Solar Energy Market in China
China has become a global leader in the energy market within the space of the last two decades!
When the country began its journey in the energy industry, it virtually had no solar panels installed. However, in the following years, China made it up by turning the table and became the undisputed leader by a margin of more than 100%.
According to the consulting firm Wood Mackenzie, the photovoltaic (PV) installations in China is likely to go up to 370 GW by 2024, which is twice the capacity of the US at that point.
Fig.1: Cumulative Annual PV Installations by Country 2001-2024 (Source: weforum.org)
The vast population in China has been instrumental in making the country the largest global energy growth market. Although India is close to the heels, it still has a long way to go.
Already China has more solar capacity than all the countries in the world.
A question that naturally crops up is, “How China has made it possible?”
The answer is renewed policies and streamlined efforts across the country. We will talk about it in detail in one of the following sections.
For now, we can say that China did set up huge solar farms, including the largest farm in the world located in the Tengger Desert.
The government also started many large- and small-scale solar projects.
Now, as the biggest clean energy investor globally, China is eyeing to increase the proportion of renewable energy power mix. The country is already well on its course to achieve that goal.
Despite having the largest solar market in the world, in the domestic energy landscape, solar is still a small proportion of the country’s total energy mix.
Leading Chinese States in Solar Energy in 2019
Globally, solar photovoltaic (PV) installations started booming since 2010 and had an annual growth rate of 40%.
China has been leading growth momentum since then. In 2015, the country ranked number one for the first time, both in the installed capacity as well as power generation.
Two years down the line, in 2017, China reached the capacity of 130 GW solar PV, which was nearly six times the capacity of the three largest hydroelectric plants in the world.
The country has already achieved its solar energy goal for 2020, two years ahead of schedule.
In China, most of the solar PV projects are concentrated in the eastern and southern parts of the country. In these two regions, the economy is the most prosperous and has the maximum demand for solar power.
The four provinces in China – Anhui, Jiangsu, Shandong, and Zhejiang have nearly 52% of the total capacity.
Fig.2: Installed Capacity of Distributed Solar PV in China (Source: wri.org)
The distributed solar PV is growing at a fast rate in China than large-scale solar power stations.
Here distributed PV refers to relatively smaller solar energy-producing plants that are located near consumers and connected to distribution systems.
In 2017, distributed solar PV generated nearly 13.7 terawatt-hours of electricity, which was enough to meet the energy requirement of all the residential consumers in Beijing for 7.5 months.
Currently, the total installed capacity of distributed solar PV accounts for 27.1% of the country’s total solar PV installation.
Solar Growth Statistics
The solar energy market in China got its momentum in the early 2000s, keeping up with the increasing demand for energy.
To make solar a mainstream energy and become a part of the global energy mix, China started giving incentives for boosting the domestic solar PV manufacturing.
The country also initiated the process of acquiring technology and skills required for manufacturing PV cells.
Over the next decade, China caught up with the Western countries in terms of solar technologies by purchasing manufacturing equipment from a competitive international market. It also started employing skilled labour from the vast population.
Fig.3: Installed Solar PV Capacity from 2010 to 2017 (Source: idsa.in)
Through concentrated efforts over the years, China has secured the position of the largest solar panel technology manufacturer in the world. Currently, the country manufactures more than 60% of the solar panels globally.
China’s dominance in solar panel manufacturing is evident from the fact that out of the top ten solar panel manufacturers in the world, seven are Chinese firms.
A report by the energy news website EnergyTrend, despite the trade war with the US, China has already shipped 28.5GW of solar PV panels overseas during the first quarter of 2019. An increase of nearly 92% (14.68 GW) during the same period in 2018.
Currently, solar energy accounts for 7% of China’s total energy generation capacity.
Interestingly, in 2017, the newly added PV capacity by China is equal to the total solar PV capacity of Germany and France.
Recently, China rolled out policy changes in the solar sector after evaluating the changing international environment, and to address growing domestic energy challenges.
