New solar subsidies in China set to reduce installed cost by half

The Chinese Ministry of Finance revealed a new subsidy for installed solar that is expected to help the industry recover from recent price drops along the value chain.

The cash grant of RMB 20 ($2.90) per watt would apply to solar PV installations in China in order to encourage the rural and urban markets to adopt the technology. The Ministry of Finance has not yet established a limit on the total subsidy to be given, but analysts have predicted it could be capped at about 180 megawatts.

China had about 100 MW of installed capacity in solar at the end of 2007, with about 47 MW added in 2008. The new subsidy represents a 48 percent decrease in the average cost for an installed watt worldwide of about $6.50.

The grants are aimed at relatively large installations: 50 kilowatts or greater. By contrast, Ireland recently announced feed-in tariffs and grants for installations 50 kW or less (see Ireland pushes for fast action on small-scale renewables).

The solar systems in China must also meet energy conversion efficiency guidelines: 16 percent for mono-crystalline based PV modules, 14 percent  for multi-crystalline based PV modules, and 6 percent for amorphous silicon based PV modules.

Chinese-based solar companies such as LDK Solar, Renesola, Canadian Solar, Trina Solar, JA Solar Holding, China Sunergy, Suntech Power, Solarfun Power and Yingli Green Energy could be the biggest winners, said Ian Tharp, an analyst at Dundee Capital Markets.

“The Chinese grant program is expected to provide a big boost to China-based installations as well as China-based solar manufacturers, most of which have suffered severely in the past six months,” Tharp said. “It may be hard for the Chinese market to back-fill for the entire amount of lost demand expected in 2009.”

China has around 140 solar-grade crystalline silicon wafer makers. Estimates are that between 50 percent and 80 percent of Chinese module manufactures have closed their factories since February (see Yingli, Longjitaih partner on new 600MW solar cell maker).

Earlier this week, Morgan Stanley analyst Sunil Gupta projected “sluggish demand, large supply increases and high excess inventory” causing losses this year and break-even conditions in 2010. He forecast that polysilicon prices will continue to decrease 60 percent to reach $50 per kilogram, with wafers falling 35 percent to $0.85 and modules 30 percent to $1.85 (see LDK stock spikes despite dismal Morgan Stanley solar report).

Polysilicon hit a peak of $400 per kilogram in July 2008, falling to less than $100 at the end of the year. Polysilicon has since traded for $30 to $40 per kilogram (see Top Chinese firms propose solar electricity for 14¢ per kWh).

The grants are expected to help global suppliers of solar products, much as subsidies in Germany and Spain were a boost to manufacturers worldwide (see Germany looks at shifting solar subsidies to wind).

“Massive growth in solar PV demand in China in the short to medium term will help absorb spare capacity and excess inventory along the solar supply chain, and is likely to lead to firmer pricing of all solar PV products globally,” Tharp said.

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