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‘Solar growth to shift to inland China again as support phased out‘

Utility-scale projects inland will dominate the PV expansion through 2028 as curtailment eases, Fitch Solutions says

The phase-out of subsidies for the Chinese solar power sector by 2021 will lead to a resurgent growth in inland provinces – notably Gansu and Xinjiang – through 2028, Fitch Solutions Macro Research said in a note.

Those provinces, as well as neighbouring Inner Mongolia and Qinghai, had dominated China’s rapid solar expansion up to 2016, featuring mostly utility-scale projects. But they were outshone by smaller, distributed solar installations in coastal provinces in 2016-18 amid grid curtailment.

“The steady reduction in renewables generation curtailment between 2016 and 2018, and anticipated continued progress in integrating inland renewables supplies to the grid over the coming five years, lead us to expect inland regions to again become the key solar capacity growth drivers in China over the coming decade,” the researchers at Fitch Solutions predict.

“This view is also informed by the provinces having the best natural conditions for solar power and land availability, key supportive factors for cost-competitiveness.”

As support is being phased out, factors such as the greater availability of land in the inner provinces, as well as favourable solar irradiation rates, will help Xinjiang, Gansu, Qinghai and Inner Mongolia again to lead the solar expansion in Asia’s biggest economy.

In 2014, the four provinces still had made up 56% of China’s total installed solar capacity.

Subsequent bottlenecks in grids transporting power from the inner provinces to population and industry load centres at the coast - exacerbated by a rapid wind power expansion - led to high curtailment rates that also increasingly challenged the solar sector.

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Fitch Solutions’ view of an inland shift in the solar expansion was underscored by the country’s first unified bidding round for PV in July 2019, in which 80% of the 22.78GW allocated were given to utility-scale projects.

“This utility-scale project share of total, coupled with an average submitted bid of $47/MWh for the successful projects (close to the various provincial coal benchmark tariffs), highlights an overarching focus on registering cost reductions,” the researchers said.

“We believe cost reductions will remain at the forefront of Chinese government considerations as it seeks to make renewable energy cost-competitive vis-a-vis coal. This will in turn support utility-scale development, by extension favouring inland development.”

Gansu and Xinjiang provinces had been excluded from the first bidding round, but Fitch Solutions reckons falling curtailment rates will unlock the two provinces for growth in the longer term.

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