Despite subsidy cuts, solar industry still shines

Introduction

Prices of China solar panels have risen as energy companies rush to erect solar farms before a July 1 reduction in tariff subsidies available for new projects. China, home to the world's largest solar market, is experiencing a significant surge in demand.

Current Market Conditions

Higher-than-expected demand for solar panels has caused manufacturers to operate at full capacity, according to two producers, Trina Solar and GCL System Integration Technology Co. The price of photovoltaic cells, which transform solar energy into electricity, rose 10 percent in May from April, to 1.7 yuan (30 US cents) per watt. Each solar-electric panel can generate about 300 watts.

Local Demand

Reports indicate that the streets around Trina Solar’s factory in Changzhou, Jiangsu province, are crowded with buyers. "They prefer to visit our plant in person because they think that will speed up delivery of their orders," said Yin Rongfang, Trina’s vice president. "Those with a shortage of panels have had to suspend installation work on solar projects."

Historical Context

This recent demand marks a shift from the past when about 40 percent of China’s solar panel production was exported and led to a world glut. The current focus is now on domestic consumption.

Government Incentives

The National Development and Reform Commission stipulated that only projects running by June 30, 2016, would be eligible for a "feed-in tariff" of about 1 yuan per watt. Projects completed after that date had to comply with prices set for 2016.

Market Fluctuations

The tariffs have been dropping year by year, and the fluctuations in solar panel prices have followed suit, with increases noted earlier in the year and declines as subsidies decreased and demand waned. An official at UBS forecasts nearly 24 gigawatts of solar power will have been added in the first half of the year compared to 22 gigawatts last year.

Supply Challenges

Currently, solar panels are in short supply, leading some plants to postpone projects until the second half of the year. The anticipated continued demand indicates only a modest price decline expected after the subsidy deadline, according to analysts.

Production Efficiency

Despite declining subsidies, operational costs are reportedly dropping due to technological advancements in solar panels. It now costs solar farms in China around 0.4-0.5 yuan to generate a watt of electricity, significantly reduced from 1.5 yuan a watt five years ago.

Industry Outlook

Solar panel makers managed to improve efficiency last year, converting 19 percent of solar energy into electricity. However, industry insiders note that the current supply of solar panels is about half the demand for 15 gigawatts.

Conclusion

Photovoltaic producers are enhancing production through automation, and experts believe solar panel producers can help China’s solar energy industry wean itself off subsidies in the coming years.