Shanghai Daily, Fu Chenghao, April 19, 2009
China's aim to become a major global player in solar power has been boosted by a new subsidy program that will help cut the cost of attaching cells to rooftops and fill a manufacturing gap from declining demand from abroad.
The government announced last month that solar power attached to buildings in projects involving more than 50 kilowatts would be eligible for a subsidy of 20 yuan (US$2.90) per watt.
China is the world leader in the manufacture of photovoltaic (PV) cells, or panels that covert sunlight into electricity. The surging cost of polysilicon, a key ingredient, in recent years had forced Chinese manufacturers to rely on demand from countries that offered subsidies for solar use.
But now, with a substantial increase in supply, the price of polysilicon has plummeted.
"With the bursting of the price bubble for polysilicon, the timing is right to subsidize solar power development," said Wei Qidong, secretary general of the PV industry association in Jiangsu Province. "That will encourage domestic use, create a stronger market for Chinese manufacturers and advance the nation's efforts to promote alternative, clean energy sources."
Jiangsu is China's major solar-cell manufacturing base, home to such big names such as Suntech Power Holdings Co and Canadian Solar Inc.
The 20-yuan subsidy, which equates to what's offered in California and is three times that of Japan, will cover nearly half the cost of solar power conversion, including equipment and installation, the government said.
The subsidy translates to a drop in power generation cost to about 1 yuan per kilowatt hour, only a quarter of some domestic pilot solar projects though still more than double the domestic grid prices for conventional coal-fired power.
Gao Jifan, chairman and chief executive of Trina Solar Ltd, called the subsidy plan, jointly unveiled by the Ministry of Finance and the Ministry of Housing and Urban-Rural Development, a "precursor" of longer-term state support. He believes that the rooftop plan is a good starting point before subsidies are extended to larger utility-scale projects, which will require a tariff regime to make solar electricity commercially viable.
Germany, for example, passed a law in 2000 obligating grid operators to pay set prices, or feed-in tariffs, for renewable electricity sources. As a result, Germany has become one of the world's largest PV markets.
Tariff system
China does have a renewable energy law requiring distributors to buy renewable energy from generators, but it lacks a tariff system to boost the viability of solar power. At present, pricing is at the discretion of the National Development Reform Commission, based on the principle of reasonable cost plus reasonable return.
"If we are to have a feed-in tariff system like Europe's, it has to win approval from the National People's Congress, and that may take more time," Gao said. "So the government has decided to start up the domestic market as soon as possible by going after the rooftop market first," he said from his office in Changzhou, Jiangsu. Gao said China could account for 10 percent of the global PV market in three years to five years, up from less than 1 percent now.
The new subsidy comes as Chinese solar companies are struggling with reduced access to credit and a drop-off in demand from countries such as Spain because of the recession.
In addition to fighting climate change and boosting energy conservation, China's subsidy program is aimed at helping domestic PV makers by activating a largely untapped home market, the ministries said.
"The financial crisis is benefiting domestic PV makers because it has brought down polysilicon prices and drawn government attention to the needs of an increasingly mature industry," Wei said.
Sha Xiaolin, chairman of Qiangsheng Photovoltaic Technology Co (QS Solar), said he was optimistic about the large-scale use of solar power, saying "an energy crisis would be much more frightening than the financial crisis."
QS Solar, unlike most solar cell makers that rely on polysilicon, is developing the emerging technology of thin film. Although it has a lower conversion efficiency, thin film is cheaper and can be manufactured with higher throughput.
Investors have welcomed the government's subsidy plan, with solar stocks surging in China and the United States, where many Chinese solar companies are listed.
Shares in Hebei Province-based Tianwei Baobian Electric Co have soared 44.5 percent in Shanghai trading since the subsidy announcement. The Shanghai Composite Index rose 9.3 percent in the same period.
Analysts said the subsidy program won't necessarily have a big impact this year because it will take time to get up and running.
Based on the central government's subsidy budget of 400 million yuan on renewable energy this year, at most 20 megawatts of solar capacity could be subsidized in 2009, the China Securities Journal reported, citing Ping An Securities analyst Wang Fan.
That amount is a fifth of China's total installed solar capacity in 2007, or 5 percent of Trina Solar's planned shipment of 400MW this year.
But the domestic industry is on the verge of a big leap forward.
"I believe there will be an explosive growth in the domestic PV market, not just double-digit growth," Sha said.
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