Many solar power projects in Ningxia, in the northwestern region of China, are finding it difficult to stay afloat, according to a report published by Reuters.
These projects may face bankruptcy due to the delay in subsidy payment, an investigation by the Chinese regulators has revealed.
In recent years, the Chinese solar industry has grown at a rapid pace, which has resulted in the subsidy backlog of 120 billion yuan ($17.4 billion). There is also a price variation in solar power from region to region.
According to a Reuters report, “Local authorities in Ningxia should further control the capacity of renewable projects and strengthen supervision of subsidy distribution in order to prevent widespread bankruptcy in the industry.”
The payment backlog forced many solar projects to take high interest loans to maintain operations, according to the National Energy Administration’s (NEA’s), a body formed in 2010 to formulate and implement energy policies.
Government-approved solar projects are authorised to subsidize each kilowatt-hour they sell to the grid, but the increase in new capacity has made the finance ministry struggle to make payments on time.
Some Chinese regions have already achieved “grid-price parity” and the government will work to provide more support for subsidy-free projects, according to draft rules published earlier this year.
But wind and solar projects in western regions like Ningxia and Xinjiang still find it difficult to compete with cheaper coal. The regulator accepts that solar and wind power generation and transmission projects in Ningxia were very expensive.
Earlier this year, China had specified that a cap of 10 GW would be imposed on distributed generated (DG) projects for the year 2018. This was done to reduce the subsidy burden and propel the sector towards being more efficient. China also intends to bring down renewable energy costs to a level where it can compete with coal power in a subsidy-free regime.
Subsidy-related issues are not exclusive to China. Mercom has reported previously that subsidy disbursement delays are hampering the growth of residential rooftop solar in India and many of the rooftop solar developers in the Indian market do not want to take on subsidy projects.
Recently, Mercom reported that China added 24.3 GW of solar PV capacity in the first half (1H) of 2018. There was a remarkable 72 percent year-over-year (YoY) increase in the DG installations, which accounted for 12.24 GW, approximately half of the total installations in 1H of 2018.