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Published on July 18th, 2014 | by Guest Contributor

8

Bloodhound Gang Tracks Source Of China Distributed Solar Fail

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July 18th, 2014 by
 

By Anders Hove.

It started with a mystery: what happened to the huge amount of distributed solar China was supposed to deploy in 2014?

We were a well-selected bunch of curious cleantech investigators: Alan Beebe and three of his colleagues from EY’s cleantech practice, a solar finance expert from a US solar company, Julian Schwabe from China Greentech, and myself, Anders Hove, from Azure International. We were headed to Shunyi to visit Cai Yuanqing of Greenpeace, who had graciously agreed to host our group to discuss their office’s rooftop solar system and all its pluses and minuses.

greenpeace1

We all wanted to find out what is going on with rooftop solar and why the market has been evolving so slowly. A quick bit of background on distributed solar in China: the country has set a 10 GW new installation target for 2014, of which 60% should be distributed. (The 10 GW target is distinct from a separate plan for 14 GW in 2014, including 8 GW distributed, issued by the National Energy Agency in February.) The definition of distributed solar is somewhat vague in China; it generally includes customer-sited power up to multiple megawatts in size.

There is also a subsidy of RMB 0.42/kWh for all power produced at distributed systems, including self-consumed power, and customers can sell excess power back to the grid for the local grid power price. (China lacks a wholesale power market, and all such rates are set by regulators.) The country also has a 35 GW solar target for 2015 (20 GW should be distributed), a 70 GW target for 2017 (half distributed), and a 100 GW target for 2020.

For anyone in the power industry, those are some huge numbers. The entire world had around 100 GW of solar installed at the end of 2012, mostly in Europe. Just a few years ago, the entire worldwide demand for solar was only 10 GW.

The motivation for these policies is clear—China wants an outlet for its solar panels, which are now cheap enough to gain a foothold domestically, albeit with subsidies. In the long run, solar could help with pollution, but the installation numbers are still too low to put a dent in emissions.

The explanation for the high targets for distributed solar are also fairly apparent: too many wind and solar projects going up in China’s Far West. Provinces in the West like Xinjiang, Gangsu, Ningxia and Inner Mongolia have insufficient transmission and already have so much intermittent wind generation that it can’t all be used. Those places are building new transmission lines, but much is designed to carry energy from coal. If more of China’s big coastal provinces generated power from the sun—and many coastal provinces have abundant solar resources—it would go a long way towards ensuring China’s clean power gets to consumers who need it.

Usually when China announces targets in the renewable energy space, action is not far behind.

So, what happened with distributed solar? How did China install less than 200 MW in the 1Q, with most provinces racking up precisely zero installations?

To find out, we headed to Greenpeace’s small warehouse located in Shunyi, departing midday from Greenpeace’s offices near Workers Stadium in central Beijing.

Our first discovery was that Greenpeace’s distributed solar installation is FAR! Those of us hardened Beijingers who had imagined Shunyi as the sprawling expat Beijing suburb home to faux Mediterranean style villas located on the way to the airport—well, let’s just say we were in for a big surprise, and a big taxi bill. This part of Shunyi is really more of a rural village, surrounded by dusty farms and shoddy plastic greenhouses, a whopping two hours outside of town, more than twice as far as the airport.

Our first question was for our driver: Will you please stay and drive us back?

Then it was time to admire the solar, located right at the entrance gate fronting the road where our lucky driver sat fiddling under the hood. Greenpeace has a 5 kW system located on the rooftop of a small building on one side of a courtyard. There were six rows of fixed-tilt panels, entirely covering the small building’s roof of about 20 meters long. On the other side, there were a couple of offices, and a drive-in warehouse that sat mostly empty on the day of our visit.

Empty except for some quirky Greenpeace items, like a nude mannequin, a stylishly distressed couch, a bookshelf topped with a painting of Rainbow Warrior, and plenty of hippie bumper stickers.

greenpeace2

Cai Yuanqing, Climate and Energy Campaigner at Greenpeace China, has been in on the rooftop solar project since the start—the project went online in 2013. He offered a wealth of details.

