The Asia Europe Clean Energy (Solar) Advisory (AECEA), a China-based clean energy advisory company, estimates that China will add 50-55 GW capacity with an increase of 4-13% year-over-year (YoY) in 2021, crossing cumulative 300 GW capacity.
China aims to install 1,200 GW of solar and wind power projects by 2030. China also set a target to reduce carbon intensity per unit of gross domestic product (GDP) by over 65% from 2005. The country aims to increase non-fossil fuels’ share in energy consumption to 25% by 2030. China had 281 GW of wind and 253 GW of solar capacity by the end of 2020.
Last year, China announced its ambition to transform into a carbon-neutral economy by 2060.
The policy refers to reducing quantitative targets set for total energy consumption and energy consumed per unit of GDP growth. Last year, China limited its energy consumption to 5 billion metric tons of standard coal equivalent. The provinces must achieve their respective targets set by China’s National Development and Reform Commission (NDRC).
NDRC issued a dual control scorecard for each province. The scorecard features three indicator colors – red, orange, and green. Provinces are expected to take measures to bring itself back on track if it scores orange or red. However, the number of red-flagged provinces increased by four between the release of two quarterly scorecards. As a result, NDRC announced update measures under its dual control policy.
Impacts of provincial governments’ action plan on solar supply chain
Several provinces have released individual action plans to achieve their respective targets by the end of 2021. For example, the Yunnan provincial government released instructions to reduce silicon production output by 90% from September to December. The province’s industrial silicon output accounted for 20% of China’s total domestic supply. Currently, the prices of industrial silicon increased 300% to 80,000 renminbi (RMB) (~$12,438) -90,000 RMB (~$13,992)/ton.
In addition, aluminum manufacturers in Yunnan shut down production of 200,000 tons out of 730,000 tons. Consequently, aluminum prices jumped 20% in a single day and are currently highest since the mid-2000s. The cost of aluminum has increased by over 50% since January 2021.
Yunnan province is also expected to increase electricity tariffs for industrial use by 50%, effective January 1, 2022.
According to AECEA, the polysilicon price has continuously declined since early 2018 and reached an all-time low level of RMB 56 (~$8.71)/kilogram (kg) in April-May 2020. However, the prices have continued to increase since April 2020, and the latest transaction price amounted to RMB 270 (~$42)/kg.
AECEA said raw materials prices increased, and as a result, prices for polysilicon, EVA, backsheets, aluminum frames, and solar glass increased. The price for solar panels has reached a level not seen in the past 12-18 months. Bid prices for the latest 60 MW solar module procurement tender averaged at RMB 2.1 (~$0.33)/W, while the highest bid reached RMB 2.208 (~$0.34)/W. This indicates that module prices could stay at an all-time high level during the next two quarters. In December 2020, the average bid prices for solar panels were at RMB 1.55 (~$0.24)/W.
Manufacturers reduced production output due to the high-price regime. Of 26 modules and 52 cell production lines, the average capacity factor was 46% and 43%, respectively. However, the capacity factor of cell lines was around 30% higher before the national holiday week.
Out of the 30 provinces, 20 provinces and regions have imposed power restrictions ranging from just one or two weeks to several months, or even until September 2022. However, it is not clear if photovoltaic manufacturers will be exempted from power restrictions or not, given its strategic relevance and importance.
The government officials condemned Inner Mongolia for failing to meet its 2019 energy targets. They ordered several companies to either reduce or stop production altogether. However, a solar wafer company of Inner Mongolia stated that industries of strategic importance, be exempt from power restrictions, and they were allowed to resume production.
The Ministry of Industry and Information Technology is responsible for implementing the ‘Industrial Green Development Plan 2016-2020.’ In October 2020, The ministry released the fifth batch of nationally approved 719 green factories and 1,073 green products, including solar-related products. However, less than a dozen solar manufacturers are included in the national list of green factories.
In addition, to the dual control policies, the upcoming ‘Autumn and Winter Air Pollution Comprehensive Pan for Key Areas 2021-22’ can add pressure on several industrial sectors, including solar. As a result, significant production restrictions could further negatively impact the overall photovoltaic supply chain.
AECEA has reported that polysilicon prices are expected to stay high due to the limited additional supply coming online in the next few months and the significant demand shift from 2021 into 2020. However, several companies announced the expansion and new polysilicon production capacities. AECEA estimated that if all 18 polysilicon projects are successfully executed, a total of 3 million tons of polysilicon will be produced annually by 2025-26.
Double carbon and dual control policies can drive the demand for solar
However, distributed solar has gained significant importance due to the dual control policy. These systems allow companies to consume affordable power on-site, compared to grid-supplied power, especially during peak hours. The average payback period for commercial and industrial rooftop systems is around 5-6 years. Rooftop solar also help manufacturers reduce their carbon footprint and reliance on coal power. China’s National Energy Administration (NEA) approved a pilot program to promote distributed solar. According to the program, at least 50% and 40% of existing government and public buildings across 676 counties will have a rooftop solar system by the end of 2023. Similarly, a minimum of 30% and 20% of commercial and rural buildings must have a rooftop solar system by the end of 2023.
The total demand for distributed solar from this program could be between 130 GW and 170 GW by the end of 2023. In addition, around two-thirds of all provinces made it mandatory that all new commercial and industrial rooftops and ground-mounted solar systems be combined with energy storage units.
In addition to supporting solar installations, several provincial governments, including Guangdong, Guangxi, Henan, Jiangxi, and Jiangsu, plan to introduce a differentiated power tariff program to promote rational use of power. The peak versus valley price difference amounts to RMB 1.173 (~$0.18)/kWh and RMB 0.85 (~$0.13)/kWh in Guangdong and Henan, respectively. However, Guangdong’s average tariff is RMB 0.65 (~$0.10)/kWh, and its lowest is RMB 0.28 (~$0.044) between midnight and 7 AM. The program would be effective during October-November. It could help drive the emergence of new business models, especially when combined with distributed solar.
Earlier this month, NEA announced that China added 22 GW of new solar capacity in the first nine months of 2021, a 16% year-over-year (YoY) increase.
China installed 13.01 GW of solar capacity in the first half of 2021. Installations saw a 12.9% increase compared to the first half of 2020 when China installed 11.52 GW.