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31 May 2019

Chinese Solar will fall in 2019, but shift to parity pricing is healthy

The game of guessing just how many solar panels China will use in its energy mix has continued this week, but almost all estimates fall below the level of purchases for the past two years, about 8 GW down on 2018.

The latest announcement from the National Development & Reform Commission and National Energy Administration suggests that China has what it wanted all along, and that is renewables which can compete with coal and gas on an equal footing. The first batch of such contracts awarded this week include 14.8 GW of solar and 4.5 GW of wind capacity and these projects were prioritized ahead of any subsidized contracts appearing later in the year.

What this has done has starved the mostly Chinese panel industry of orders for a long period, further driving down prices on these orders. In Q1 China only gave out 5 GW of solar, and it looks set to order about the same again in Q2, leaving it a far cry from its usual 44 GW and 53 GW over the past two years.

Which is why one module maker, in the form GCL-SI, came out in public this week, telling publications that China will install 25 GW of solar in the second half of this year, so that the long starvation and depressed pricing was over.

That puts China on track to do around 35 GW to 37 GW of solar in 2019, a touch disappointing, but a shortfall which is likely to be made up elsewhere as other regions have begun to go flat out on solar. Our own assessment is that once solar takes a step into parity bidding, it will just get stronger and stronger, and 2020 is likely to see at least an increase of 10 GW of solar, and perhaps more above 2019 and the rise would then continue.

While many complain that China continues to build coal plants, it is really winding down this approach and signing no new deals, but just building those in its pipeline. Coal is quite simply no longer cheap enough and it’s not a place you would go from where we are today. We expect renewables to critically undermine coal, and the fight is now to begin winning against all other forms of fossil fuels, gas in particular, which is beginning to emerge as a powerhouse in Chinese electricity generation – particularly in partnership with Siemens Gas and Power, which has partnered with China’s State Power Investment Corp. Previously gas had virtually no foothold in China’s energy market, but currently it is taking off rapidly.

But if China can order over 20 GW of renewable energy subsidy free, then next generation wind, with larger turbines, and solar, with bifacial panels, will certainly take costs to the next level still and begin to make incursions into the emerging gas side of the market.

Regardless, the solar panel makers can now offload any spare inventory they held with this current batch of orders and get the global pricing back to where it should be – still going down, but not so far as it was in Q1.

From now on, provinces will be allowed to organize bids for projects seeking government aid, and the market may in fact overheat, and even witness price rises in 2H in the order of 10% to 15%, after last year they fell by over 30%.

It is only because China uses more solar power than any other country in the world, by an order of magnitude, that its order processes affect global panel pricing.

The new subsidy-free projects will be built across 16 provinces including Guangdong, Shaanxi, Henan and Heilongjiang and some should start commercial operation in 2019 and others will slide over to 2020 and 20-year contracts.

Many Chinese panel makers have had to chase international markets to make ends meet, and prevent inventory piling up, but with such large orders on tap, it is hard to wean yourself off Chinese solar spending and the likely outcome is that anyone who failed to place orders in the 1H of 2019, will now be looking at spending substantially more, now that the Chinese market has re-awakened. The US and India have been the second and third placed markets for solar in recent years.