After adding an astonishing 34.54 GW of solar PV power generation capacity in 2016, representing a 128 percent increase year-over-year, who would have even remotely anticipated that China would be up for another record breaking year in 2017, with 50 GW basically within reach! By the end of September, the added solar PV capacity amounted to approximately 42 GW, which means that in the remaining months of 2017 China needs to add only an average of approximately 2.7 GW per month in order to cross the 50 GW mark.  The first quarter of this year witnessed 7.21 GW of additions, June and July alone contributed close to 25 GW, and August and September combined to add approximately 6.5 GW. Based on the experience of past years, estimates for the fourth quarter usually feature a low(er) October, due to the national holiday period, however November and December can be surprisingly strong, with additions of 6-7 GW each, hence the 50 GW is in immediate reach in AECEA’s view. Overall, by the end of September, approximately 120 GW of cumulative solar PV had been installed across the country.

Equally impressive in particular is how strong distributed generation (DG) solar PV has been growing so far, this year. During Q1-Q3 2017, approximately 15 GW of DG solar were added, representing a 255 percent increase compared to last year’s 4.23 GW, and making up approximately 35 percent of Q1-Q3 2017 total installations. The factors contributing to this momentum are manifold – they include the prevailing grid curtailment across West China, the latter is home to lower national FITs, the NEA hasn’t imposed any limitations, but is doing rather the opposite and encouraging the deployment of DG solar, and last but not least a number of provinces/cities are offering additional financial incentives to increase the financial attractiveness of DG type installations. These incentives are being offered at the provincial‑level, the city-level, and occasionally even by industrial development zone-level FIT’s.

In its most optimistic scenario, AECEA’s full-year market assessment estimates that up to 18-19 GW of DG solar could be installed, or between 16-17 GW under a more conservative scenario. In this context, in China’s 13^th Five-Year-Plan (2016-2020) for Power Sector Development, the National Energy Administration (NEA) aims to deploy 60 GW of distributed solar PV by 2020. If approximately 25-28 GW of DG solar PV is installed by the end of 2017, then the realization of the 60 GW by 2020 target appears realistic in AECEA’s opinion.  Distributed generation is largely made up of commercial and industrial, Agro-PV, increasingly by water-based PV, and to a lesser extent by residential solar PV.

If this is not already exceedingly impressive, on July 28, China’s NEA released a fairly detailed and updated “guidance” covering the implementation of the 13^th Five-Year-Plan (2016-2020) for Renewable Energy with an emphasis on the 2017-2020 period. Accordingly, the annual installation targets for solar PV from 2017 to 2020 range from 22.4 GW to 21.1 GW annually, an estimate that includes an annual 8 GW Top‑Runner target and a provincial breakdown for the majority of provinces. Targets stipulated in the “guidance” explicitly exclude distributed solar PV – which means that distributed solar PV is not subject to any limitation, quota, or cap. The exclusion also applies to so-called poverty alleviation projects.

Additionally, various municipalities and selected provinces/autonomous regions like Fujian, Hainan, and Tibet are not subject to any kind of limitation. This is of particular importance, given that today approximately 800 MW are operational, 200 MW are under construction, and approximately 6 GW are in various stages of development.

Provinces already facing significant grid curtailment – like Xinjiang, Gansu, and Ningxia – have not received any guiding target yet. The findings of an on-the-ground investigation will determine their targets at a later stage. According to the “guidance,” approximately 86.5 GW is expected to be installed during the 2017-2020 period. This means that by the end of 2020, China could be home to approximately 190-200 GW.  However, taking into account the basically unlimited distributed solar PV, AECEA’s estimates of annually deployed capacity could amount to approximately 35-40 GW between 2018 through 2020, resulting in a cumulative installed capacity of between 228 GW and 248 GW by 2020.  The anticipated drop in demand from 2018 onwards is based on the assumption that, in AECEA’s opinion, the remaining years until 2020 won’t be without challenges. Potential difficulties could include the notably ever increasing amount of annual FIT payments, with estimates running as high as USD $15-18 billion per year from 2017 onwards; NEA’s target to reduce the FIT by 50 percent compared to 2015 levels by 2020, thus achieving  grid parity; attaining and maintaining an acceptable level of grid curtailment throughout the country; and NEA’s plan to replace the existing FIT scheme with a “Green Electricity Certificate” trading scheme that would be mandatory from 2018 onwards.

