How has China's photovoltaic (PV) industry developed over the past year? How will the PV industry develop in 2019 under the grid parity policy? What are the obstacles to the PV industry under the grid parity policy? Recently, a reporter interviewed Ms. Wang Shujuan, a director of the Energy Investment Professional Committee of the China Investment Association, on these issues. Ms. Wang Shujuan holds a cautiously optimistic attitude towards the development of PV in 2019. She believes that non-technical factors such as high financing costs, high land costs, high transmission costs, and subsidy arrears are obstacles to grid parity for the PV industry. These problems will be gradually resolved with the recently issued "Notice on Actively Promoting the Grid Parity of Wind Power and Photovoltaic Power Generation without Subsidies" (hereinafter referred to as the "Notice").
China's photovoltaic industry continues its rapid development and maintains its leading position.
Over the past year, total electricity consumption increased by 8.5% year-on-year, the highest growth rate since 2012. "China's photovoltaic industry is also on a path of rapid development, with key technical indicators continuing to lead the world," said Wang Shujuan. "This rapid development is mainly reflected in four aspects."
First, the output of the photovoltaic industry has increased significantly. Wang Shujuan said, "In 2017, China produced 54.8% of the world's silicon material, 87% of silicon wafers, 69% of solar cells, and 71% of modules, and this trend was basically maintained in 2018." In the photovoltaic industry, Chinese companies account for the vast majority of the top ten global manufacturers of solar cells, modules, polysilicon, and silicon wafers, especially in the silicon wafer and module segments, where all of the top ten producers are Chinese companies.
Secondly, photovoltaic product exports increased while imports decreased. In 2018, despite a price drop of over 30% across all segments of the photovoltaic industry, exports still increased by 10.9%, reaching US$16.11 billion. Imports of polysilicon totaled US$1.87 billion, a year-on-year decrease of 21.9%.
Third, battery conversion efficiency has improved rapidly. Driven by the Top Runner Program, the latest battery conversion efficiency has improved rapidly, reaching a record high of 24.06%. "Taking a 1-square-meter module as an example, the mainstream power modules in 2016 could generate 226 kWh of electricity, while the current Top Runner modules can generate 270 kWh, an increase of 19%," Wang Shujuan told reporters.
Fourth, product prices have dropped significantly. Over the past 10 years, the cost of photovoltaic modules and photovoltaic systems has decreased from 30 yuan/watt and 50 yuan/watt to the current 1.8 yuan/watt and 4 yuan/watt, respectively, both down by more than 90%.
"It can be said that the photovoltaic industry is one of the few advantageous industries in my country that can participate in international competition simultaneously and achieve a leading position in industrialization," said Wang Shujuan.
The "531" policy for photovoltaic power generation accelerates the introduction of policies for grid parity.
When discussing the development path of the photovoltaic industry, one cannot ignore the 2018 photovoltaic "531" policy (the "Notice on Relevant Matters Concerning Photovoltaic Power Generation in 2018," National Development and Reform Commission Energy [2018] No. 823). What is the relationship between this policy and the grid parity policy? Wang Shujuan believes that the photovoltaic "531" policy accelerated the elimination of outdated production capacity. Since its implementation, the photovoltaic "531" policy has accelerated the reshuffling of enterprises, leaving behind truly competitive companies. At the same time, the photovoltaic "531" policy significantly reduced module prices, accelerating the issuance of the "Notice." Without the photovoltaic "531" policy, at a normal development pace, current costs might not be sufficient to support the implementation of grid parity projects.
Looking at the whole of 2018, the price of polysilicon fell by about 50%, the price of solar cells by 40%, the price of silicon wafers by 40%, and the price of modules by about 30%. These price reductions mainly occurred after May 31, 2018. Due to the significant price drop in Chinese products, the cost of projects at the application end decreased, thus contributing to a substantial decrease in the cost per kilowatt-hour. Currently, a large number of photovoltaic projects with low electricity prices have emerged both domestically and internationally. For example, in September 2016, a photovoltaic project in Abu Dhabi won a bid at 2.42 US cents/watt (equivalent to 0.16 yuan/watt), and this project is now connected to the grid. Domestically, the winning bid price for the "Top Runner" project in Golmud, Qinghai Province, is only 0.31 yuan/kWh, lower than the local benchmark price for desulfurized coal-fired power. "Stimulated by the photovoltaic '531' policy, domestic and international markets are moving more rapidly towards the era of grid parity," said Wang Shujuan.
