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Solar braces for impact as China slams on the brakes

Solar stocks hit hard as Beijing signals moves to slow runaway PV growth and reduce subsidies

China has unleashed new policies designed to put a brake on the country’s red-hot PV growth, hitting the share prices of companies operating in the solar and wider clean energy sectors as the country’s government apparently runs out of patience with its ballooning renewables subsidy deficit.

In a coordinated effort, China’s National Development and Reform Commission, Ministry of Finance, and National Energy Administration issued the ‘2018 Notice of Solar PV Power Generation’ of 1 June, which aims to “ensure (the solar industry’s) healthy development and speed up the subsidy reduction process”.

The regulators announced a halt to the development of all further utility-scale PV plants and abolished the 2018 target “until further notice”, an abrupt reversal from the previous plan to install at least 13.9GW of such projects.

Officials also set a cap of 10GW on the installed capacity of distributed PV this year.

The policy means a sharp cut to feed-in tariffs of all solar PV — both utility-scale and distributed projects — by 0.05 yuan/kWh ($0.0078/KWh).

Following the cut, PV feed-in tariffs will drop to 0.5-0.7 yuan/kWh, and the direct subsidy to distributed PV projects provided by national government will shrink from 0.37 yuan/kWh to 0.32 yuan/KWh.

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The purpose of the policy is to force solar PV towards grid parity more quickly, as financial pressure is mounting on China’s Renewable Energy Development Fund (REDF). The fund subsidises wind and solar projects across the country but has ramped up a deficit (representing outstanding payment to renewable companies) of 100bn yuan ($15.6bn) as of 2017.

Last year, PV installation in China registered a record high 53.4GW and a year-on-year growth of 53.4%. But the solar boom also added to the fiscal burden on REDF.

A desire to control renewables subsidies is also apparently behind near-simultaneous moves to push wind developers into a competitive situation and away from FITs.

Following the solar policy release, China International Capital Corporation reduced 2018's PV installation projected figure by up to 10GW.

China’s Solar PV Association expects a 30% decline in solar installations from its previous projection of 40GW.

The abrupt policy shift hammered the stock prices of publicly-traded solar companies, listed in China itself and beyond,

NYSE listed Chinese module-makers JinkoSolar and Canadian Solar closed 9% and 14% lower on Monday, while US group First Solar was more than 6% down.

Analysts said the Chinese policy move could see downward pressure on solar and wider renewable pricing beyond China, as its huge manufacturing supply base seeks replacement markets for the missing domestic capacity.

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