The country has also lowered the feed-in tariffs that were preventing the unrestricted growth in producing solar power.
The government has also addressed the cumulative debt of $15 billion that the state-run renewable energy fund incurred. The debit is likely to go up to $39 billion by 2020 if appropriate action is not taken.
On June 1, 2018, the Chinese government issued a policy to connect the solar projects to the grid, which will not receive feed-in tariffs.
By implementing these measures, China plans to bring down the subsidy costs, which is getting increasingly difficult to pay.
According to an energy official, China is curbing the growth of solar power capacity, and cutting down on subsidies.
This step will help the energy sector focus on quality than quantity. It will further ease the government’s financial liability.
The 13th five-year plan in China has put the focus on improving the electric grids and lowering curtailment issues.
By implementing new policies and directives, the government wants to ensure that the provinces follow the country’s mandatory renewable portfolio standards. Now, each province has to calculate its power target for 2030.
Provinces that fail to comply with these standards will be penalized, and their revenues could go into reducing the subsidy burden on the government.
What are the reasons behind the surge of the solar industry?
In China, these days, solar power is cheaper than grid electricity in cities all over the country, which may boost demand in the long run.
One of the key reasons behind China’s growth in the solar energy segment is distributed solar PV installations.
Here are the four main reasons why distributed solar PV has triggered a growth spike in the country.
Setting National Targets
A report under the 13th Five Year Plan of Solar Power Development in 2016 shows that distributed solar PV installation will be a minimum of 60 GW by 2020, with an installation rate of 10 GW per year.
Also, during that period, the government will build 100 demonstration zones of distributed solar PV. As much as 80% new building rooftops and 50% of existing building rooftops will be equipped with solar PV systems.
Additionally, earlier in 2014, China initiated a solar PV program for poverty alleviation program. The objective of this program is to support a large portion (nearly 70-80%) of the initial investment and let families use solar power freely or sell it to the grid.
Reduced Cost and Higher Efficiency
Reduction of cost is another reason behind the surge in the distributed solar PV projects, as private companies find them attractive.
The average pricing of global PV modules came down by 79% between 2010 and 2017. During the same period, technological breakthroughs in the solar energy segment resulted in a sharp increase in its efficiency.
All these factors have been instrumental in bringing down the average cost of solar power in China to 0.5 Yuan/kWh (USD 0.077/kWh) in 2017, which was nearly 75% from 2010.
Incentive Policies
To achieve its solar energy targets, China issued several incentive policies since 2013. These policies provided support at the national as well as sub-national levels.
Other than national solar subsidy, which is 0.32 Yuan ($0.049) per kilowatt-hour (kWh), local governments have their policies on subsidies for distributed solar PV projects.
Many local areas install solar and have set their own targets for expanding renewable energy.
Rolling out tax incentives for solar stations as well as distributed solar panels are also driving the expansion of solar PV in the domestic market.
Revenue-driven Business Models
In China, the electricity rates for industry/commerce are substantially higher than rates for residential usage. Due to this, many businesses install solar PV to produce their own electricity and can have a significant amount of savings.
Also, there are diverse applications of solar energy “Solar PV+,” or integration of solar PV with fisheries, agriculture, and PV livestock operations, which are pushing the growth further ahead.
China is also clearly ahead when it comes to renewable energy technology patents. The country had more than 150,000 renewable energy patents in 2016, which was 29% of the total patents in the world.
The US was second with more than 100,000 patents, followed by Japan and the E.U. with nearly 75,000 patents each.
Overall, the surge in the renewable energy segment has consolidated China’s position as the global leader and reduced dependence on fossil fuel. It is a massive power shift that has lowered the importance of fossil fuel exporters.
As the price of clean energy technology has dropped, and China’s electricity demands witnessed a spike, making investments in renewables seems an attractive proposition.
The bottom line is that commercial solar has become cheaper than grid electricity, which means the world can embrace solar energy without having to pay any subsidy.
