Many countries have launched subsidy programs to incentivize installation of photovoltaic (PV) solar systems, including China. However, the PV subsidy program in China is facing problems. It is expected that over 5 GW of the PV systems in China will not be subsidized and EnergyTrend’s analysts believe that the issue may not be resolved soon.

China’s National Energy Administration (NEA) every year designates PV installation targets province by province. PV systems within the installation target will have the right for grid connection. After connecting to the grid, owners of the PV systems can then receive feed-in tariffs. For the sake of time, many developers would first apply for installations. Those projects that have applied for installations, including those that have not begun construction, those under construction and those waiting for grid connection, are all referred to as filed PV projects.

Chinese media PVmen found that in Henan, Anhui, Shandong, Jiangxi and Hebei provinces, the amount of filed PV projects are higher than the 2016 installation target. By the end of 2016, there will be over 5GW of filed PV projects from these provinces that will not receive the government subsidy and is expected to cause great financial burdens on the investors.

High number of filed projects and the “First Built First (FBF) principle”

The provinces of Anhui and Henan recently issued a warning for investment in PV projects, stating that recently completed PV projects or those under construction may not be able to connect to the grid. This situation is a result of the high number of filed projects and the “First Built First (FBF) principle.” The FBF principle was created to expedite construction; however, as the number of filed PV projects increases and the country’s installation target decreases, the gap between the capacity provided and the amount targeted by the central government continues to widen.

For example, Shaanxi Provinces now has over 4.2 GW of PV projects in progress, compared to the granted scale index of 800 MW for 2016. According to PVmen, Henan Provinces now has 3,360MW of solar under construction, but the scale index for 2016 was only 500 MW, creating a gap of 2,860 MW that will not have access to subsidy this year. A bidding system for PV projects may not be able to hold back the widening gap.

In light of the abovementioned issues, many provincial governments are proposing different ways for developers to connect their projects to the grid. For instance, PV systems with capacity under 20MW can be defined as distributed generation (DG) solar systems, and they may connect to the grid as DG system for receiving DG subsidies. Those fit in with the requirement of PV Poverty Alleviation programs should receive subsidies from that program.

Idled PV plants pose business risks

EnergyTrend’s analysts believe that China’s current measures are not capable of tackling the business risks posed by idled PV plants. However, strict management of filed PV projects may be somewhat helpful. For example, no new projects should be filed until all filed projects in progress are completed and connected to the grid. Projects that have not begun should be discontinued. But such measures would also impact China’s PV installation for the next few years.

 “The high number of filed projects will have to passively wait for an opportunity to connect to the grid, give up on the subsidy, or become idled facilities,” explained an analyst. “Meanwhile, as large companies have an advantage in grid connection, smaller companies may face threat to existence.”