China Stamps Solar FIT, But What Does It Mean?

Reports vary on some details, but all seem to agree that the new FiT laid down by the National Development and Reform Commission (NDRC) sets an on-grid solar power price of RMB1.15/kWh (about $0.18/kWh) for projects approved before July 1 and completed by year's end; and RMB1.0/kWh (about $0.16/kWh) for projects approved after July 1, and projects not completed in 2011. (Projects in Tibet reportedly get RMB1.15/kWh.) These do not apply to projects covered by the Golden Sun program, nor to any projects under competitive bidding. Funding is provided by the Renewable Energy Development Fund.

The news was generally expected by industry watchers. Citi analyst Tim Arcuri points out that the "new" FiT is "is simply the unification of prior subsidy programs." Goldman Sachs' Amy Song, meanwhile, defined the FiT as "temporary."

Adoption of a national FiT is one reason IMS Research's Ash Sharma is upgrading his 2011 and 2012 PV capacity forecasts. He sees 1.3GW of installations in China this year alone and more than 2GW next year, as China emerges as one of the top three global markets by 2015.

Citi's Arcuri is a little less bullish on the boost to Chinese PV demand. Extrapolating the FiT rate and investment benchmarks, he arrives at different tiers of system costs depending on location within China: e.g. $3/$2.50 around Beijing, $2.50-$2.20 around Shanghai, and $3.50-$3.15 in areas with high solar radiation. Factoring in current module prices from Tier 1 Chinese suppliers ($1.25-$1.30/W), and BoS costs "in the mid $1's/W" for all but the biggest utility-scale projects, which "does not leave a lot of profit margin," he notes. He sees about 1 GW of PV installs in China this year, rising to about 4 GW in 2013, toward a final goal of 10 GW by 2015.

Speaking of Chinese suppliers, Arcuri thinks the new solar FIT benefits them the most -- particularly Trina Solar due to its "straightforward and crisp business model," minus the related party sales (as Suntech) or intercompany financials (Yingli). Nevertheless bigger issues confront the Tier 1 makers, though, from elevated module inventories that are "likely to remain very significant even in 3Q as companies fully work through poly and wafer inventories."

More bullish on the group of Chinese PV suppliers is Jesse Pichel with Jefferies & Co., seeing benefit to the aforementioned three plus JA Solar and Trina Solar. His math suggests a "high single digit" internal rate of return on solar installations for those companies. He also thinks Chinese demand could even reach 2 GW this year.

This article was reprinted with permission from Photovoltaics World as part of the PennWell Corporation Renewable Energy World Network and may not be reproduced without express written permission from the publisher.