This article has been updated to include comment from Bloomberg New Energy Finance.
China’s National Energy Administration announced last week that the country installed a total of 24.3 gigawatts (GW) worth of new solar capacity throughout the first half of the year, made up of only 12.6 GW worth of utility-scale solar but an impressive 12.24 GW worth of distributed solar.
In what was expected to be a blockbuster year for global solar capacity installations — driven by mammoth capacity additions in China — expectations have been torn asunder after China announced in June that it was imposing a cap on new distributed (small-scale) solar projects for 2018 and a reduction in its solar Feed-in Tariff (FiT). Specifically, the announcement — made jointly by China’s National Development and Reform Commission (NDRC), the Ministry of Finance, and National Energy Administration (NEA) — concluded that there is “no new general solar capacity planned” for 2018 except for capacity in the country’s solar poverty alleviation project.
GTM Research and parent company Wood Mackenzie originally predicted that China might install up to 48 GW worth of new solar in 2018, but after the announced solar cap they have downgraded their installation forecast to a measly 28.8 GW.
Which is worrying, considering that the NEA announced last week that China installed a total of 24.3 GW in 2018, leaving us wondering whether the country’s mid-year announcement can simply be recycled in six months time. While things won’t be quite that bad, Frank Haugwitz, Director of the Asia Europe Clean Energy (Solar) Advisory group, who closely monitor China’s solar industry, nevertheless explains that we shouldn’t expect much more growth this year.
“Given the May 31, 2018 NEA announcement that for the time being no further PV project shall be approved, i.e. utility-scale and a 10 GW cap for DG, the second-half is anticipated to witness a further slow-down in installations and my estimate is that China possibly manages to install another 5 to 10 GW, totalling to 30 to 35 GW for the full year,” Frank Haugwitz explained. “Prices, although the decline has slowed down, is expected to further decrease, but at the same time CN companies will intensify efforts in tapping overseas markets, notably across South-East Asia, MENA, Africa and South-America. An industry consolidation may set in as well.”
This expected decline in solar installations through the second half of the year is also held by MAKE Consulting. According to Research Analyst Rishab Shrestha, MAKE’s expectations are “that China’s second-half demand is expected to decline significantly (at least by 25%) compared to last year, primarily driven by the fact that DG cap is already met.” Further:
“China installed ~19 GW of PV on the 3rd quarter of 2017, of which DG solar accounted for 44%. 10 GW DG capacity limit set on May 31, 2018 prevents such levels of installation being repeated this year. The primary driver of China’s second half of the year will see installation driven by Top runner projects (~5 GW) which are expected to be grid connected by end of 2018. In addition, Poverty alleviation projects along with DG projects (e.g., grid parity projects with high degree of self-consumption, locally subsidized DG projects) which are feasible without national subsidies are likely to provide some demand throughout the second half.”
Bloomberg New Energy Finance (BNEF) hold a similarly low-grade opinion of the second half of the year for China’s solar industry. Xiaoting Wang, a solar analyst with BNEF, explains that their forecast for 2018 new PV build in China is 34.5-39.5 GW, suggesting 10.2-15.2 GW for the second half given 1H has been defined.”
It’s not all bad news — especially considering some of the hope that China’s announcement created for global installation forecasts — when you look at the specifics of China’s solar installations through the first half of 2018. While the country only installed a total of 12.6 GW worth of utility-scale solar — down 30% on the same period a year earlier — China managed to install an impressive 12.24 GW worth of distributed solar generation capacity — up 72% year-on-year.
Last week’s figures are also put into further perspective when you consider that China’s cumulative capacity now sits at a respectable 154.51 GW — made up of 112.6 GW worth of utility-scale solar PV and another 41.9 GW worth of distributed generation capacity. “A total of 154.51 GW makes China by far the no 1 country in terms of installed PV power generation capacity,” Frank Haughwitz added. “Out of an estimated total global of 450 GW by the end of June, this year makes roughly 1/3 of the total global. This, in turn, means the official 13th Five-Year Plan target of 105 GW (PV) + 5 GW (CSP) has been overachieved by almost 50%.”
Looking forward, however, expectations are that China’s contribution to the global solar tally will only continue to decrease. “Overall, demand in the remaining two years of the 13th Five-Year-Plan is anticipated to be even lower compared to 2018, i.e. my estimate is 20-25 GW,” said Frank Haughwitz. “The market framework conditions have fundamentally changed, i.e. a transition to move away from a subsidy-driven demand towards a market development based on competitive bidding combined with the long-awaited green electricity certificate trading scheme. In a nutshell, incurred costs for the deployment of solar PV shall be borne by the market/industry.”
“Looking beyond 2018, China is expected to transition to competitive bidding for PV procurement, which will allow for a more controlled pace of development,” added Rishab Shrestha. “Installation rush is also not expected in the following years given that the half year deadline for the previous year subsidy will no longer exist.
“Grid parity is already within reach for regions with high insolation as a result of module price declines. Projects coming online onwards from the second half of 2019 are well suited to take advantage of the rapid module price declines due to global module oversupply. Grid parity projects along with other policy drivers (RPS, REC market) are likely to drive growth in installation from 2019-2020. As government phases out their subsidized program, likely to be post-2020, we expect China’s solar market to decline post-2020 but still remain significant at ~22 GW/year market through 2023.”
“Although there is still policy uncertainty in this market, we expect more installation next year, thanks to greatly improved economics caused by cheaper equipment,” said BNEF’s Xiaoting Wang. “More projects will be built without subsidy from central government (some are still getting subsidy from local government). 36.6-40.9GW is our estimate for China’s 2019 PV market.”