Solar subsidies spell the beginnings of a solar boom in China

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28 September 2011, Electricity, Nuclear, Solar, Wind

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Energy is a major strategic issue for China's national security, economic development, and social stability. As standards of living improve and gross national product continues to grow, so will the country's energy needs. China is currently the world's largest consumer of energy and also the greatest emitter of greenhouse gases. Concerned with tight world oil supplies and severe environmental issues, China's government is tasked with meeting rising demand for power while addressing the overlapping and growing challenges posed by energy import dependency, security of supply, and environmental degradation.

New measures to deliver a massive renewable energy program - which aims to generate 15% of China's power needs from renewable energy sources by 2020 - are expected to generate levels of investment in excess of $1tn over the next decade. Yet, while China has excelled at laying the foundation for the long-term growth of its solar manufacturing industry, the vast majority of its solar photovoltaic (PV) cells and modules are currently exported. Today, China's power generating solar capacity - although growing rapidly - stands at a meager 800MW, despite the country's colossal solar manufacturing capacity.

In November 2010, Datamonitor wrote that China - the world's workshop for solar power - would soon also become its biggest consumer, and that as the policy environment improves, so would the rates of national solar PV deployment (see "Renewable Energy in China: Policy, Investment, Capacity, Growth and Outlook" EN00003-002, November 2010).

However, the report also found that China lacked the ability to adequately forecast and measure local solar potential, and that grid infrastructure limitations would take years, if not decades, to correct. When the report was written, a shortfall of skills downstream in the value chain (where planning, installing, and maintaining solar arrays are concerned) was also limiting growth prospects. However, the report concluded that these problems were likely to be short-lived and that the full potential of the solar market in China would be unlocked by policy makers firming up the implementation details of their plans to reach or exceed 20GW of capacity by 2020.

Less than a year on, that potential is now set to be realized following the recent announcement by the National Development and Reform Commission (NDRC) that solar power projects approved by July 1, 2011 or completed by the end of 2011 will be eligible for RMB1.15 ($0.18) per kilowatt hour (those approved after July 1 will receive RMB1 per kilowatt hour). These announcements are the upshot of declining European demand and likely pressures from local governments, solar manufacturers, and developers following China's failure to achieve its 2010 renewable energy target of sourcing 10% of its energy demand from renewables.

Concerns over the long-term growth of the industry have erupted in some of Europe's largest solar markets - particularly Spain - which have experienced oscillating traction in 2010 and 2011. In an attempt to limit their exposure to the dynamic and volatile convergence of technology, policy, and finance, it was always likely that some solar manufacturers would look to emerging solar markets for the rapid growth that characterized the industry in Europe at the start of the century.

China will now be top of the list of emerging solar markets. The recent NDRC feed-in tariff announcement will spur the development of additional installations in 2011 to 1.75-2GW (double the predicted levels), and draw in foreign project developers, most likely through Kyoto's Clean Development Mechanism.

Source: Datamonitor

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