China To Phase Out Financial Support For Solar Power Sector By 2020

With the most aggressive and ambitious capacity addition targets in the solar power sector, China may soon see the technology mature enough to pull the high financial support currently on offer.

Recent media reports quoting Chinese officials abreast with information about the solar power policy in the 13th Five Year Plan (2016-2020) state that financial support in the form of high tariffs and even incentives to equipment manufacturers would go by the end this decade.

China targets 35 GW of installed solar power capacity by end of 2015, a target which the country could even exceed, given the unprecedented capacity addition seen over the last three years. The target for 2020 is even more aggressive, as the country hopes to add 65 GW between 2016 and 2020.

These mammoth renewable energy targets are part of China’s internal policy to achieve an international voluntary target to reduce the share of fossils fuels in its primary energy consumption and reduce carbon intensity by 40–45% by 2020 from 2005 levels.

The solar power sector may not need any large financial support from the government either. Module prices have fallen significantly over the last few years and show no sign of any drastic reversal. As China aims to reduce coal consumption and reduce greenhouse gas emissions through a national-level emissions trading scheme (ETS).

As power companies move away from coal, solar would (or should) seem an appropriate choice. Likewise, companies covered under the ETS would also likely make investments in solar and other renewable energy projects in an attempt to reduce their compliance costs.

The conjugation of renewable energy policies and emission reduction market mechanisms may very well make it possible for the Chinese government to slowly pull back the support it is currently offering the project developers.