After undergoing the selection process of the "531" policy for photovoltaics and the market test of survival of the fittest, what will China's photovoltaic industry look like in 2019? Wang Shujuan used the keywords "transformation" and "return" to predict the development trend of China's photovoltaic industry. "Transformation" refers to the photovoltaic industry's shift from subsidy dependence to market-oriented operation, and the industry's business and operational models will undergo new changes. "Return" refers to photovoltaics returning to its essential attribute of electricity. As an energy form, photovoltaics has always been treated as a "specially cared-for child," receiving government policies and subsidies, making it somewhat different from other power sources. After several years of development, the photovoltaic industry will gradually break free from the subsidy situation, gradually becoming a conventional energy source, and "competing" with coal power, hydropower, and other sources, becoming an ordinary member of the power family. This is mainly reflected in the trend of a gradual increase in the installed capacity of the photovoltaic industry. In just seven years, the main links of the photovoltaic industry chain have achieved breakthrough growth, with China's cumulative installed photovoltaic capacity increasing from 1 gigawatt to 130 gigawatts. Data from the China Electricity Council shows that as of the end of November 2018, solar energy accounted for 39% of newly installed solar capacity in my country, and the cumulative installed capacity of solar energy had reached 9%.
So, what will be the scale of the photovoltaic market in the next two years? Wang Shujuan believes that in 2019, the domestic photovoltaic market will see 9 to 10 gigawatts of ordinary ground-mounted photovoltaic power station projects, 1.5 gigawatts of village-level photovoltaic poverty alleviation projects, 2.5 gigawatts of the second batch of application leaders, 1.5 gigawatts of the third batch of technology leaders, and 5 gigawatts of remaining industrial and commercial quotas. By 2020, if costs are low enough, grid parity is achieved, the benefits of power sector reform policies are released, distributed trading is further promoted, and energy storage technology matures further, breaking through the grid penetration rate (the proportion of installed capacity of electric fields in the system to the total load of the system), it is still possible to reach 50 gigawatts of installed capacity by 2020.
(1) System costs are further decreasing, making large-scale industrial distributed generation a worthwhile investment; more ground-based projects can achieve grid parity.
(2) Distributed market-based trading is fully liberalized;
(3) Energy storage costs will further decrease;
(4) People in the photovoltaic industry have figured out an effective model for developing and investing in grid parity projects.
Based on the above conditions, an installed capacity of over 50 gigawatts can be achieved in 2020.
Obstacles and Solutions to Grid Parity for Solar Power
The photovoltaic industry will gradually move away from the era of relying on subsidies for survival. What obstacles will the photovoltaic industry face in the post-subsidy era, and how can these obstacles be overcome? Wang Shujuan believes that the biggest obstacle is non-technical factors, and the key to overcoming these obstacles is to seek benefits from both technological and non-technical factors.
From a technical perspective, in 2019, high-efficiency modules, tracking brackets, and 1500-volt systems (which increase the DC-side voltage of the photovoltaic system to 1500 volts, raising the withstand voltage of components such as cables, combiner boxes, and inverters from 1000 volts to 1500 volts, thereby improving efficiency and reducing costs) will be beneficial for the photovoltaic industry to achieve grid parity. These new technologies and equipment will increase costs by 15%, which can be offset by an increase of 25% to 30% or more in electricity generation. In other words, grid parity can be achieved through a path of slightly increased investment, significantly increased power generation, and thus a decrease in the cost per kilowatt-hour.
However, the cost reduction brought about by technology is limited. The total cost of a photovoltaic project includes equipment costs (modules, inverters, and other electrical equipment), construction costs, other expenses, and basic contingency reserves (unforeseen expenses during the project, generally around 2%). These costs are showing a downward trend year by year. The price of photovoltaic modules in China has already dropped from over 30 yuan/watt to 1.8 yuan/watt, and there is not much room for further price reductions. Wang Shujuan predicts that in 2019, the price of photovoltaic modules in China may see a decrease of about 0.15 yuan/watt, and the entire system may see a decrease of about 0.5 yuan/watt.