During Q1-Q3 2017, China achieved exceptionally high production output growth rates along its upstream value chain. According to the China PV Industry Association (CPIA), polysilicon, wafer, cell, and module output increased by 17 percent (170,000 tons), 44 percent (62 GW), 50 percent (51 GW), and 43 percent (53 GW), respectively. The latter figure suggests that approximately 80 percent of domestic module output is staying in China. Statistics reveal that approximately 28 percent of modules are being exported to India while another 16 percent go to South Korea. Imports of polysilicon reached a monthly average of 12,600 tons and totaled 100,400 between January and August of 2017. To date, August was the strongest month with imports in excess of 16,000 tons.

Surprisingly, the official “guidance” released in July does not stipulate a new overall target to be realized by 2020, which means that, officially speaking, the 105 GW still stands. However, and obviously, China is committed to supporting the deployment of solar PV in the years remaining until the end of 2020. Nevertheless, one may wonder where this motivation comes from – in other words, why China has turned so bullish to support the domestic deployment of solar PV on a truly massive scale. If PV is compared with other power generation capacities added in the first half of 2017, like nuclear, hydro, wind, and thermal power – which respectively added 1.09 GW, 6.69 GW, 7.3 GW, and 18.84 GW – PV with 24.40 GW undoubtedly stands out and therefore will play an increasingly significant role in China’s future energy mix. Against this background, prevailing environmental challenges – which are not limited to air pollution, but also include the massive consumption and pollution of water caused by coal-fired power plants, China’s status as the world’s largest annual GHG emitter for the past decade, and current fossil fuel consumption trends – in the not too distant future, China could face serious challenges to ensuring that it is capable of powering its economy in the long term.

China’s Top-Runner Program is likely to get tougher with the “advanced” version that is coming along. Initiated in 2015, the Top-Runner Program was designed to facilitate accelerated deployment of advanced solar PV technologies and consequently drive an upgrading of the domestic upstream sector or, in other words, “the fittest of the fittest” will win and prevail. Accordingly, technical requirements explicitly stipulate that conversion efficiency rates should rise. For example, polysilicon and mono-crystalline PV modules were expected to have minimum conversion efficiency rates of 16.5 percent and 17 percent, respectively, as far as the first batch in 2015, and second batch in 2016 were concerned.

The first batch launched in 2015 featured just 1 GW (Datong/Shanxi Province) and was extended to 5.5 GW across multiple provinces last year. Subsequent bidding rounds across four provinces were conducted during 2016 and their proposed tariffs were up to 44 percent lower compared to the national FIT offered by NEA in the same province, for instance in Inner Mongolia. Results like this were likely the motivation for the NEA when, during the drafting of its “2017 annual work guidance report,” it decided to place the Top-Runner Program on top of this year’s agenda. Against this background, a “call for proposals” regarding which provinces would like to host the 2017 Top-Runner Program, generated an overwhelming response. As of March 11, provinces that are home to 22 potential locations proposed a combined capacity of more than 26 GW.

In late July, China’s NEA released a revised version of its 13^th Five-Year-Plan (2016-2020) for Renewable Energy and accordingly 8 GW of Top-Runner installations were earmarked for each year between 2017 and 2020. In late September, just before the national holiday period, the NEA finally released an official document outlining under what conditions the next batch (third) of the Top-Runner program would be carried out, envisaging an execution stretching beyond 2018. At the same time, a somewhat shortlist of potential candidates consisting of 13 locations spread over 8 provinces were made publicly available. Overall, the forthcoming third batch is required to be realized by the end of 2018. This creates a greater time distance to the usual June 30 cut-off date (provided this remains unchanged in 2018) for regular installations and therefore possibly allowing a somewhat more equal distribution of demand across the second half of 2018. This kind of scheduling at least allows for greater visibility in terms of demand into next year in AECEA’s view.

As anticipated, criteria for the third Top-Runner batch were increased. However, this is what AECEA calls an “advanced” version of it, because industry stakeholders are required to comply with even higher benchmarks. For instance, poly-modules and mono-modules need to have 18 percent and 18.9 percent minimum conversion efficiency rates, respectively, which presents a hurdle that may be too hard to a good number of manufacturers to overcome. In an attempt to possibly avoiding setting the bar too high, the so-called “advanced” version makes up 1.5 GW of the 8 GW planned for the third batch and its deadline is June 30, 2019.

Image credit: Panda Green Energy

News Contributed by: Frank Haugwitz who is Director of Asia Europe Clean Energy (Solar) Advisory Co. Ltd. (AECEA). Frank is an independent solar energy consultant based in Beijing since 2002. In October 2012, he founded his company “Asia Europe Clean Energy (Solar) Advisory Co. Ltd. (AECEA). His services include working with individual clients to apply his extensive China photovoltaic energy-focused insights to their specific needs.