Solar Subsidies in China

China recently became the latest country to approve massive incentives for solar power. Combined with Japan's new embrace of feed-in tariffs and our own economic stimulus package, the future of solar power is looking up.

The Chinese Ministry of Finance released a statement last week stating that solar projects larger than 50kW of output will be eligible for a subsidy of about $2.93 per watt. To be eligible for subsidies, mono-crystalline silicon based panels will have to have efficiencies greater than 16%, multi-crystalline greater than 14%, and thin film greater than 6%. The efficiencies required for mono-and multi-crystalline silicon cells are not bad, but the low 6% for thin film appears to be an effort to jump start that industry in China before the U.S., Europe, and  Taiwan, China take the lead in solar manufacturing.

PV systems integrated with buildings will have a higher priority, as will systems installed in schools, hospitals and government buildings. As someone who has long touted the virtues of energy efficiency and the power-saving potential in buildings, I am heartened to see this acknowledgement of building efficiency as a key solution to our global climate crisis. Integration of renewable energy and energy efficiency is a smart way to go about reducing coal dependence in China, the world's largest construction market.

Given the cheap cost of panels in China (under $3/watt), and total system install costs of around $5, this subsidy would cover more than half of the cost of the system. This level of subsidy is extraordinary by anyone's standard, and it does not appear to be capped or limited in time, but will be subject to periodic review, which means it could change at any time.

According to my NRDC colleague Christopher Paine, given this high level of initial subsidy, it would have been preferable to see some future performance standards built in, which would provide an economic incentive to push for greater cell conversion efficiencies or other manufacturing or installation innovations that would lower the delivered system cost per watt over time. A tapering subsidy schedule known in advance creates an economic incentive to make such improvements.

Mona Yew of the Pacific Gas and Electric Company, one of the largest combined natural gas and electric utilities in the U.S. (who has just arrived in Beijing to spend three months working with NRDC's Beijing team on our energy efficiency and renewable energy projects in China), agrees that a performance-based approach would be preferable. She notes that under the California Solar Initiative, incentives for projects over 50kW are paid based on actual production over 5 years on a $/kWh basis, which means that each installation must take into account not only the conversion efficiency but also tilt angle, orientation, etc. to maximize system output. All applicants must also do an energy efficiency audit first and are encouraged to undertake energy efficiency measures first to reduce overall load before sizing the solar system. Finally, the incentive level uses a ten-step declining approach: once a specific MW target is reached, the incentive level is stepped down until it eventually reaches zero, thus providing incentive for customers to act sooner rather than later.

Nonetheless, even though the subsidy is described as "temporary," it is certainly motivating, giving the solar industry the much-needed boost it needs to build up its domestic market in China. The power of this subsidy was evidenced by the large jump in solar stocks  the morning of March 26th in both China and the U.S.