Will China’s ‘double carbon’ and ‘dual control’ policies drive demand for solar?

There have been a range of measures taken by the Chinese authorities to achieve emission reductions, and I set out such policies in detail in an article on Wednesday. One immediate impact of such policies is that distributed solar PV has gained significant importance, simply because it enables factories to consume, on-site, their locally generated power, which often is significantly more affordable than grid-supplied power – in particular during hours of peak demand. Currently, the average payback period of a commercial and industrial (C&I) rooftop system in China is approximately 5-6 years. Furthermore, deployment of rooftop solar will help reduce manufacturers’ carbon footprints and their reliance on coal power.

In this context, in late August China’s National Energy Administration (NEA) approved a new pilot program specifically designed to promote the deployment of distributed solar PV. Accordingly, by the end of 2023, existing buildings will be required to install a rooftop PV system. Under the mandate, a minimum percentage of buildings will be required to install solar PV, with the requirements as follows: government buildings (no fewer than 50%); public structures (40%); commercial properties (30%); and rural buildings (20%), across 676 counties, will be required to have a solar rooftop system. Assuming 200-250 MW per county, total demand deriving from this program alone could be in the order of between 130 and 170 GW by the end of 2023.

Furthermore, if a solar PV system is combined with an electrical energy storage (EES) unit, it enables a factory to shift and extend its production hours. To date, approximately two-thirds of provinces have mandated that every new C&I solar rooftop, and ground-mounted system, must be combined with an EES unit.

At the end of September, the National Development and Reform Committee issued urban development guidelines which explicitly encouraged the deployment of distributed solar PV, and business models based on energy performance management contracts. The immediate impact of those guidelines has yet to be quantified.

In the near to mid-term, significant demand for PV will come from “GW-hybrid bases,” a concept which features the combination of renewables, hydro and coal, depending on location. China’s premier, Li Keqiang, while recently chairing a session addressing the current power supply constraints, explicitly called for the construction of massive GW-bases (in particular those including PV and wind) in the Gobi Desert, in order to serve as a power supply back-up system. Last week, it was China’s president, Xi Jinping, who announced that the construction of the first phase of such a GW-base – with a capacity of up to 100 GW – had already been initiated. Details relating to that project have yet to be published.

China allows floating of its electricity prices

In addition to supporting solar PV installations, recently, an increasing number of provincial governments – notably Guangdong, Guangxi, Henan, Jiangxi, and Jiangsu, among others – have been planning to introduce a more differentiated electricity tariff structure scheme, in an attempt to stimulate more rational use of power. For example, the ‘peak vs. valley’ price difference amounts to RMB1.173/kWh ($0.18/kWh) and RMB0.85/kWh ($0.13/kWh) in Guangdong and Henan, respectively.

Guangdong’s average tariff is RMB0.65/kWh ($0.10) and its lowest is RMB0.28/kWh ($0.04) between midnight and 7 a.m. Such time-of-use based electricity tariff schemes, anticipated to become effective during this month and next, will drive the emergence and development of new business models, in particular when combined with distributed solar PV.

Near term outlook

Regardless of the impact of the double carbon and dual control policies, over the past eight weeks polysilicon prices have been increasing – to reach RMB270/kg ($41.95). Over the past few months, transitioning from a tight to a now-short-of-supply situation, the polysilicon supply crunch has led to existing and new companies announcing their intention to construct new polysilicon production capacities or add to existing facilities. According to the latest estimates, provided all 18 poly projects currently planned are executed, a total of 3 million tons of annual polysilicon production could be added by 2025-2026.

However, in the near-term, polysilicon prices are expected to stay high, given the limited additional supply coming online in the next couple of months, and due to a massive shift of demand from 2021 into next year. Over the past few weeks, countless provinces have approved double-digit-gigawatt scale solar project pipelines, the overwhelming majority scheduled to be connected to the grid by December next year.

This week, during an official press conference, representatives of China’s NEA announced that, between January and September, 22 GW of new solar PV generation capacity was installed, representing an increase of 16%, year on year. Taking into account the most recent developments, the Asia Europe Clean Energy (Solar) Advisory estimates that in 2021 the market could grow between 4% and 13%, year on year – 50-55 GW – thereby crossing the 300 GW mark.

Frank Haugwitz is director of the Asia Europe Clean Energy (Solar) Advisory.