China’s increasing solar power faces issues of grid absorption and low returns
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China has been the leader in installing solar power over the last 2 years taking over the mantle from Germany, which has considerably lowered its solar power capacity additions. Germany is already saturated with solar energy and has drastically reduced subsidies given for solar power generation. Most of the solar power capacity funded in Germany these days is due to grid parity, as retail electricity prices are extremely high making it attractive for commercial and residential customers to go for solar power with energy storage.
China has reportedly installed more than 7 GW of solar power during the 1st half of 2015, which augurs well in meeting its 17 GW target for 2015. Though distributed solar energy continues to be laggard with only 1 GW installed, utility solar power installation continue to bloom across the country. However, there are already teething problems creeping up as the solar energy scales up in size and number. Many solar power farms especially in far off north eastern and western province such as Gansu are finding that they do not have enough grid connections. Like wind energy, solar power is finding China’s ability to absorb renewable power a constraint. There is also the problem of regulations and approvals which considerably delay the feed in tariffs. Returns in Chinese solar power farms are already quite low and delayed payments further exacerbates the issues.
While I do not think that the solar power capacity additions will be derailed, as the government is really pushing hard to increase renewable power generation in China, these grid issues mean that further growth in solar power additions per year will not be easy. I do not expect 15 GW to go to 30 GW easily. China was easily able to increase solar power additions from 1-2 GW in 2011 to around 10 GW in 2012 and 2013. But it will not be easy to further increase it, given the structural issues. Also as China faces a slowdown, some local governments will find it hard to fund the feed in tariffs from the large base of solar power capacity.