China kinks the solar growth curve

A big kink appeared on June 1, 2018, in the chart for growth in the global solar market. That was the day when China said it was restricting new solar installations that would require subsidy support, and lowered incentive payments for most other solar power generation projects. China is the world’s largest developer of solar plants, and a severe contraction in the market there would ripple across the world, and in India. The key changes are:

China solar build slows: There will be about 20 gigawatt (gw) less solar built this year in China than what was projected at the beginning of the year, according to Bloomberg New Energy Finance (BNEF). As per the updated forecast, 32-42 gw is expected to be added in 2018. BNEF is also set to reduce its forecast for the number for total global solar installations in 2018, as the rest of the world will take time to respond to the impact of this decision. 

KEY NUMBERS

* $19 billion size of deficit in China’s National Renewable Subsidy Fund

* 20 gigawatt new solar capacity that will not be built in China in 2018 as a result of the June 1 decision

* 136 gigawatt installed solar capacity in China in 2017

* 100 gigawatt targeted solar capacity in India by 2022

* 22 gigawatt installed solar capacity in India*

*As of March 2018 

Source: Bloomberg New Energy Finance 

Solar panel prices fall: The jolt to the Chinese market will mean an oversupply of panels looking for buyers. BNEF expects global panel prices to slide 34 per cent by the end of this year, compared to those at the end of 2017. In time, lower prices will lead to the expansion of existing markets, as well as open up new ones.

Subsidy-free solar is likely to become the norm not only in the world’s largest solar market but in many other countries around the world. Further, solar will become even more competitive against other sources of power. It is already the cheapest power source in many parts of the world. The solar-and-storage equation will meanwhile become more compelling, especially since storage prices are also declining steadily.

India gains as prices revert to, or even breach, the record low levels of less than Rs 2.50 per unit for solar power reached last year. That could happen later this month in auctions being conducted by Solar Energy Corporation of India. 
 

Repricing in India: What is fairly certain to happen is the renegotiation of at least some of the existing contracts where the last steps for signing the power purchase agreement are still remaining. The prices discovered in the last few auctions have been on the higher side — closer to Rs 3 per unit. Would buyers be willing to sign power purchase agreements at the higher prices or would they prefer to rebid and take advantage of expected lower panel prices? 

Beyond 2018: China’s policy-makers have not given a clear indication of their stance for next year. BNEF expects a further 10-15 per cent fall in panel prices in 2019, and a lot more in solar, given that the panel manufacturers are still adding capacity, and a decline in prices typically triggers new installations. 

The author is editor, Global Policy, for Bloomberg New Energy Finance. She can be reached at vgombar@bloomberg.net