Major policy changes in China to drive long-term solar installation growth

The solar market in China could see long-term benefits from major government policy changes that move the country away from federal feed-in tariffs and embrace unsubsidised business models.

Solar module spot prices fell by more than 30% in 2018, reflecting the central government's decision to halt feed-in tariffs for utility photovoltaic projects and begin the transition to competitive procurement.

But solar is becoming more cost-competitive with coal, and unsubsidized projects are expected to account for the majority of demand by 2024, according to analysis from Wood Mackenzie.

Tom Heggarty, senior analyst with Wood Mackenzie's Power and Renewables research team, said: "This transition is possible because solar is now closer than ever to being cost-competitive with coal, the main source of power generation in China."

"This year, we think there will be seven of China's thirty provinces where solar power will be cheaper than that produced from coal."

While China is slowing down, and installations will fall from 35% at the end of 2018 to 27% in 2019, it will still remain the world's largest market for solar installations.

China is also introducing a Renewables Portfolio Standard (RPS) that will mandate 35% of power to come from renewables by 2030.

As more information becomes available around the details of the RPS, including specific annual targets, a clearer picture will emerge on how big China's photovoltaic market will be over the next five to ten years.

The global solar market is anticipated to break through the 100 gigawatt (GW) barrier in 2019, according to recent analysis from Wood Mackenzie.

The solar market is diversifying quickly. In 2017, 34 countries installed more than 100 megawatts (MW); that number rose to 46 in 2018.

Mr Heggarty said: "Much of the growth over the next five years is going to be driven by emerging solar markets, which are opening up with competitive auctions for utility-scale projects."

"This is a global phenomenon. We'll see the first auctions this year in Iraq, Uzbekistan and probably Georgia, among others.

"We're not going to see many more feed-in tariff programs. Global markets for utility-scale installations will be driven by auctions, because they've proven so successful at bringing down costs, as well as subsidy-free business models.

"In many liberalised power markets, we're starting to see more market-driven routes. These are primarily power purchase agreements (PPAs) with utility, trader or corporate offtakers. However, some investors are also pursuing merchant business models.

"For the highest returns and to diversify risks, companies will increasingly look to stack different revenue streams – some output for PPAs, some for merchant markets, and maybe some into auctions. This will play into the hands of larger and more sophisticated investors, particularly those with power trading expertise."