China unifies solar energy feed-in-tariffs

The feed-in-tariff for solar power systems which began construction in July 2011 and are able to be completed by end of the year will be CNY1.15 (US$0.18) per KWh. The feed-in-tariff for solar power systems that have been admitted but not able to be completed by end of 2011 will be CNY1/KWh (except in Tibet, which is CNY1.15/KWh).

Industry sources stated that China’s incentive program cannot subsidize every household and business like the policies in Europe. The central government has to control part of the subsidies and have local governments subsidize projects. The unification of feed-in-tariff rates will decrease the level of difficulty in calculating solar power system investment costs and hopefully will effectively increase domestic demand, added industry sources.

The solar energy industry in China has been subject to international debate as the government has been heavily subsidizing photovoltaic firms enabling them to gain market share through price competition. Firms from Europe and the US have been lobbying governments to prevent the dumping of China-based solar photovoltaic products.

China’s domestic demand for solar photovoltaic has been lagging behind despite the continuous capacity expansions made by solar firms. The domestic solar photovoltaic market in China has been estimated to have installation demand around 1GW in 2011, with 800 MW in Qinghai.

China’s population of 1.3 billion people has enjoyed rapid economic growth in the past three decades. Yet, the country struggles to meet its rising demand for electricity. Power shortages have been most prevalent in south China. "Guangxi Zhuang Autonomous Region is seeing its most serious electricity shortage in the past two decades, leaving nearly 30 percent of the region’s demand for electricity unmet" according to a "China Daily" report that cited local power authorities.

Overall, Guangxi falls approximately 3.5 million to 4 million short of its capacity to produce what it needs for electricity every day. Experts on China’s power grid cite a number of reasons why energy is in short supply, particularly in the country’s southern region. The "China Daily" report continued: "In the upper reaches of the local Hongshui River, the water does not stand high enough to be of use in generating hydropower. Making matters worse is a shortage of coal, which has caused the generators at many local power plants to cease running."

Lui Tienan, head of the National Energy Administration, added that China’s electricity supply would be most stretched "when everyone in the country is turning on their air conditioners." While these reasons do explain the power shortages, other issues should be addressed as well. Boosting the number of "clean energy" projects will create additional power supplies for the country’s power grid, but alternative energy resources alone cannot solve the shortages.

Although China must wait for new power plants to supply the state grid, the government should encourage private companies to enter the nation’s energy market. Although solar technology can’t rescue the nation from the grip of nationwide power shortages, solar cells can reduce the demand for coal. China’s National Development and Reform Commission (NDRC) made the right move on Monday when it established new pricing guidelines for solar power-derived electricity in a move to promote growth in the photovoltaics (PV) sector.

Nonetheless, the NDRC’s proposal does not bode well for future solar energy investors in China. China Radio International reports: "Power grid operators will be required to pay solar energy producers 1.15 yuan (US$0.18 per kilowatt hour (kWh). (The NDRC) stated that the prices only apply to solar power projects that were approved before July 1. Electricity generated by projects that were approved after July 1 will be priced at 1 yuan per kWh." The NDRC has granted an exemption to projects in southwest China’s Tibet Autonomous Region where solar plants can still receive 1.15 yuan per kwh even if projects were approved after July 1.

The July 1 deadline may discourage "clean energy" financiers from investing in solar energy in the future. They can argue that it’s unfair to invest in solar energy projects at a later date, because they would get a lower price rate than companies that received approval for projects before July 1. If the NDRC eliminates this stipulation while offering 1.15 per kwh for all solar producers regardless of whether their projects were approved before or after July 1, it would offer enticing incentives for investors to enter the solar market in China.

Meanwhile, droughts have adversely impacted China’s power supply. Beijing recently announced a plan to invest US$62 billion in hydropower development to boost its capacity by 2015. According to Reuters, "China wants to raise installed power capacity by 490 gigawatts (GW) to 1,440 GW by 2015. At least 140 gigawatts of the 490 gigawatts of new capacity would be from hydropower — enough to run the whole of France."

Yet as noted earlier, Guangxi Zhuang Autonomous Region faces power shortages in large part due to an ongoing drought that fails to provide enough water to generate hydroelectric power on the Hongshui River. Making the state grid too dependent on weather conditions could cause more power shortages in the future. Wind power can’t produce power without wind. Solar plants are ineffective at night and during cloudy and rainy days. Hydropower can’t be utilized during prolonged droughts.