Last month, China’s National Development and Reform Commission (NDRC) announced the implementation of a nationwide solar feed-in tariff program.  This plan consolidates China’s previous solar energy programs and offers greater certainty to China’s bourgeoning solar energy industry sector.

How It Works

Those systems which began construction in July of this year and will be completed by the end of the year are entitled to a tariff of 1.15 Yuan (about the equivalent of 18 cents US) per kwh.  Those projects approved after July 1, 2011 or approved prior to that date but which cannot be completed before the end of the year, can claim a tariff of 1 Yuan (about 16 cents US) per kwh.

Solar Power in China

The growth of China’s solar market has been particularly interesting to watch as it has developed in line with China’s vast geography and its unique needs.  China is already the world’s largest solar panel manufacturer.  Following the country’s 2009 feed-in-tariff for wind (which led to explosive growth in that industry), this new program consolidates the array of incentives which were previously available in the country.  The solar feed-in tariff program gives a clear signal to industry participants that the Chinese government will support its domestic industry, which has previously been heavily export-reliant.

Key details regarding the new feed-in tariff have yet to be released and there have been some contradictions in reports describing the program (which was quietly announced in the back-pages of a government gazette).  The government has reserved the right to alter the program in accordance with changing market conditions.  There has also been some criticism to the effect that the tariff rate is inordinately low.  (It is, in fact, the lowest national tariff in the world.)

Solar Power and the Chinese Market

China currently leads the world in the production of solar panels.  With this new feed-in tariff program, it could also become a world leader in consumption of solar panels – an important change for the local industry in light of recent economic developments.  Solar panels currently account for only 0.8 GW of energy in a grid of almost 1,000 GW.

Analysts predict that this new tariff will bring developers an annual rate of return of as much as 10 percent over a period of 15 to 25 years.

China’s demand for the installation of solar energy systems in 2011 is estimated to be between 1 and 2 GW.  IMS Research predicts that China will be the fourth most important solar market this year.  With the implementation of the feed-in tariff program, estimates for installation demand for 2012 range from 1.7 GW to 3 GW, increasing worldwide demand by 5 percent.  The Chinese government has set a target installation goal of 10 GW by 2015, at which point China is expected to rank amongst the top three global solar markets.

Some analysts have expressed cynicism as to how profitable projects developed under the new program will be, but most are clear that a) the program illustrates China’s commitment to the solar industry and b) the program represents a significant shift away from exclusive reliance and export-driven growth in the industry.