China Relaxes Its Solar Subsidy Program That Rattled Market
(Bloomberg) -- Chinese regulators have proposed easing a major solar power subsidy policy announced last year, according to the nation’s main industry group, a move which would partially reverse rules that undercut demand in the world’s biggest user and shook the global market.
Policy makers are starting approvals again for utility-scale, ground-mounted projects that receive subsidies, which were halted in June 2018, the China Photovoltaic Industry Association said on its Wechat account Monday, citing a meeting between the National Energy Administration and companies. As part of the renewed approvals, developers of these large projects, as well as those for industrial use, will have to bid for government aid, the association said.
The NEA didn’t respond to faxed requests for comment.
Shares of solar companies gained on Tuesday. Tongwei Co. rose as much as 5.8 percent in Shanghai to a nine-month high, while LONGi Green Energy Technology Co. added 4.8 percent. In Hong Kong, Xinyi Solar Holdings Ltd. climbed 3.7 percent. GCL-Poly Energy Holdings Ltd., which initially advanced 2.8 percent to extend the previous day’s 11 percent increase, pared those gains to trade 1.4 percent lower.
The move last year to cut subsidies for some solar projects was aimed at forcing provinces to utilize unused capacity and reduce subsidy bills. But it also hurt demand and depressed solar material prices globally, roiling manufacturers. The reversal discussed this week may help capacity installations in the world’s biggest solar market rebound from last year’s slump, according to the association.
The changes will probably result in installed capacity rising from last year’s 44 gigawatts, which was a tumble from a record high in 2017, according to the association’s estimates. It had forecast in January that additions this year could be as low as 35 gigawatts. The capacity of subsidized projects China will approve this year will be determined by available funds, the association said, without providing those details.
China is likely to allocate about 3 billion yuan ($443 million) of fixed subsidies for solar in 2019, Citigroup Inc. said in a note. The bank estimates capacity additions of 42 gigawatts this year under its base case, with a potential for a gain to 50 gigawatts, analysts including Scott Chui wrote, adding this will benefit companies such as Xinyi Solar and LONGi Green Energy Technology Co. most.
The latest changes signal “NEA’s strong intention to smoothen solar industry development” after abruptly slowing down installations last year, Daiwa Capital Markets Hong Kong Ltd. analysts including Dennis Ip said in a note. “The auction is to be conducted at the national level, with the participating projects from all provinces to be ranked under a unified system, rather than allocating installation quotas to different provinces.”
The government is also planning for the first time a separate subsidy limit for residential solar systems. Projects that weren’t eligible for state funding after the clampdown last year may apply for quotas in 2019, the association said, adding this may help address one of the problems with the policy shift.
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