Currently, the global solar market is largely dependent on Germany and Italy’s market condition. According to EnergyTrend, in 2010, the global installation volume is 15 GW of which Germany (7.4GW) and Italy (3GW) together account for more than 65%. China is the world’s largest export country of solar products but its domestic demand is relatively low. As a result, the development of Chinese solar industry is greatly confined to demands of American market and European countries such as Germany and Italy. Despite the imposition of Chinese subsidy policy, companies need profits that are hardly seen without FIT programs. Three provinces have initiated local FIT programs to urge the central government to enact a national FIT policy.
According to EnergyTrend, the average price of polysilicon is down by 21.96% and the average price of cell reduced by 33.58% this year alone. The market price recently stabilized after Germany and Italia confirmed their subsidy policy changes.
Chinese solar industry contribute more than 50% to the global supply in production but the domestic installation is less than 5% of global installation volume. Domestic solar companies have long hoped for a centralized policy that will help improve this predicament. Since March, 2009, the Chinese government has put aside 10 billion RMB each year for investing in projects such rooftop systems and BIPVs to spur the end market demand. However, the industry did not show positive response. At the same time, the execution of the Golden Sun Initiatives turned out less than effective. The completed installation was less than half of the amount planned in the first phase of the project in 2010.
Calculated based on the cost of 15-18 RMB/watt, the Chinese national policy only subsidizes about half of the cost or 8-9 RMB/watt. The payback period is as long as 10-15 years depending on the area of installation. The solar industry has certain economical benefits but is hardly convincing in the short run.
As far as global solar industry is concerned, the profit mainly comes from government FIT policies. Though the realization of grid parity is expected, the likelihood to see it happen in China is low in the next five years.
Local governments of Jiangsu province, Shandong province, and Qinghai province have enacted their own FIT programs which will provide 1.4RMB/kWh, 1.15 RMB/kWh and 1.4 RMB/kWh respectively. The required amount will be financed by local governments without support from the central government.
As demand from the industry for a centralized FIT program, the National Development and Reform Commission of China finally announced for the first time on August 1st, 2011 that a standard of 1.15RMB/ /kWh for all on grid systems across the nation. Many believe this announcement will benefit the domestic solar companies in that the ignition of domestic market demand will make up for the decreasing demand of European markets and sliding export prices.
However, the policy comes with a potential problem that unbiased FIT program will lead companies to rush into development of the west where the sunlight is abundant and the land cost is lower. Notably, some solar power stations in the west are already making a profit without the incentive. Mass migration of solar development to the west may repeat the history when the wind farms built with the intention to take the advantage of incentives were left used due to technical difficulties connecting facilities to the network.
Still, EnergyTrend believes that the national FIT policy together with the local provincial FIT programs will stimulate the domestic installation demand. EnergyTrend predicts the installation volume will reach at least 1GW in China in 2011.
