The cliché that when China sneezes, Australia catches a cold often rings true, particularly in the PV sector. A series of policy adjustments, announced by three Chinese government agencies on Friday, will likely have repercussions in the Australian PV market. An anticipated decline in the Chinese solar market of some 10 GW will have repercussions around the world and could prompt sharp reductions in module and cell prices from July onward.
The last such market shock, in the third quarter of 2016, saw module average selling prices (ASPs) fall around 30% – a hit from which some Australian manufacturers never recovered, along with a number of European distributors, with the fall in value of inventories proving fatal.
However it should be noted that a similar steepling fall in module prices is not a certainty. Frank Haugwitz, of the Asia Europe Clean Energy (Solar) Advisory (AECEA), says policy makers in China sent signals earlier this year that a winding back of subsidies was imminent. It is likely manufacturers with good connections to the Chinese government would have made plans to either scale back or cancel planned production capacity expansion as a result.
Announced Chinese solar production capacities were slated to reach just over 70 GW this year – according to analysis by UK solar blog PV Tech. With the Chinese market set for a serious decline – particularly in the utility scale segment, but realistically across the distributed generation (DG) market too – module makers will be eager to find buyers.
Chinese project developers, who installed some 33.62 GW of large scale solar in 2017, will also be looking to acquire projects in attractive markets. This could explain, in part, the moves by some to acquire early-stage Australian PV projects. Canadian Solar, Risen Energy and Clenergy have all moved to purchase Australian projects in recent months – despite some having not yet signed PPAs or offtake agreements.
The forecast sharp downturn in the 2018 Chinese market is a result of the 2018 Solar PV Power Generation Notice issued by China’s National Development and Reform Commission (NDRC), the Ministry of Finance (MOF) and the National Energy Administration (NEA) on June 1. It outlines declining FITs, the abolition of a large scale solar target and major changes to DG project regulations.
AECEA notes the changes are likely a result of the widening gap between Chinese FIT obligations and the government’s ability to pay them. The delta between the government’s renewables fund and its forecast FIT payments now stands at well over US$10 billion – China analyst Mr Haugwitz notes.
Summing up the changes in a June 2 briefing paper on the China market changes, AECEA’s Haugwitz wrote: “2018 is a transition year for China’s solar PV market, but more fundamental and far reaching than anticipated!”