China’s photovoltaic (PV) market is starting to look more promising. Nevertheless, the industry needs to address certain challenges during the next round of development. Unless the cost of power generation is reduced, the prospects for the market will be not as bright as expected. Looking ahead into the coming year, three positive factors are already apparent:
1. Installed capacity increases: The market is expected to see demand grow to 12 GW in 2014, with that growth supported by the Chinese government. At the same time, however, it should be noted that the development of the country’s PV industry remains quite out of balance, with its dependence on national policy showing no sign of waning. From January to October of this year, China’s PV industry added 3.61 GW of installed capacity, according to data from the National Energy Administration.
2. Easier grid connection: The process of connecting distributed PV stations to the grid is expected to become more simple this year. Despite the removal of roadblocks in the process, the distributed PV market will not boom immediately. With the generous subsidy of 0.42 yuan (approx. US $0.07) per kilowatt-hour, the large number of players that are planning to enter the market will place a huge burden on the country’s finances. It is expected that the Chinese government will step down the subsidy once each year as the process of connecting to the grid smooths out, as it attempts to regulate the size of the distributed PV market and keep it within a reasonable range.
3. Consolidation expected to bring healthier development: China’s PV overcapacity will drive competition in the industry and serve to phase out facilities depending on outdated technologies, resulting in a consolidated sector monopolized by a handful of players. This monopolistic situation is relative, not absolute, with industry leaders including Jinko Solar, JA Solar, Canadian Solar, Yingli Green Energy and Trina Solar securing most of the orders.
Meanwhile, challenges remain:
1. Over-dependence on the domestic market: China’s PV industry has simply shifted its overdependence from the European market to the domestic one and remains overly dependent a single market. This entails a high risk. The government will face increasing fiscal subsidy pressure and, despite the process becoming smoother, problems with grid connection continue to plague the sector.
2. Grid operators reluctant to provide support: PV power generators have not yet solved the issue of energy storage, forcing them to remain reliant on the support from grid operators. However, the country’s recently rolled-out policies strongly favor PV power generators, but ignore the interests of grid operators. With such an obvious imbalance, the current cooperation model is not sustainable and cannot be expected to last much longer.
3. Performance of PV power companies fluctuate seasonally: Since China’s PV makers are dependent on the singular domestic market, whose seasonal demand fluctuations are uniform across the entire sector, results will fluctuate on a seasonal basis as well. This may in turn lead to increased labor costs or excessive outsourced production. Neither is conducive to the healthy development of the industry.
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