China FIT cut

China has apparently been mulling cutting solar feed in tariffs by almost 31% in 2017 from the rates in 2016. This would have brought down the FIT to an average of 8-11 cents a unit from a high of 15 cents a unit currently. Note the rates in China are quite high as is apparent from the boom in solar installations that took place in the first half of 2016, leading to more than 20 GW of solar capacity being installed and a global bust in the second half. Solar panel makers had been able to sell panels for as high as 55 cents/watt in the first half because there was a huge demand due to good IRRs being made by solar developers. Even though developers face curtailment due to lack of a transmission capacity, they still build the solar plants because of the high returns.

The government now wants to cut down the returns so that the market would return to saner levels. Global solar manufacturing industry has been under severe distress because of the Chinese boom and bust. Solar panel prices crashed by 20-30% in the 2-3 months, leading to international solar module prices coming down to as low as 40 cents/watt.  The reduction in solar tariffs would lead to a cut in abnormal profits for developers while still allowing the industry to make a good 20 GW run rate in China. This should be a good pace considering the fact that the country’s transmission capacity probably cannot take much more than that.

Solar developers now think that NDRC will not be harsh enough to cut tariffs by 30% but bring it down by around 20-25% next year. This will allow the solar industry to make a smoother transition. Most of the solar panel producers in China are facing tough times as order had suddenly dried up and the margins are very low to non-existent. There are also no big export markets which can absorb the massive supply from Chinese factories and ASP’s globally have come down to a uniformly low level.

Source: NDRC, compiled by Digitimes, October 2016