He mentioned that since they were the first such project in Beijing, they hoped the process might be simple and lack bureaucracy—perhaps on the theory that such things build up over time. No such luck, the project took a long time to get through red tape. The system was the first enterprise-owned distributed solar system in Beijing. (There was one individual-owned system previously, located in Shunyi as well.)

Some key facts:

  • It is a 5 kW system and was installed for a total price of RMB 100,000.
  • The modules come from RiDi and were installed by JiKe—small local players. The inverter is from international giant Schneider Electric.
  • They have three meter boxes outside, one for their power consumption, one for power production, and one for power injected into the grid. The meters are fixed to the wall behind a row of cornstalks by a shiny new poster of Chairman Mao. We agreed these meters were very photogenic.
  • The system is installed on a low roof of a one-story brick building constructed by villagers—the roof is not too strong so we weren’t able to go up to look at the panels up close. They are fixed-tilt panels facing south (due magnetic south according to two iPhone compasses deployed by our bloodhounds). There are some trees nearby that could shade the panels in the late afternoon in certain seasons. But on the hazy day of our visit, no shade seemed imminent.
  • Onsite power demand is low—the warehouse mostly sits empty—so the power is mainly sent into the grid. In the first year they were compensated at RMB 0.4/kWh, and this year at RMB 0.38/kWh. They pay RMB 0.86/kWh for power and do not have time-of-use.

So back to the mystery: why is distributed solar not working out so far?

greenpeace5

The first issue is subsidy payment: The subsidy of RMB 0.42/kWh has not yet been paid for any power generated at Greenpeace’s installation. Greenpeace, as with any other owner of a distributed solar system, had to apply for it through State Grid (the state-owned grid monopoly that covers most of China). First, they had to fill out a VAT fapiao form using a spreadsheet of power output by month provided by State Grid. (Fapiaos—the word roughly translates as official receipt—go with every above-board transaction in China, and they vary in complexity and processing time. Even getting a fapiao for one’s morning coffee for the company expense report or the scratch-off state lottery ticket in the corner may entail a bitter argument with the barista. But that’s another story.)

Greenpeace physically went to the tax office to submit the VAT fapiao and pay the tax of 3% for enterprises (17% for individuals up until this past month). Although in theory the subsidy is supposed to be tax-free, the tax bureau informed them they don’t have the ability to make it tax-free since they only have one system. Greenpeace believes that individuals have been paid the subsidy. But enterprises are still waiting.

The second issue is financing. That was no big issue for Greenpeace, since they paid for it themselves in cash. But bank financing has been highly difficult—banks are simply not comfortable lending to solar projects yet, with some banks reportedly even banning such loans as policy. Many businesses in China lack the good credit to go to banks for loans anyway. On top of that, loan terms in China are often short and interest rates high. After all, this is a country where real estate investments are supposed to offer quick returns of 10% per year and where factory owners like to see payback periods of 4 years or less before approving investments.

A third issue is pollution. Greenpeace has collected some data on its system and shared it with me for some quick analysis. So far, the data collected on PV output was fortunately on a series of dry, clear days with similar temperatures (near freezing) and low relative humidity. Beijing winters are ideal for such constant weather patterns, where the only thing that varies is air pollution.

The data are for only a single stretch of six weeks, but a clear pattern emerges. Days with air pollution above 100 micrograms per cubic meter showed solar output around half that of days under 50 on the same measure. (Note: pollution data from the US Embassy should be taken with caution given the distance from Shunyi, but most Beijing-area pollution is regional haze, much of it coming from far outside Beijing, such as from coal plants way out in Southern Hebei province.)

A quantitative analysis based on the Greenpeace data, data from a small rooftop installation in Shanghai, and a couple other press reports suggest an initial estimate of pollution’s impact on PV output in Beijing at around 12% year-round. But it will take time to make this estimate more robust.

This is precisely the type of data banks and other financiers need to start getting into distributed solar. 12% seems like a big impact, but it’s even worse not to know the impact at all.

That, and not knowing when subsidies will arrive.

