China's solar plan: The great gambl

China's solar plan: The great gamble

17 October 2011

China’s 12th Five Year Plan has introduced ambitious targets to increase its solar energy generating capacity, and is about to introduce an aggressive feed-in tariff to further boost its solar sector. It’s time for the rest of the world to sit up and take note.

Will a massive cash injection into China's solar sector pay off?

By Paul French in Shanghai

Cast back to 2009 when the Chinese government announced what, at the time, were considered huge, aggressive subsidies to kick-start the country's fledgling solar power market. The 2009 plan offered RMB20 (then about US$2.94) per watt for solar photovoltaic installations greater than 50 kilowatts.

Analysts at the investment bank RBC Capital Markets calculated that this would essentially cover 50% of the cost of entire installations at 2009's low solar panel prices. The international reaction was positive, and shares in China's largest solar players, such as Suntech Corp, soared. Solar energy, both panel manufacture, and as part of the energy mix, got a good initial boost in the PRC through this process.

Around the same time, EU countries were assessing how best to structure their own feed-in tariff schemes, as well as various other support mechanisms for solar power. Even the US was tinkering with new and more generous solar incentives via President Obama's stimulus programme.

Fundamentally flawed?

Fast-forward to March 2011, to Beijing’s 12th Five Year Plan (FYP). The much-vaunted national plan includes very ambitious targets for renewables, including a 15% target of renewable energy in China's overall energy mix by 2020.

Having been green-lighted by China’s highest-level administrative bodies, the National People's Congress and the Chinese People's Political Consultative Conference, considerable investment will now be required if this target is to be achieved. Given that the 12th FYP covers the period from 2011 to 2015, time is also of the essence.

While solar is an integral part of the 12th FYP, China’s stakeholders are divided. Pan Jiahua, executive director of the Research Centre for Sustainable Development at the Chinese Academy of Social Sciences (CASS) believes that China is making investments and commitments to solar primarily to cut emissions. He cautions, however, that the plan is fundamentally flawed.

Firstly he says the 12th FYP will result in greater fossil fuel extraction (which, in China, is brown, or lignite, coal – the most polluting kind). This is because PV, like wind, is an intermittent power source and requires regular back-up by fossil fuel plants to meet peak demand.

Secondly, Pan argues that solar depends heavily on subsidies. The question is: whose pockets will bankroll these subsidies? Pan urges that for now, research should take precedence over a ‘Great Leap' approach to building out China’s solar capacity.

Others disagree and argue for greater commitment and for even higher targets, backed by aggressive subsidies and investment. Yang Fuqiang, Hou Yanli and Li Jingjing with the World Wildlife Fund in China are of this mindset, calling for more ambition and less caution. It is a lively debate and China watchers appear to mostly agree that simply having this conversation outside the rarefied meeting rooms of Beijing is somewhat of an advance.

Overly protective

Many renewable energy analysts and environmentalists have welcomed Beijing’s policy-stance on renewables. However, China is not universally popular for its powerful combination of aggressive support mechanisms, and low labour and production costs.

Analysts at Hong Kong investment bank CLSA believe Chinese firms control approximately 70% of the global market for solar panels. This market share has been boosted by the collapse of three US competitors in the last few months. China's solar panel prices have fallen to US$1.2 per watt of generation from US$1.7 in 2010. This is obviously significantly lower than the global average of US$2.0 in 2010.

As regards CSP, Chinadialogue’s Editor Isabel Hilton notes that some domestic CSP have taken the initial announcements from the 12 FYP as positive signs and have already committed investments. China Guangdong Nuclear Power Holding Corporation (CGNPC) announced construction of a 50MW concentrating solar thermal power project costing RMB2.5 billion investment in Delingha City in Qinghai Province in China's far west on September 20.

It is argued that Beijing's support for solar companies - including declared subsidies and access to cheap credit lines from China's 'Big 4' state banks – is protectionist, despite helping move China towards its 12th FYP goals. For their part, Chinese solar firms counter that American firms receive assistance too; the US solar firm Solyndra that recently filed for bankruptcy had received a US$535m loan guarantee from the Obama administration.

A matter of perception

Solydnra's collapse, which was preceded in the bankruptcy courts by American solar companies Evergreen Solar and the Intel spin-off SpectraWatt, was the result of several issues. Falling demand in Europe as well as China's competitive stance in solar were contributing factors.

Certainly, in the USA, the political fallout from Solyndra is partisan and angry - lack of coherent government backing for renewables on one side; government should get out of all subsidy and support of commercial operations, on the other.

Suntech, China's largest panel maker (and a beneficiary of last year’s multi-billion dollar state hand-outs) argues that this fallout is symptomatic of consolidation within a fledgling industry. It is worth recalling that Suntech and other solar panel companies in China have not been universally successful - consider Suntech's long and persistently under-performing thin-film plant in Shanghai.

Ultimately, it comes down to the fact that China deals with bankruptcy in a rather different way; it simply has different central government objectives regarding plant closures and unemployment. Analysts following both China and the global solar business now anxiously await the details that will follow from China's broad brush 12th FYP and, most expectantly, the introduction of national feed-in tariffs that many expect to be hyper-aggressive.

To respond to this article, please write to:

Paul French: paul@accessasia.co.uk

Or write to the Editor:

Rikki Stancich: rstancich@csptoday.com