China Steps Up Solar Deployment

On August 1, 2011, the China National Development and Reform Commission (NDRC) announced a national feed-in tariff (FiT) for solar PV. Although details are still being released, the plan looks like a serious first step toward unleashing significant demand for solar PV in China.

Under the plan, utilities will pay solar energy producers 1.15 RMB/kWh (~US$.18/kWh) for projects that received NDRC approval before July 1 and are completed by the end of the year. It is estimated that there are 500-600MW of these approved projects already in the pipeline. Solar energy from projects approved after July 1 will receive 1 RMB/kWh (~US .15/kWh). These rates are significantly higher than tariffs in the last solar project bidding rounds in 2009 and 2010.

With a 1 RMB/kWh subsidy and steep declines in module prices, this subsidy will enable Chinese project developers to earn attractive, high single digit IRRs for projects in the Western provinces where sun resources are abundant. In the wealthier, less sunny Eastern provinces, the NDRC is encouraging provincial governments to supplement the national FiT with local and provincial deployment programs to improve the IRRs for projects there. Although it is too soon to know exactly how these policies could impact market size, early assessments indicate that this FiT could create a 2-3 GW Chinese market in 2012 and a 4-5GW market annually after that. This is a significant increase from the 10GW total scheduled to be installed by 2015 under the 12th five year plan announced in March.

Historically, announcement of national FiT programs spurs enormous growth in renewables. In the four years following the announcement of a national solar FiT in Germany and Italy, the solar market there grew by 95% and 194%, respectively. In the four years after China established a national FiT for wind, the wind market there doubled every year and now China is the largest wind power producer in the world. These policies work!

The tariffs will be paid out of the Renewable Energy Fund, which is funded by an assessment on all electricity consumers. There are no caps on the program, although the NDRC/NEA approval process and grid connection can act as a moderator to limit access to the tariff scheme.

Although a national FiT has been in the works for quite a while, this recent announcement confirms that China is looking for solar to play an increasingly important role in its renewable energy strategy. With over half of the world’s solar panels manufactured in China, it makes perfect sense for China to promote solar deployment, especially in the sun drenched Western and Southern provinces. With its spiraling demand for energy, China’s consumption of more solar can help further drive down prices and expand the global solar market, not to mention curbing carbon emissions from the world’s largest polluter.

China has a plan to capture the economic benefits of the new, clean energy economy with aggressive development programs for solar, high efficiency lighting, and new-fuel vehicles. This solar program is another piece of evidence that they are executing on that plan.

And here in the US, what’s our plan?

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