China's new PV FIT rates may spur H1 development rush — analyst

China’s solar feed-in tariff (FIT) rates for 2016 will likely trigger a development rush in the first half of the coming year, as the new incentives are lower than initially expected, according to Taiwanese research firm EnergyTrend.

Some solar projects that developers connect to the grid before 30 June, 2016, may still qualify for the 2015 FIT rates.

“(The) FIT scheme will stimulate stronger demand domestically in the first half of 2016,” EnergyTrend analyst Patrick Lin said. “Companies that own PV projects approved in 2015 will rush to build and interconnect their portfolios so that they can be eligible for the 2015 rates.”

From 1 January, projects built in western provinces such as Ningxia, Qinghai and Xinjiang will qualify for a FIT rate of 0.80 yuan ($0.12)/kWh, from 0.90 yuan in 2015. The new FIT is roughly 0.05 yuan lower than the tentative rates announced by the government in October.

PV arrays installed in Beijing, Tianjin and specific parts of Qinghai, Xinjiang and Gansu will receive a FIT rate of 0.88 yuan/kWh, down from 0.95 yuan/kWh at present, or roughly
 0.04 yuan lower than initially expected.

Projects built in other parts of the country will be eligible for a FIT rate of 0.98/kWh — roughly within initial expectations — from a current rate of 1 yuan/kWh.

The sharper-than-expected cuts will likely drive down the internal rate of return (IRR) for projects built in western China and the greater Beijing area by 1% to 2%, according to EnergyTrend.

“EPC service providers may find ways to reduce PV system costs to maintain current IRR rates,” said Lin, noting that they may start favouring cheaper solar panels and inverters as a result.

The NDRC is expected to further reduce its FIT rates for 2017.