The Economic Index of the Solar Industry
The continuous growth in the renewable energy sector all over the world has increased the demand for Chinese solar power.
China’s position in the world’s energy landscape has several dimensions. Consolidated GDP growth and integration into the global economy have made it possible to stay ahead in the energy space.
Fig. 4: Subsidy Policy in China from 2015-20 for Solar Power with Utility-Scale (Source: belfercenter.org)
The graph above is about China’s national subsidy policy between 2015 and 2020 for solar power with a utility-scale.
In the graph, we can see there are three categories, which represent variance in solar energy based on geographic differences, insolation in the regions, and local climate conditions.
This is how it reads according to the solar utility-scale:
- In the first category (blue), the annual operating hours are more than 1600 h (h>1600);
- The second category (red) is between 1400 h and 1600 h (1400
- The third category (green) is less than 1400 h (h<1400) for solar power.
The range of operating hours is different because of the availability of sunlight in those three regions.
The regions that receive more sunlight achieve the economies of scale and the regions with cloudy weather or low sunlight fall behind.
The Global Perspective
The emergence of solar energy has shifted the balance of power around the world, changed trade patterns and formed new alliances.
Investment in solar power calls for long-term strategy as the cost of installation is still high. High pricing turns policymakers away as they do not feel such investments are necessary for something short-term.
Also, as the price of solar energy continues to drop, many companies prefer to wait until prices drop further.
When it comes to China, the initiative of PV panel manufacturers to shift sales in foreign countries has resulted in 531 new deals in 2018. All this prospective business is making a positive impact on companies in terms of achieving their financial targets.
The overall capacity utilization rates of solar PV companies are said to have reached 78% in the first half of 2019. According to the current demand, cell utilization rates were at 110%.
Despite all the progress in the solar market, the International Energy Agency (IEA) has notified the countries that more investments in renewable energy are required across the world.
The IEA has expressed its concern to prevent more than 1.5 C of the carbon footprint as agreed under the terms of the Paris climate agreement.
Solar Energy Production Statistics
A report by the National Energy Administration shows that in the first quarter of 2019, China added 5.2 GW of installed PV capacity. It is a drop from the installed capacity of 9.65 GW during the same period in 2018.
Despite the drop in the installed capacity, solar energy is still ahead of other renewables such as wind (4.78 GW) and biomass (970 MW) in the first quarter of 2019.
On the other hand, PV module production has gone up to 47.5% year-on-year, which accounts for 11.8 GW during the period from January-February.
Fig. 5: Monthly Solar Power Generation from March 2017- March 2019 (Source: statista.com)
Another report by China Customs reveals that the country exported 15 GW of PV modules in the first quarter of 2019, which is up 70% year on year.
According to a research report by Sinolink Securities, between 2017 and 2019, PV power has become relatively affordable globally. Lower pricing has encouraged the major countries in the world to phase out thermal and replace it with solar PV.
A prediction by the IEA shows the total PV installed capacity in the world is likely to reach 1,721 GW by 2030, and it will go up further to 4,670 GW by 2050. China will have the lion’s share in the estimated spike of PV capacity.
The price for a solar PV module has dropped by 94% percent over the past decade. Due to this reason, the cost of building a PV power station has dipped by 90%.
This is where China is still way ahead of other countries because the manufacturing of PV modules has got a boost due to the increased export of solar modules.
Related article: Top 15 Solar Energy Trade Shows in China
Conclusion
By integrating renewable energy with the existing power structure, China has become a global leader in renewable power.
There are, however, still some gray areas that the country needs to weed out. One area is the percentage of renewables for the overall electricity generation profile remains low.
Another challenge is that bringing all the produced power from renewable resources to grids for user consumption is difficult. The government needs a way around it.
Also, the lack of physical connection, the rigidity of the electricity market, local protectionism, and competitive pricing still make solar energy less adaptable. However, it is expected that China will overcome these challenges with a proactive policy to utilize the potential of solar energy at all levels.