China moves to a Market Driven Mechanism

The Chinese solar market is the major driver of solar panel prices globally given that it accounts for around 45%-50% of the overall global demand. The demand in China is watched very closely by industry participants as it can quickly turn a shortage position into an oversupply situation and crash solar prices. This is exactly what happened in July of 2018 when China suddenly stopped its feed-in tariff program for solar power procurement, leading to a deep plunge in solar panel prices.

This year too the Chinese market demand is suffering from great uncertainty as nobody is being able to read the mind of the Chinese policymakers. While China installed 44 GW last year, the current years’ target is seeing a lot of speculation. While most industry markets see a 10% to a 30% cut in solar demand, there are some other who think that the demand can fall by more than 50% this year to just 20 GW.

China is home to most of the world’s global manufacturing industry for solar panels as well as solar inverters. The country’s policymakers are unlikely to allow the demand to plunge too much as it would lead to bankruptcies of a large number of its homegrown domestic players which consequently could lead to severe unemployment problems. As it is there is great uncertainty over the US-China trade issue. China installed more than 5 GW in the first quarter of 2019 which was a sharp fall on a year on year basis. However, the solar industry in China expects an acceleration going forward into the second half of the year.

The solar industry is transitioning from a feed-in tariff to a market based mechanism which is leading to transition pains for the stakeholders.  The other big problem is that some provinces where large utility-scale power plants were installed are facing the problem of power wastage as there is not enough transmission capacity to move the power from the solar generating stations to the big consumption centers in the eastern part of China. The government does not want to increase this problem by further constructing more solar power plants in these regions such as Gansu and Xinjiang. China already has 179 GW of solar capacity installed and the future could see flat to declining rates of growth as the demand seems somewhat saturated for the near future.