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- An Expert's Opinion- 

#1 EYE ON CHINA: A discussion of the solar giant’s recent carbon & power policies and the key impact on the PV industry

Frank Haugwitz is the founder of solar consultancy, Asia Europe Clean Energy (Solar) Advisory Co. Ltd. (AECEA).

In this piece, he sheds some light on the situation surrounding the solar industry in China from his position as a key market insider.

1) Could you tell us briefly what your consultancy specialises in?

Asia Europe Clean Energy (Solar) Advisory Co. Ltd. (AECEA) was founded in 2012, specialising in the Asian solar PV market, and China in particular. Part of the scope of services is providing Market Intelligence featuring review and analysis of solar energy policies and trends, analysis of competitors, suppliers and other market stakeholders, and on market outlook and development. Furthermore, we also offer Advisory on Governmental Institutions & Policy Development through policy updates, analysis, and evaluations, as well as Advisory on Business Development which comprises the identification of possible clients and partners, initiation of contact and contact development, negotiation and mediation. We have also assisted clients in the development of action plans, analyses of business environment, facilitation and implementation of projects, and elaboration of potential market entry strategies.

2) As a PV expert based out of China, could you explain in layman’s terms what are the Double Carbon Policy and the Dual Control Policy?

In September 2020, China’s President Xi Jinping announced that China’s CO2 emissions shall peak before 2030 and also shall achieve carbon neutrality by 2060, hence a “Double Carbon Policy”. Last December, more details were made available, i.e. China would aim to cut carbon intensity per unit of GDP by more than 65% from 2005 levels and would increase the share of non-fossil fuels in energy consumption to 25% by 2030. Moreover, by 2030 China aims to be home to a minimum of 1200 GW of operational wind and solar PV power generation capacities.

The “Dual Control Policy” refers to the reduction of quantitative targets set for both total energy consumption and energy intensity or the amount of energy consumed per unit of GDP growth (which serves as a measure of the energy efficiency of an economy). In 2020, China limited its energy consumption to 5 billion mt of standard coal equivalent. As a result, each province is subject to meet their respective targets set earlier this year by China’s National Development and Reform Commission (NDRC). Subsequently in August the NDRC issued a dual control scorecard for each province, with indicators for those which had met or exceeded energy consumption targets. Accordingly, the scorecard features three indicator colours - red, orange, green - and only 10 out of 30 provinces scored green twice. At the same time provinces like Qinghai, Ningxia, Guangxi, Guangdong, Fujian, Jiangsu and Yunnan, each exceeded both targets. In mid-September, NDRC, the country's top economic planner announced updated measures under its existing dual control policy that seeks to curb both energy consumption and energy intensity. Consequently, various provinces have released their individual actions plans designed to ensure a realization of these targets before the end of 2021.

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3) Could you highlight to us specific examples where PV as a power generation industry is currently at and how it can be boosted further by these policies?

An immediate impact of the above briefly elaborated policies is that distributed solar PV has gained significant importance simply because it allows for example, factories to consume on-site their locally generated power, which often, in particular during peak hours is significantly more affordable than grid-supplied power. In this context, in late August, China’s National Energy Administration (NEA) approved new pilot programme specifically designed to promote the deployment of distributed solar PV.

Accordingly, by the end of 2023 no fewer than 50%, 40%, 30%, 20% of existing government, public, commercial and rural buildings shall have a solar rooftop system. Assuming 200-250 MW per county, total demand derived from this programme alone could be in the order of between 130 and 170 GW by the end of 2023.

Furthermore, if the PV system is combined with an electrical energy storage (EES) unit, it allows the factory to extend its production hours. To date, approximately 2/3 of all provinces have made it mandatory that every newly C&I PV-rooftop system and ground-mounted system has to be combined with an EES unit.

4) And how about PV as a manufacturing industry? How is that impacted by these policies recently?

As an example, the Yunnan provincial government released a notice instructing monthly silicon production output to be reduced by 90% from September to December. Between January to August, Yunnan’s industrial silicon output made up approximately 20% of China’s total domestic supply. As of today, prices for industrial silicon have reached RMB 80- 90,000/t, whereas at the same time quotations for polysilicon has reached an all-time high of RMB 250-260/kg, up approximately 180% YoY.

In addition to silicon, manufacturers of steel, cement, coal, aluminum, chemical industries, etc. have had to reduce production output. Aluminum prices increased by 20% in a single day and is now at the highest price level since the mid- 2000s. Since Jan, aluminum increased by +50%. Consequently, given the price increase for raw materials, which translates to higher prices for EVA, backsheet, soda ash / heavy soda ash, junction boxes, etc., prices for solar panels have reached a level not seen in the past 12-18 months. Latest bid prices for public solar module procurement tenders are in a range above RMB 1.9/W!

Furthermore, if the PV system is combined with an electrical energy storage (EES) unit, it allows the factory to extend its production hours. To date, approximately 2/3 of all provinces have made it mandatory that every newly C&I PV-rooftop system and ground-mounted system has to be combined with an EES unit.

5) Finally, is there one specific topic you are keeping a keen eye on recently?

As a response to the Dual Control policy, very recently an increasing number of provincial governments, notably Guangdong, Guangxi, Henan, Jiangxi, Jiangsu amongst others, are planning to introduce a more differentiated electricity tariff structure scheme, in an attempt to stimulate a more rational use of power. For example, the so-called peak vs valley price difference amounts to RMB 1.173/kWh and RMB 0,85/kWh in Guangdong and Henan respectively. Such schemes, anticipated to become effective during October/November will drive the emergence and development of new business models, in particular, when combined with distributed solar PV. Furthermore, such rooftop solar systems will help reduce manufacturers’ carbon footprints and reliance on coal power.

Frank Haugwitz, Asia Europe Clean Energy (Solar) Advisory Co. Ltd. (AECEA)
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