Prospects for PV Market in China (1)

Bloomberg predicted policy change

2018/08/20 12:20
Shinichi Kato, Nikkei BP Intelligence Group, CleanTech Labo

The national government of China made an announcement regarding its policy change on the introduction of solar power generation equipment at the end of May 2018. The global market of solar power generation equipment installation in 2017 improved by about 31% compared with 2016 and the output rose to roughly 98GW, and China contributed to the upswing as the largest driving force. Attention is focused on the influence of China on the installation market.

Research company Bloomberg New Energy Finance (BNEF) anticipated a move toward policy change and predicted the market trend. Prospects for the future are introduced below, together with the contents of a speech made by the Chinese representative at BNEF at an event held in March by major solar panel manufacturer Trina Solar in Changzhou City.

Research companies made corrections to their predictions for the solar power generation equipment installation market in and after 2018 in the wake of the policy change at the end of May. Many research companies estimate that the installation market in 2018 will decline from the previous year for the first time, and some of them estimate that the scale of the installation market in 2018 will be around 30GW and the scale will decline to 20 to 30GW in and after 2019.

Meanwhile, it is estimated that further changes will be made to Chinese policy, and the actual level of impact has yet to be confirmed.

The Chinese representative at BNEF predicted the scale of the global market of solar power generation equipment installation in 2018 at 101.6GW output, a small increase of about 3.8% from 2017, based on a moderate estimate (Fig. 1).

Fig. 1: Forecast for the solar power generation equipment installation market before announcement by China on its policy change. Predicted by Bloomberg New Energy Finance (BNEF) in March. (source: Nikkei BP)

The increase rate was estimated as small because BNEF considered there to be many uncertainties about the installation market in China.

"Policy changes and shifts are made frequently in China," BNEF said. "It is likely that the solar power generation market will also be affected by political uncertainties."

BNEF predicted that the installation market in China in 2018 and 2019 will remain at the same level as 2017.

The significant improvement of the installation market in China from 30GW in 2016 to 53GW in 2017 was attributable largely to the impact of the policy change.

It will be recognized that the market scale is significantly affected by the policy even in China, which led the solar panel cost reduction trend as the "solar power realm" and stands out from other countries throughout the world.

The Chinese representative at BNEF predicted the transition by installation styles. BNEF estimated that the number of newly constructed "centralized-type" large power plants will decrease after peaking in 2017, while the number of newly constructed "distributed-type" rooftop or small power plants will increase, making up for the decline in newly constructed "centralized-type" plants (Fig. 2).

Fig. 2: "Centralized-type" power plants will decrease rapidly, and "distributed-type" power plants will make up for the decline. Forecast by Bloomberg New Energy Finance (BNEF) in March. (source: Nikkei BP)

The installation market in China was taken up nearly entirely by centralized-type power plants until 2016, when the market of distributed-type power plants began to expand rapidly.

As explained above, a rapid decline in the number of centralized-type power plants, for which the "introduction quota" was suspended following the recent policy change, was predicted before the announcement. The feed-in tariff (FIT) scheme in China after 2018 is mainly targeted at distribution-type plants, and it is can be said that the impact of the policy change had been predicted to a certain degree, excluding the scale and speed of reduction, which are more significant than anticipated.

In regard to possibilities of policy changes in China, BNEF predicted the "change of the introduction quota" will be made in 2018 and the "purchase price based on the FIT scheme" will be reduced in 2019. BNEF also predicted "control by region" and other changes without specifying the timing.

The policy changes announced at the end of May included both the "change of introduction quota" and the "reduction of purchase price based on the FIT scheme." Therefore, it is estimated that the installation market will decline more rapidly than anticipated.

The "introduction quota" for distribution-type solar power generation equipment was limited to about 10GW in total output while the quota for centralized-type plants constructed on the ground was discontinued.

In respect to the Chinese market of solar power generation equipment installed on the ground in 2018, for example, BNEF predicted that the output will be lower than the value that it initially estimated by about 1.6GW if a change is made to the "introduction quota" alone.

The reduction range in the introduction quota is estimated to be increased, and the purchase price was reduced. Because of this situation, some analysts even estimate that the installation market will shrink by 20GW from the previous year, exceeding the value estimated by the company.

BNEF's analysis showed that the risk of actual installation is higher in western regions where power transmission networks have yet to be fully developed and the demand is limited while the risk is lower in eastern regions where the networks are fully developed and the demand is high (Fig. 3).

Fig. 3: Risk arising from policy changes in China. The risks are estimated to be higher in western regions, in regard to ground-based types (right). Forecast by Bloomberg New Energy Finance (BNEF) in March. (source: Nikkei BP)

As one of the impacts of the policy changes in China, a rapid decline of solar panel prices is anticipated. It is likely that solar panels that will not be installed in China will be sold in many countries throughout the world at prices lower than before.

For example, BNEF made a correction to its estimation of solar panel prices for 2018 in July. The conventional rate of a 27% drop from 2017 was corrected to 34%, and the estimated average price of panels in the world was corrected to a decline to 24.4 US cents per watt at the end of 2018. These corrections were attributable to the Chinese policy changes, according to BNEF.

These factors will also contribute to further reduction of solar power generation cost. If the installation cost is reduced one stage further, introduction to developing countries and regions such as India, the Middle Eastern and North Africa, and Latin America, will be accelerated. Attention will also be paid to the degree of covering the decline in China by the global installation market through acceleration of expansion to these emerging markets.

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