In May 2018, the Chinese government abruptly decided to stop approving any new renewable projects until further notice. Back then, just half-way through the 13^th five-year plan, the country had exceeded its official solar PV target of 105 GW by 2020 by nearly 47%. This made the decision a necessity given the mounting financial obligations. This decision also made it mandatory for the authorities to set a budget in advance for specific projects and during 2019, a total budget of RMB 3 billion (~$430.61 million) was earmarked for residential PV for the whole year.

As per the latest Asia Europe Clean Energy (Solar) Advisory Co. Ltd. (AECEA) report, several solar PV related policy announcements were made during 2019, amounting to approximately 41 GW (including 3.5 GW of residential PV) comparable to the 44 GW installed in 2018. But only 17.5 GW of solar PV projects has been installed by October 2019. And according to unconfirmed sources, only 500 MW of new installations were added in November 2019. All this paints a gloomy picture for the solar energy sector in China.

According to AECEA Director Frank Haugwitz, reasons are aplenty for this considerable shortfall including,  delayed release of policies, availability of land, challenges to mobilize financing and grid connection issues. As per the AECEA estimates, the new solar installations are expected to range between 20-24 GW for the year 2019.

The report points out that 2020 is not going to be much different from 2019, with grid parity being the priority followed by utility-scale and distributed PV and residential PV projects. It is expected that the budget earmarked for 2020 could be in the range of RMB 1.75 billion (~$251.19 million).

As per AECEA’s report, a reduction in the overall budget takes into account the cost reductions for both technical and general price erosions and an attempt to ensure that the December 31, 2020 deadline is not missed. There is a possibility that approved projects may automatically be canceled, if not grid-connected by December 31, 2020.

It is still unclear whether the second batch of grid-parity projects will be considered necessary because a majority of grid parity projects are still being executed, and it is only fair to assume that the target of 5.2 GW for 2019 was not deployed either.

In this context, the forthcoming introduction of a base price and floating mechanism for the coal benchmark price scheduled to become effective on January 01, 2020, could become a big challenge for such projects because of the fluctuating nature of the coal benchmark. It is important to note here that a drop of coal benchmark by 15% could have a big impact and could consequently challenge the competitiveness of such grid-parity projects and eventually may lead to postponements or even cancellation of such projects planned for the next year.

But it is not all gloomy, and there is still room for optimism as China’s National Development and Reform Commission (NDRC) in November 2019 released the “Supervisory Measures for Grid Companies to Fully Guarantee Purchase of Renewable Energy”, seeking comments. The responsibilities of the grid companies, power companies, and power despatch centers are laid out to ensure the full purchase of renewable energy. According to the new policies, the grid companies will solely be responsible for any unjustified economic losses they cause for renewable energy generators and are liable for providing compensation.

According to Frank, another significant development for the renewable sector was the announcement of renewable purchase obligation (RPO) by NDRC and the National Energy Administration (NEA) on May 10, 2019. According to the RPO, each province is subject to a mandatory renewable energy electricity consumption quota set by the national government. Such a legally-binding obligation should accelerate the overall renewable energy development. Furthermore, surplus quota can be traded and the system can integrate into future spot power markets. It also considers the interaction with voluntary green certificates and energy consumption controls to make implementation more flexible.

The AECEA report further notes that the other area of growth would be the ‘solar storage charging,’ which can be used to charge electric vehicles, and has been put into use in various provinces during 2019. The EV market is growing at a rapid rate, and the estimated electricity consumption by EVs, which was approximately 5 TWh in 2019, would increase to 32 TWh by 2025.

Despite a range of policies being announced, AECAE is cautiously optimistic about the solar sector next year, and it expects 23-31 GW capacity to be deployed during 2020.

Right now, it’s hard to tell how the Chinese solar market is going to evolve in the coming years and how China will continue to support the deployment of renewable energy technologies in the future. The first indication of things to come will be the 14^th five-year plan (2021-25), which will give a glimpse of the country’s economy and energy policies.

In October 2019, China’s premier Li Keqiang who chaired a meeting of the National Energy Commission (NEC) reemphasized the importance of coal as the country’s primary source of energy, and he stressed that an enhanced domestic oil and gas exploration and utilization would play an equally crucial role in the years to come. At the same time, he downplayed the importance of rapid energy transition towards a low carbon economy.

China’s renewed focus on fossil fuels springs from the fact that China is increasingly becoming dependent on energy imports, and its overall economic slowdown is not helping the matter either. In 2018, China’s oil consumption was 3.4 times more than the domestic output, and its import dependence reached an all-time high of 72%. In comparison, its import of gas reached 45.3% and the total electricity consumption reached 6.846 TWh, representing an 8.5% increase year-on-year (YoY) and the highest annual growth since 2012.

China’s apparent re-focus on fossil fuels, notably coal, combined with a prolonged economic slowdown, might derail the initiated energy transition during the 13^th five-year plan, and it might take a while for the renewable sector to make up the lost ground.

Earlier this year, China’s NEA had announced that between January to September 2019, the country added 16 GW of solar capacity, a decrease of 45% year-over-year (YoY) from the 44 GW of capacity added in the same period last year. The 16 GW of capacity added in the first nine months of the year included 7.73 GW of ground-mounted utility-scale projects and 8.26 GW of distributed solar systems.

Previously, Mercom had reported that the NEA had approved 22.78 GW of the Feed-in Tariff (FiT) based solar projects. The projects were approved under China’s first national unified bidding for solar projects seeking feed-in-tariffs. A total of 4,338 solar PV projects with a combined capacity of 24.55 GW were proposed to be developed, but only 3,921 projects totaling 22.78 GW received the official approval. Apart from these, 417 proposed solar projects with a capacity of approximately 1.77 GW were not approved.