it won’t continue with feed-in-tariffs (FIT) for large scale solar and wind power capacity, which were overpriced and resulted in an unplanned installation rush in 2017, leading to 53 GW of newly installed solar, more than the rest of the world added together in that year. The National Energy Administration (NEA) and National Development and Reform Commission (NDRC) has announced the conditions on which the administration will give a go-ahead to new solar and wind power pilot projects for the next 2 years, ending in 2020. Post 2020, it will assess the situation and adjust the policy accordingly.

On May 31, 2018, China surprised the global PV world when it pulled back financial support for large-scale solar power projects and limited installation of distributed power plants to 10 GW. Now, the government has clarified only those projects that can deliver power at grid parity with coal or lower than that, and those that enter construction before the end of 2020, will be approved. Those projects that fail to start construction within the time limit will be cancelled to make way for unsubsidized power plants.

Local provincial governments will be at liberty to provide subsidies to projects being developed in their region, however they would need to steer clear of imposing binding conditions for instance insisting on using local equipment or promoting local manufacturers. The governments will be allowed to issue subsidies for a certain period of time.

The central government will not allow new solar projects in Xinjiang and Gansu because because of the huge curtailment issue in these provinces. Beijing will also keep some grip on new capacities in a number of other provinces.

However, power enterprises in the local provinces will be required to guarantee priority status for all grid parity projects and in the event of power curtailment, it would be transferred nationally on priority basis. These projects will have to sign long term power purchase agreements (PPAs) for fixed tariffs.

Clarifying its stance on unsubsidized projects, the government said such projects will be encouraged in areas where resource conditions are superior and there is guarantee for the power generated to be utilized. In other words, China is working on a Guarantee of Origin (GO) scheme, which is a crucial component for subsidy-free corporate solar systems. Remaining regions will continue to auction projects to reduce energy prices.

Beijing will also encourage financial institutions as the National Development Bank and 4 other state-owned commercial banks to fund unsubsidized projects. Detailed instructions issued by the government can be read on NEA website.

This announcement was long awaited – China backs its solar sector. However, even though the government is taking steps in the right direction by strategically locating wind and solar power projects in the country where they are needed, allowing provinces to incentivise solar systems and give green light for subsidy free solar, it remains to be seen how much of an effect that will have already in 2019. It might take some time for provincial governments to shell out substantial fundamental support for this development. It will be also key to have a functioning GO system for subsidy-free solar to attract many large corporates, although solar is already cheaper than coal in several places. Unless these things happen quickly, for the moment it looks like 2019 will be still a transition year with solar demand not exceeding Chinese installations in 2018.