China gets serious about solar energy

Earlier this month, the Chinese government announced plans to establish its first nationwide feed-in tariff (FIT) for solar projects. 

The FIT, yet to be enacted, would guarantee solar developers a payment of 1 yuan (about 16 cents) per kilowatt-hour for projects that feed into the grid and about 1.15 yuan per kilowatt-hour based on the timing and location of some projects.

No doubt China has laid out an ambitious strategy to increase its dependence on renewable energy and decrease its dependence on fossil fuels.

In its latest five-year plan, released in March, Beijing set targets of building 235 million kilowatts of power generation capacity from clean energy forms by 2015.

So far, wind has been the major success story in the country. In 2009, the government instituted a national FIT standard for wind projects, which led to explosive growth of the industry over the next couple of years.

In contrast, solar has not been as hot, despite the government’s Golden Sun program. This initiative – which also launched in 2009 – offered subsidies to solar projects with the ambition of increasing installed capacity to one gigawatt by 2012 and then by an additional gigawatt every year after that.

Nevertheless, investment in solar has thus far been lackluster, largely due to long delays in government approval of projects and uncertainties about ROI.

Those who are optimistic believe the new FITs will finally bring real energy to solar energy in China. That may be true, but the question is how the policy will impact solar energy in the rest of the world, specifically the solar panel export market. Most of the world’s solar panels are made in China and exported to Europe, the Middle East, and emerging markets.

If the new FITs have the impact that some industry insiders predict, Chinese solar manufacturers will suddenly have a massive and potentially endless market right in their backyards. 

Some solar companies are already preparing for growth, allocating percentages of what they make for China and preparing products specifically for the domestic market. Supplying the home market would also boost already thinning profit margins, since export costs would decrease significantly.

Thus, the question that follows is would China’s export oriented solar manufacturers not care so much about exporting anymore? And even if they did, would they be able to fulfill both foreign and domestic demand? 

This may be good news for manufacturers in other markets that have been unable to compete with China’s cheap solar technologies. But it might be bad news for emerging markets where Chinese solar panels provide a cost effective solution to go green and provide new energy solutions for the poor.

There’s an ancient Chinese belief about the country being at the center of the universe (Middle Kingdom). Only time will tell if this notion trickles down to the country’s solar manufacturers and positively impacts those in orbit around them.