China’s solar photovoltaic (PV) power generation capacity in the first half of 2020 was relatively flat for several reasons. The latest report by the Asia Europe Clean Energy (Solar) Advisory (AECEA) has analyzed the factors behind the pace of installations, and it sheds light on what the rest of the year holds for the biggest solar market of the world.

According to the National Energy Administration (NEA), 11.52 GW of solar capacity was installed in China during the first half of 2020. Large-scale solar installations accounted for 7.08 GW and distributed solar accounted for 4.43 GW at the end of June. Installations increased slightly compared to the first half of 2019 when China installed 11.4 GW.

At the end of July, nearly 2.94 GW of residential solar was installed in China. In its latest report, AECEA said that since a simple subsidy plan drives the residential solar segment, 6-7 GW installations for 2020 should be feasible. The large-scale installations, however, are subject to a more complex and rather dynamic business environment.

Analyzing the large-scale installations, the report underlined the far-reaching impact of recent accidents at various polysilicon manufacturing facilities in the country that increased the prices of modules.

After the mishap, the average price of polysilicon increased from around RMB 60/64 (~$8.78/9.37) per kg in late June to RMB 94/98 (~$13.76/14.34) per kg in early September, according to AECEA.

The report noted that the price increase would be passed on further along the value chain. It added that the steep rise in material costs considerably undermines the competitiveness of bidding projects.

AECEA said that the current industry consensus suggests that prices will come back to the June level, not before October or November, colliding with the annual peak demand period. Further, it indicated that the current mood in the industry suggests that if there is no hard deadline to be met, the probability of rescheduling projects to 2021 would be relatively high.

The report noted that rescheduling projects to Q1 or Q2 of 2021 might be a strategy pursued by companies hoping that prices would have normalized by then. However, in case of strong demand, the prices are likely to remain high, and the feed-in tariff will be reduced by RMB 0.01 (~$0.001)/kWh. Even with this scenario, AECEA has increased its full-year forecast to 28-34 GW, which was previously 23-31 GW.  One of the considerations for increasing the forecast is historical data, which shows 14 GW of solar installed in Q4 of 2019.

China’s added solar PV power generation capacities in the first half of 2020 were flat in comparison with the announced production capacity expansion plans. They seem even smaller when one considers that nearly 50 solar PV companies are planning to invest RMB 300 billion (~$43 billion) into building more than 660 GW (75,000 ton/polysilicon, 113 GW/wafer, 295 GW/cell, 261 GW/module) of production capacity by 2023.

The report highlighted that 2020 is the last year of China’s ongoing 13th Five-Year-Plan (2016-2020). AECEA believes that central governmental entities would solve the issues concerning FITs by the end of 2020, so the problems do not pass on to the next five-year plan.

By then, the report also expects that China’s Ministry of Finance, National Development and Reform Commission, and the People’s Bank of China would solve the subsidy payment issue by having the two national grid companies (State Grid and Southern Grid)  issue bonds. The first batch of such bonds valued at RMB 140 billion (~$20 million) should be issued before the end of this year, according to AECEA.

The report also pointed out that in Ulanqab in South-Central Inner Mongolia, all projects currently under construction would be terminated to protect and restore its surrounding grasslands. The city is home to 1.5 GW of PV power generation capacities.  According to the AECEA report, this is the first instance where local environmental concerns led to the termination of the ongoing construction of solar projects. The report added that the upcoming 14^th Five-Year-Plan (2021-2025) will focus on the protection of the local environment and will further limit the scale of future power generation capacities.

The report also said that China’s new policy of “Dual Circulation” could affect the solar industry in the long-term. “This policy is to re-calibrate and deepen an inward, domestic focus, designed to reduce the vulnerability of China’s export-led growth model, championed throughout the past four decades. The overall economic development should rather rely on domestic growth and indigenous technological advancements, increased domestic competition, further deregulation, enhanced security, stronger resilience, and effective control of supply chains. The latter, in the context of China’s PV industry, is of no concern. However, its reliance on exports, given that roughly two-thirds of domestically manufactured modules are installed abroad, could become an issue in the future,” the report concluded.