Chinese authorities have announced a major pull back in the country’s solar programme. Their new plan, titled 2018 Solar PV Power Generation Notice, proposes many radical and largely unexpected changes – utility scale target of 13.9 GW has been dropped altogether (2017 actual installation – 34 GW), annual distributed solar generation capacity addition has been capped at 10 GW (19 GW) and feed-in-tariffs (FITs) are to be abolished entirely for utility scale projects.
- China’s revised plan would result in major surplus in global module supply over next few years;
- Sharp fall in module prices would be a huge relief to the Indian developers and ease viability challenges for almost all projects;
- The development is a major setback for the Indian manufacturers and for Indian government’s latest plans to support manufacturing;
The changes have been announced after the country added 53 GW of solar capacity last year (plus 53% over 2016), way ahead of all market expectations and far in excess of what China needs to add to achieve its target of 200 GW cumulative capacity by 2020. Unchecked expansion has led to a surge in subsidy and FIT bill with up to EUR 15 billion believed to be owed in past payments to developers. The government appears to be motivated by the desire to reduce financial burden of solar as well as to cut back on new generation capacity.
The new plan is expected to significantly reduce capacity addition in China – revised estimates for 2018 vary from 30-35 GW, a fall equivalent to about 20% of global demand. And there are concerns that the slowdown could last a few years with annual demand going down to as low as 20 GW over next few years. Downside impact on the manufacturing sector is expected to be severe. As other three major markets including US, India and Japan are also set to slow down this year, module manufacturers are faced with a vast oversupply situation. Prices have been coming down anyway for the past six months as seen in the chart below. But unlike some other analysts, we expect prices to bottom out at about USD 0.26-0.27/ W because the supply chain simply can’t endure any lower prices.
Source: BRIDGE TO INDIA research
Note: These are CIF prices for imported modules before GST and any other local taxes and duties.
The depressed module price outlook is an absolute positive for the Indian downstream industry. If module prices fall as far as expected, viability concerns of most projects would be addressed. Developers with significant pipeline – Acme, Azure, ReNew, SoftBank, Hero, Avaada, Mahindra and Engie – would benefit immensely. Tariffs for new auctions are expected to start falling again and may touch INR 2.40 levels in H2-2018 notwithstanding the ongoing safeguard duty uncertainty.
Of course, the news is a major setback for the Indian manufacturers and for Indian government’s latest plans to support manufacturing. SECI has already indicated informally that the 5 GW manufacturing tender may be delayed as a result.
