China to Lower Feed-in-Tariff, Cut Subsidies for Solar PV Systems

China‘s National Development and Reform Commission (NDRC), the country’s top economic planner, has recently issued a draft document seeking opinions on adjusting the feed-in-tariff (FIT) for solar PV systems.

The FIT may be cut from the current 0.8 yuan/kWh (US$0.12/kWh) to 0.55 yuan/kWh (US$0.08) in China’s northwestern provinces and regions of Gansu, Ningxia, Qinghai, Xinjiang (zone 1), from 0.88 yuan/kWh (US$0.13/kWh) to 0.65 yuan/kWh (US$0.1/kWh) in the cities of Beijing and Tianjin (zone 2), and from 0.98 yuan/kWh (US$0.15/kWh) to 0.75 yuan/kWh (US$0.11/kWh) in the rest of China (zone 3). The new FIT scheme will become effective on Jan. 1, 2017. Projects filed and approved before 2017 will still be able to enjoy 2016’s FIT structure.

In addition, the fixed subsidies for distributed solar PV generation projects (self-generation and self-consumption) is expected to be adjusted down from the current 0.42 yuan/kWh (US$0.06/kWh) to 0.2 yuan/kWh (US$0.03/kWh) in zone 1, 0.25 yuan/kWh (US$0.037/kWh) in zone 2, and 0.3 yuan/kWh (US$0.045/kWh) in zone 3.

Even though the suggested changes in tariffs are not yet official, the magnitude of the proposed cuts is significantly higher than previous market estimates of a 13 percent tariff reduction. Zeng Shaojun, secretary general of the China New Energy Chamber of Commerce, an association under the aegis of the All-China Federation of Industry & Commerce, said recently in an interview that the new scheme may have a major dampening effect on the future development of China’s PV sector.

The association has issued an urgent notice to solicit opinions from member companies. Once the adjustments are officially implemented, small and medium-sized PV firms relying heavily on subsidies may suffer a fatal blow, which, in turn, is likely to have an adverse effect across the entire sector. Zeng urged the NDRC to find a more sustainable and effective subsidies cut plan. 

However, a renewable energy expert stated that the huge reduction was a reflection of reduced costs of PV systems. Lower costs and lower subsidies will force PV companies to accelerate their R&D efforts in a move to survive, said the expert. Prices for the country’s upstream PV products have been on the decline since the beginning of the year and the associated construction cost is expected to drop by more than 15 percent year on year during 2016 and to further decline in 2017, meaning that the cut should not significantly affect returns on quality projects and may, in fact, prove to be helpful for the long-term and healthy development of the sector, according to a research report from Minsheng Securities.

Furthermore, the reduction will serve as an effective tool that the Chinese government can wield to deal with the severe solar power generation surplus in the country. Lower FIT subsidies will also go a long way in resolving the country’s renewable energy subsidy gap. By the end of the first half of this year, the subsidy gap had reached roughly 55 billion yuan (approx. US$82 billion). The gap is expected to increase to 60 billion yuan (approx. US$8.9 billion) by year end, before starting the expected descent, as some of the newly installed capacity for renewable energy projects may not have come online yet.

Lead image credit: Rick Willoughby | Flickr