The promise of solar power sometimes seems to have a lot in common with the campaign commitments of politicians. Both sound good in theory. But both are amongst the first things to disappear when the economy hits a rough patch.
Indeed, after five years of good times – in which China’s solar panel manufacturers have become the global leader in volume terms – the current economic crisis has darkened the industry’s prospects.
Photovoltaic (PV) solar panels capture sunlight, knock together electrons and produce electricity. But demand for solar power has been hit hard by the credit crunch, which has limited the financing available to the industry’s larger customers.
Although many solar installations cover their upfront costs within four years (energy generated after that is free), the initial expenses can be significant. With banks reluctant to lend, fewer projects are starting up, so demand for PV panels made in China has fallen too. Cuts in financial incentives for solar consumers in Europe have not helped either, with governments reducing subsidies in a bid to spur their own manufacturers to improve efficiency.
So demand has slumped, just as panel supply has surged. Edwin Koot, the CEO of SolarPlaza, a leading photovoltaic research institution, forecasts 2009 global sales of 6 gigawatts of capacity, with global production closer to 9 gigawatts.
China’s solar manufacturers are also paying for their dependence on exports; less than 1% of the country’s own energy needs are met from solar sources. Anecdotal evidence suggests that as many as half of the country’s solar firms (estimated at 300 to 400 companies) may have closed or mothballed production.
But the situation may be about to change, says Julian Wong at the Green Leap Forward. Three major announcements in recent weeks are helping to revive some of the sector’s former confidence.
Firstly, bidding has concluded on China’s first solar concession – a huge farm in the deserts of Gansu. A second site in Ningxia is also on the cards, with the China Energy Conservation Investment Company in discussion with the provincial government.
Some critics doubt whether mega projects of this kind are cost-effective, especially as they will need to transmit power huge distances from remote farms to urban consumers. Instead they prefer distributed generation, with panels located in urban environments.
The Ministry of Finance seems to agree. Its new Solar Roof Programme proposes to pay $2.93 per watt of installed PV capacity on larger buildings. The subsidy means that aspiring operators will get their panels effectively free, says Wong, and will only have to pay for their installation.
Then last week another major announcement, this time from the Jiangsu provincial government, which says it is considering an annual $145 million budget to support ‘feed-in’ tariffs. These guarantee a level of payment to solar producers that supply utility companies.
Jiangsu is home to a number of the larger manufacturers and tens of thousands of solar industry jobs. According to Wong, its proposal could lead to 260 megawatts of additional PV capacity in the province alone – a significant amount given that the national target for installed capacity is 300 megawatts by 2010.
News of the various announcements sparked a frenzy in the share prices of the leading firms. Suntech, LDK Solar and Yingli Green Energy (all listed on the NYSE) shot up in value.
The wider question is whether the solar industry in China has reached a tipping point. Wong at Green Leap Forward thinks this might be so, and that by jumpstarting the domestic market, the government can soak up the panels in oversupply, save manufacturing jobs and lay real foundations for a new era of cleaner power.
Keeping Track: In WiC10 we reported on China’s growing appetite for solar power. This week it got a further boost as the South China Morning Post predicted that the government will introduce subsidies for solar generation in
the second half of the year. China is the world’s largest producer of photovoltaic components (solar panels) but 98% are exported to other nations. In another positive announcement for greens, a 200MW solar energy farm in Qinghai is slated for construction. (19 June 2009)
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