By Alberto Forchielli (President, Osservatorio Asia) and Stefano Carpigiani (CEO, Cleantech Group Srl)
China is the first producer of technology products for the photovoltaic industry; moreover is one of the countries with the biggest amount of PV panels installed worldwide. The feed-in-tariff for the construction of PV plants that the Chinese Government (GoC) seems willing to implement, together with a huge investment program in R&D, will probably make the Chinese companies more and more important, with China consequently becoming a serious contender with Europe as the sector world leader in terms of PV field installations.
The passage from “production site of the world” to “first producer of PV technology products” has been simple for China, fast, almost obvious. So fast that many voices in Europe raised, asking actions of a protectionist imprint in order to avoid financing of excellence centers in China: a situation that is a paradox, because from one side outsourcing was the winning strategy, but on the other side the acquisition of Chinese products was a troubling factor, because of quality and reliability over a 25 years life span needed to operate profitable PV plants.
Market for renewable energies and photovoltaic, nowadays, could be divided in actors producing components and delivers systems and actors that invest in order to be later paid by one of the many ways through which is possible to sell energy produced. It’s important to analyze separately these two worlds, so linked but at the same time so distant, in a dichotomy that is more theory than reality. In fact, Governments have proposed feed in tariffs for both of them, although with different timing. Moreover the different types of feed in tariffs adopted, produced a different distribution of profits and benefits, but still focusing on the final goal of boosting the green economy.
In Europe, during the last few years, particular attention has been put on feed in tariffs for investments in renewable energies, because to impact positively on technology growth and to achieve UE goals for climate improvement.
The enhanced interest of the European Union States on renewable energies was due to the acknowledgement that a lifestyle like the current-one is unsustainable in pursuit of the well-known goal of “20+20+20”; deliberated by the European Parliament inside the “Energy and Climate package”, it describes goals that must be reached by 2020: reduce by 20% emissions of gas greenhouse effect; raise to 20% the energy saving; raise to 20% usage of renewable energies. Each European Country has its own feed-in tariff schemes that in Italy, for example, are described in the “New Conto Energia”[1] that foresees a bonus for each kW produced by the PV plant in 20 years, beside the commitment by the electrical energy network (Grid) to buy the energy produced at market prices[2].
China is not formally bound by any supra-national body to include renewable energies in its energy mix. Until last year a wait-and-see attitude has allowed the country to analyze deeply all available options and international experiences to decide how and when to start a national program of PV installation. In 2009 China decided to start a feed-in tariff program at the time its solar component industry was falling into a crisis of excess capacity.
The likelihood of China starting a feed-in tariff program seemed a certainty in March 2009, when the GoC declared to foresee a great domestic development in PV projects integrated in buildings and on roof tops. This declaration has been partially denied in July 2009 with the announcement of the “Golden Sun” program, where provinces should have received support through subsidies and incentives for developing PV plants up to 500 MW (both for plants connected to national grid and the captive-ones). This hope, however, revealed to be vain. Now it seems that the National Development and Reform Commission (NDRC) is still studying the best feed-in tariff that allows investors to have a profit with PV plants without affecting national expenditures. If this equilibrium point won’t be identified soon, many interesting projects won’t be started. But uncertainty seems to have decreased during last months and feed-in tariff seems to have been identified as the right financial way to encourage investments. The most recent proof of this was in January, when a new round of open biddings for PV plants was given the go ahead.
Eight provinces handed to the Government projects for PV plants. On the 2nd of April the NDRC announced the approval of four PV plants in the province of Nigxia with a feed-in tariff of 1.15 Yuan x kWh (0.1338 €, when in 2010 feed-in tariffs in Italy tariffs were between 0.353 and 0.480 €). But it isn’t already known for how many years this tariff is guaranteed.
By now in China there should be initiatives for 12.5 GW, most of them big plants on ground (no buildings or roof top) in different stages of development, planned to be connected before 2020. Two provinces proposed a specific tariff diverging from the national one: Jiangsu has a tariff similar to the national one, while Shandong declared that a progressive implementation curve (in 2010, 50 MW, in 2011, 80 MW, in 2012, 150 MW). The price from the feed-in tariff is of 1.7 Yuan (0.1979 €) per kWh in 2010, 1.4 Yuan (0.1629 €) in 2011 and 1.2 Yuan (0.1397 €) in 2012. In spite of these uncertainties China was accounted as the 7th country in the world for PV capacity installed in 2009, following data published Li Jundeng, secretary-general of CREIA (Chinese association of Renewable Energy Entrepreneurs) and Deputy Manager of the Energy Research Institute of the National Commission for Development and Reforms. Li Jundeng declared that China installed 215 MW in 2009. This value accounts 120 MW on roofs, 55 MW on ground, 5 MW of rural PV plants used for light and 35 MW of “other applications” (trains , communications, etc. etc.).