Besides improving efficiency through technology, achieving grid parity also hinges on improving efficiency through non-technical costs. According to UBS Securities, non-technical costs for some projects currently reach 0.5-1 yuan/watt, accounting for 10-20% of the total installed capacity cost. While overseas photovoltaic (PV) bidding prices have fallen below 0.2 yuan/watt, even in Golmud, a region in China with the best technology and solar resources (similar resource levels to overseas regions), the price remains above 0.3 yuan/watt due to non-technical costs. Wang Shujuan believes that grid parity faces challenges such as high financial costs, high transmission costs, and high curtailment costs.
First, financing costs are high. While financing costs abroad are only 2% to 3%, some private enterprises in China face costs as high as 10%. The "Notice" proposes to address this through financial product innovation. However, this involves the profitability of banks, and how the photovoltaic industry will implement financing remains to be seen.
Secondly, land costs are high. The collection standards for land taxes and farmland occupation taxes in many places are vague. Regarding this, the "Notice" requires local governments to provide support in terms of land use and land-related fees for unsubsidized grid parity projects. However, one of the main motivations for local governments to support renewable energy development is that projects can bring investment and create jobs, in addition to land rental income, while also driving related infrastructure construction. The unsubsidized policy will compress project revenue and prohibit local governments from imposing additional conditions, thus reducing the space for local revenue. This will pose challenges to the implementation of the unsubsidized policy.
Secondly, transmission costs are high. According to surveys, 70% of the transmission lines in my country's photovoltaic industry are constructed and their costs borne by the photovoltaic companies themselves; Article 5 of the "Notice" clearly states the need to earnestly implement the grid connection project construction responsibilities of power grid companies. While the "Notice" assigns responsibility to power grid companies, as a business, the power grid faces the issue of cost recovery.
Fourth, the cost of power curtailment is high. Although the situation regarding solar power curtailment improved significantly in 2018, with the curtailment rate dropping to around 3%, it remains high in western regions such as Xinjiang, Gansu, and Shaanxi. Regarding this issue, the "Notice" states, "If wind or solar power curtailment exists, the curtailed power generation will be designated as a transferable priority power generation plan. The designated priority power generation plan can participate in power generation rights trading (transfer) nationwide, with the trading price determined by the market." How to ensure successful trading and how to determine the curtailment rate still require exploration in practice.
Fifth, subsidy arrears are severe. At the end of 2018, the national subsidy arrears reached over 140 billion yuan, with many photovoltaic companies owed billions of yuan, amounts even exceeding their profits. High financing costs have created significant financial pressure. Given the lack of a good solution to the subsidy arrears, if the subsidy program continues in its current form, the maximum amount could exceed 500 billion yuan. Many companies might be owed 500-600 million yuan annually, placing immense pressure on private enterprises. "Currently, in many places, private enterprises are selling projects while state-owned enterprises are buying them." This phenomenon also hinders policy implementation.
Sixth, the cost of photovoltaic projects varies. The different costs of different types of photovoltaic projects also make grid parity difficult. Currently, photovoltaic projects can be divided into many types, including industrial and commercial projects, large-scale industrial and commercial projects, ordinary ground-mounted power stations, and agricultural-solar hybrid power stations, with costs ranging from 3.5 yuan/watt to 5 yuan/watt. This creates certain difficulties in calculating grid parity. Wang Shujuan believes that "industrial and commercial projects have the lowest investment and the highest pricing, so they are the easiest to achieve grid parity."
Seventh, distributed trading has not been well implemented. This is a major reason why large-scale grid parity is difficult to achieve. my country has relatively sound market-based power generation trading policies, but some obstacles have been encountered in their implementation, such as issues related to roof size, power load mismatch, power supply stability, and homeowners' reluctance to pay electricity bills. The "Notice" clarifies that surplus electricity sold to the grid will be subsidized at 0.32 yuan/kWh, and it is hoped that these problems can be gradually resolved through the adoption of distributed trading.
These factors constitute obstacles to grid parity for photovoltaic power generation and need to be addressed one by one by market players through exploration, provided that various policies are implemented in practice. As the national requirements and support policies for unsubsidized grid parity for photovoltaic power generation are implemented, the market competitiveness of photovoltaic power generation will improve, and renewable energy will usher in higher-quality development.
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