With a wave of new photovoltaic policies, which is the right path: grid parity, energy storage, or overseas markets?

Since the release of the “5.31” photovoltaic policy, the entire solar industry has been thrown into turmoil. Just as the sector plunged into uncertainty, on July 3rd, the nation’s first subsidy-free distributed photovoltaic project was launched in Jintan, Changzhou. What does the future hold for China’s solar industry?

“From January to April this year alone, 8.75 GW of distributed photovoltaic power plants have been added—it's almost like the second half of the year doesn’t need to happen,” joked a practitioner in the distributed PV industry.

Another industry insider, who wished to remain anonymous, expressed great frustration: “We’ve pushed so much inventory out the door, I’ve even thought about giving up!”

Reporters also contacted several companies, including Jiang Bo, Regional Director of Central China at Sungrow Power Supply Co., Ltd., and Suzhou Gaocreate New Energy Development Co., Ltd., to inquire about the impact of the new photovoltaic policy on their businesses. However, they all declined to disclose details regarding their companies' development.

In recent years, supported by subsidy policies, China’s photovoltaic industry has experienced explosive growth. For five consecutive years, new installations ranked first globally, and the cumulative installed capacity has held the global number one spot for three consecutive years. During the “13th Five-Year Plan” period, the construction speed of photovoltaic power generation accelerated, with an average annual installation growth rate of 75%. By the end of April 2018, the installed capacity exceeded 140 million kilowatts.

However, the long-term massive subsidies have become a heavy burden for the government. According to the Ministry of Finance, by the end of 2017, the cumulative subsidy deficit for photovoltaics had reached 45.5 billion yuan, and the gap was widening year by year. Consequently, the “5.31” new photovoltaic policy was issued, taking effect the day before it was officially announced.

A relevant official from the National Energy Administration stated that the introduction of the new PV policy is not only an important measure to implement supply-side structural reforms and promote high-quality economic development but also a key step to alleviate prominent contradictions and problems faced by the photovoltaic industry, such as subsidy deficits and power curtailment.

Professor Jia Genliang from the School of Economics at Renmin University of China also commented, “China’s photovoltaic industry lacks core technologies and has not seized the commanding heights of the industry. Instead, it remains in the low-end segments of the global value chain. Although there is technological innovation in China’s PV industry, it mostly involves process innovations. Such innovations improve productivity but ultimately harm Chinese PV product manufacturers while benefiting importing countries through price advantages.”

As the development environment for photovoltaics becomes increasingly severe, industry insiders are pinning their hopes on diversified channels and the future prospect of grid parity.

Based on the domestic situation, the new photovoltaic policy clearly states: “Support for photovoltaic poverty alleviation will continue, and the second batch of photovoltaic poverty alleviation projects under the 13th Five-Year Plan will be promptly issued.” Judging from the government’s support and attitude toward PV poverty alleviation, such projects could become a new path for some industry players to transform in the second half of this year.

Some industry insiders also place their hopes on the commercial and industrial rooftop PV market. Interviewees indicated that, given the cost reduction potential within the industry, a 5-cent price reduction is basically within an acceptable range for the relatively higher-yield commercial and industrial rooftop distributed PV systems.

It is understood that small and medium commercial and industrial projects are mainly concentrated in the Jiangsu-Zhejiang-Shanghai region and the Pearl River Delta. Rooftop power plants for these small and medium enterprises can quickly absorb inventory from distributors and manufacturers. Many modules are already priced below 2 yuan per watt, with the entire system cost around 3.5 yuan per watt. Even with discount sales, profitability is still achievable.

However, amid the industry’s uncertainty, on July 3rd, the nation’s first subsidy-free distributed photovoltaic project was launched in Jintan, Changzhou. The project will be built on the rooftop of Yongzhen Technology’s new factory covering over 110,000 square meters, with an expected installed capacity of 10 MW. This project is a joint venture between Yongzhen Technology and Trina Solar. According to involved parties, under the premise of no subsidies, the investment cost can be recovered in about five years.

Nevertheless, some critics argue that even if the National Energy Administration grants a 10 GW quota for commercial, industrial, and residential distributed PV, the distributed segment alone cannot absorb the massive domestic inventory. Commercial and industrial rooftop PV will only make a limited contribution. Zhao Ming believes that, based on current data, commercial and industrial rooftop PV looks promising. However, it involves many complex issues, and operating under the new PV policy will have some impact. If taken as the main development focus, the capacity will be limited.

More industry insiders believe that integrating photovoltaics with energy storage is the inevitable path for the sector to overcome its inherent limitations and become a mainstream energy source.

Of course, some companies are focusing their attention on traditional markets like Europe and Japan, as well as emerging markets with active demand such as India, South America, and Africa.

In early June, the Indian government announced plans to increase its solar installation target from 175 GW to 225 GW by 2020, and aims to deploy 500 GW of renewable capacity by 2030, with solar conservatively estimated to account for 320 GW. Data shows that India added 9.6 GW of new photovoltaic capacity in 2017, bringing its cumulative installed capacity to 19.6 GW.

Furthermore, the European Solar Industry Association predicts that global new photovoltaic capacity will reach 102.6 GW this year, and from 2018 to 2022, global new installations will total 621.7 GW, averaging 124 GW annually.

Under the new policy, expanding overseas and cutting production capacity are currently the most realistic choices for the vast majority of photovoltaic companies.

However, the complex and volatile international situation, along with trade barriers and other factors, also place significant pressure on Chinese companies operating abroad.