International actors are skeptical about these news: Photon Consulting (generally optimistic) spoke for China of 175 MW installed in 2009; Barclays states 130 MW. However these amounts alone would be enough to push China as one of the first 10 countries in the world for PV capacity installed in 2009.
The new capacity installed in 2010 should be between 500 MW and 1 GW, but it will be linked to international market conditions and the internal industry of solar panels manufacturing.
Unless the global crisis hits even harder Chinese companies due to their vocation for exports, the best players are already out of the woods. For what concerns the feed-in tariffs for companies operating in the PV sector, China is pursuing a path that resulted successful in other sectors: support for R&D and grants of financing for export against commercial credits.
It came out some months ago that China Development Bank[3] CDB) is cooperating with Trina and Suntech, two of China the largest solar component manufacturers to create a financing line of 11 US$ Bln for the PV projects over the next five years. Due to the volume of this financing lines, they will cover commercial credits supporting export and also relevant industrial projects.
GoC has shown it is willing to be the “rich uncle” to promote national manufacturing industry and stimulate exports; goals regard not only scale economies but also reaching levels of excellence in technology and quality. But this doesn’t mean that big solar Chinese companies took/take/will take advantage of these financing: many companies are trying to get them.
Deutsche Bank Analyst Steve O’Rourke underlined that GoC, through this huge financing operations, is trying to consolidate Chinese PV industry and its leadership in this sector (important to say that by now there aren’t enough elements to confirm this theory). From the entrance of China in the PV sector in 2002 more than a half of the greatest players produce their panels in China or Taiwan. Already in 2002, according to Frank Haugwitz, an expert of China and PV sector, the production capacity was of more than 10 GW per year. Haugwitz says that the capacity in 2009 was of 6,900 MW for cells and 5,500 MW for solar panels.
Since the beginning, the development of the Chinese PV industry has overcame initial uncertainties of the international experts of this market, who didn’t believe in the possibility to develop such a complex market without the help of a strong internal market. An analysis from Greentech Media Research reveals that the 95% of solar panels produced in China is for export. No doubts about this: the fast growth of the solar sector has been pushed by international demand boosted by the feed-in tariffs programs set by Germany, then Spain, then Italy and the rest of Europe.
But it’s important not to misunderstand what is the cost factor in a very technological industry like the photovoltaic one. It is a consequence of aspects like land availability, energy prices, low costs for logistic and financing and an advanced production technology: it is not coming from lower labor cost or from low environmental and workers’ s protection standards.
It’s curious to note that for what concerns the production of solar panels, Chinese companies have a relevant role in the whole production chain, from silicon production to creation of wafer and cells, while in the downstream portion of the PV market their role is marginal. Installation companies and inverters with a Chinese brand are present at an international level but can’t be considered relevant actors.
There are many factors that contribute to the imitated importance of the Chinese brands in the Balance of System: most of them are related logistic matters, other are due to the limited economic relevance of installation activities that, due to the low percentage on the total cost of the plant, are chosen in areas close to the site; but also aspects linked with characteristics of inverters, the heart of the system, that must be completely compatible with the electric grid were the energy has to be released. In fact there isn’t a world standard (not even an European one) for what concerns management, integration and sale of energy in grid. This situation arises also in interface systems, both for what concerns the most important function of the inverter (conversion of direct current in active current) and also for accessories and safety systems requested by specific national laws.
China has shown again its ability to analyze global market trends by identifying where and how investing resources in an efficient way. Chinese companies have shown they are far-sighted, with good quality products and management and with a deep strategic instinct (in fact, Chinese are investing in R&D centers in Europe and USA not to be deemed low cost only).
Competences related to installation of PV plants and project management still reside mainly in Europe, a leadership that comes from greater experience and a conscious maintenance of the key success factors linked with the installation stage in each different country.
The opening of the internal Chinese market could be a double edged sword for many companies involved in partnerships with Chinese firms for the construction of PV plants in China. Only time will tell us if European companies will be able to maintain their technological and managerial leadership.
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[1] Renewed by the end of this summer, now with the name “Third Conto Energia”
[2] For smaller plants there is a minimum price guaranteed by the State
[3] CDB is the Chinese bank that has the goal to reinforce China’s competitiveness and upgrade lifestyle standards of population through coordination and support of Government mid-long term strategies
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