China to cut its FIT

China has been the biggest growth driver of solar demand in the world over the last couple of years and it has surprised everyone with the huge jump in solar growth in the first half of 2016, when it installed an eye popping 20 GW of solar capacity. However, the country is now thinking of sharply cutting down the feed in tariffs for both utility and rooftop solar energy as it needs to slow down the pact of solar growth. This is both to reduce the subsidy outgo which is increasing consumer bills, as well as to deal with the grid balancing and capacity issues.

Large scale curtailment of solar power procurement is being seen in western China as there is no grid evacuation to move the solar power generated from western China to the demand centres in East China. The government needs to control the growth of solar energy so that the grid capacity can catch up with the growth in the power generation capacity.

Also read China exceeds Japan’s Annual Solar installation target in Q1’16

The Chinese government is short of the funds required to subsidize generation of renewable energy, mainly PV and wind power, with the gap reaching a cumulative amount of CNY55 billion (US$8.27 billion) at the end of June 2016 and is estimated to increase to CNY60 billion by the end of the year, China-based media cited the National Development and Reform Commission (NDRC) as indicating.

While China has committed itself strong to the Paris climate change summit goals of increasing renewable energy, the country’s economy is seeing a slowdown with a commiserate decrease in the demand for electricity. China may not need the huge growth being seen in electricity growth from all sources. Besides the drastic drop in solar system prices has given it the leeway to drop feed in tariffs and still make the ROI sufficiently high enough for developers to remain interested in putting up solar projects. However, it is never easy to benchmark solar tariffs so that they remain balanced . Generally change in FIT has resulted in booms and busts if not done in a gradual manner. Germany, Spain, Czech – there have been innumerable examples and you can find it in the Greenworldinvestor archives, where we have documented most of those episodes in real time when they had occurred.

However, before any drastic change will happen, expect solar developers to go all out to install as much solar systems in H2 2016. So expect the growth of solar panels shipments to start in the very next month, as developers work themselves into a frenzy of installing and commissioning solar projects.

China market: PV feed-in tariffs, 2016-2017 (CNY/kWh)

NDRC has set tentative tariffs for distributed PV systems of CNY0.20 (US$0.03)/kWh for category 1 areas, CNY0.25/kWh category 2 and CNY0.30/kWh category 3.