The government is trying to help resolve some of these issues. In the past several weeks there have been several announcements aimed at clearing red tape. Individuals and enterprises can all pay their VAT taxes directly to State Grid now, and the rate is 3% for all. But time will tell how smoothly this is implemented. An earlier rule stating State Grid would pay distributed solar owners on a monthly basis is apparently in limbo, for example. So the market waits to see what’s next on China’s ambitious distributed solar goal.

As for our gang, it was time for the journey back into town. On the way back we passed a long wall built to conceal a new housing development, covered by a mural portraying a blue sky with cotton-candy clouds over computer-generated landscape of villas, trees, and golf courses. Behind, in stark contrast, was the yellow-gray sky of late-afternoon Beijing. A symbolic reminder that grand aspiration and reality can be very different in modern China.

Anders Hove is manager of cleantech advisory at Beijing-based Azure International. He has been researching the energy sector for 15 years, first at a think tank in Washington, DC, then on Wall Street, and finally for the last five years in Beijing, China. His focus areas aresolar, wind, energy storage, and China air pollution.

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  • 小杜

    Quite interesting to me how expensive Greenpeace’s solar install was.

    You can *easily* do a 5KW system in China for around 30,000RMB before labour, even if you go 3 phase. Less if you go single phase.

    Why was it so expensive?
    Panels can be had for RMB850 a panel for 2x1M 300W panels Say 18 panels? @ RMB15300
    3 Phase 10KW Grid Tied Inverter eg Growatt @ RMB12,000 (oversized but good for expansion)
    Mounting+ cabling @RMB3000

    Even if you add in the biao’s (meters), you’re looking at < RMB1000 a meter, so its not massively over that sort of 30k budget.

    You'll probably need to put more panels up to get RoI, as overcast days are quite common, but its really a no-brainer for most factories or villages to go grid-tied solar.

    Going offgrid doubles the cost, so its not really worthwhile yet, but I do see pricing coming down, especially for Lithium batteries.

    • Bob_Wallace

      Thanks.

      Just a request. Include US dollar prices in addition to RMB amounts. No sense in more than one person having to do the conversion.

      30,000RMB = $4,836 system price. Under $1/watt excluding labor.

      RMB850 = $137 = $0.47/watt panel price.

      RMB12,000 = $1,935 for 10 kW grid tied inverter.

      • 小杜

        In my defence, it is an article about China.
        RMB *is* the local currency on the mainland. None of the numbers in the article have USD values.

        Labour should be cheap. 2 people 3-4 hours for mounting, and an electrician 1-2 hours of work. Can be done in a day. I’d guesstimate < RMB1000. (USD $150)

        • Bob_Wallace

          You don’t need to defend yourself.

          But I suspect you know you are writing for a mainly US audience and not a Chinese audience.

  • Ronald Brakels

    Relatives had solar installed today in Australia using Chinese panels, a Chinese inverter, and Australian labour which is amoung the most expensive in the world. Using today’s official exchange rate its cost per installed watt was under two-thirds the cost of this system in China, or only 40% after our Renewable Energy Target subsidy was included. Clearly they are having major teething problems with rooftop solar over there.

  • JamesWimberley

    Interesting. China beats even the USA at red tape.

    It’s the fate of good reporting to inspire more questions.

    - Is Beijing typical? Provincial and city chiefs wield a lot of power, and it’s possible things are different in Shanghai, etc.

    - Do the same problems extend to commercial rooftops? You’d expect their owners to wield more guanxi to unblock permits. On the other hand, there are developed countries like Britain and Australia where commercial solar lags behind residential in spite of on incentives that are attractive on paper; many businessmen still apparently see the exercise as too risky or too much trouble.

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    • Anders Hove

      Since I wrote the article, the news officially hit that the first VAT fapiao for distributed solar in the whole country was issued in Jiangsu. http://news.xinhuanet.com/energy/2014-07/08/c_126723443.html Zhejiang followed a week later. So this delay thing is not just a Beijing thing. In fact, given that this is central govt policy, I would maybe have expected Beijing to see the fastest action (where “action” is defined as pressuring the local State Grid entity to comply), and everywhere else slower … Elsewhere, heaven is high and the emperor is far (天高皇帝远). http://baike.baidu.com/view/171504.htm

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