- Two types of solar incentives exists in China: one-time
subsidies which are based on installed capacity and
feed-in-tariffs which are based on power generated.
- Utility power plants could see the one-time subsidy cut as
government chooses to move to purely FIT based system
while extending incentives to smaller projects.
- We think this could have a small short-term impact on firms
such as Yingli Green Energy who have been supplying to the
Chinese utility space.
The Chinese government could end some subsidies for utility
scale solar power plants choosing to divert funds towards
incentives for developing smaller projects in areas with power
shortages. The cuts are likely to be directed at the one-time
capacity based subsidy that is available to project developers.
While we don't see the move impacting the overall
attractiveness of the Chinese solar market, it could have a
short-term effect on firms such as Yingli Green Energy (
) and Trina Solar (
) that have been supplying panels to utility-scale projects under
China's Golden Sun program.
Solar Subsides In China
Incentives for solar installations in China have been
attractive. The government provides one-time subsidies that are
based on installed capacity of utility solar plants and also
provides feed-in-tariffs, which guarantee above market
rates for the power generated. At present, utility project
developers who are selected by the government can avail at least
5.5 yuan ($0.88) per watt of capacity installed under some
government programs if the project execution meets certain
deadlines. Feed in tariffs on the other hand stand at around 1 yuan
($0.16) per kilowatt hour in most parts of the country.
One-time Upfront Subsidies Not Effective
The one-time subsidies have received some flak since they
provide developers funds before the projects are
completed. They are also viewed as being
less efficient since they incentivize installed capacity
rather than the quality and productivity of the solar power plants.
Now, the move to offer incentives based solely on electricity
generation could make it easier for the government to administer
incentives and would also encourage power plant developers to focus
on building higher quality power plants that generate
Long Term Impact Will Be Negligible
China's government has been a strong proponent of solar
power viewing it as a means to increase the country's energy
independence and cutting down on carbon emissions. The
government has repeatedly increased its solar power installation
targets. Recently, the government proposed to raise the target for
2015 from around 21 Gigawatts (GW) to 35 GW. We see the potential
subsidy cuts as a step in streamlining the
country's incentive structure and making it more
effective. While some firms and project developers could be
impacted in the short term, we don't believe
that this will impact the industry as a whole in the long run
since the enhanced incentives to smaller projects would offset any
potential decline in utility projects.
Among the solar stocks that we cover, we think that Yingli Green
Energy could be impacted marginally in the short term. The firm has
been an active participant in China's Golden Sun program, having
supplied panels to nearly a quarter of all projects under the
program to date. In the second round of the program which was
announced late last year, Yingli won contracts to supply around 10%
(around 288 MW) of panels for the projects, making it the single
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