Against the backdrop of "deleveraging, subsidy reduction and deflation", the traditional development model of "using incremental growth to resolve existing problems" in my country's photovoltaic industry has failed, with subsidies for existing photovoltaic power plants in arrears and new capacity quotas frozen. Where is the photovoltaic economy headed?
Only by recognizing the situation, facing the difficulties squarely, and innovating, can we fully explore the unique economic value of photovoltaic energy as a renewable energy source and green electricity, release the dividends of the photovoltaic economy and share them with all people, so that the future of this industry can be even brighter.
It is unlikely to become a necessity in the short term.
From the perspective of traditional energy, photovoltaic power generation has its own distinct characteristics, with prominent advantages and equally obvious disadvantages.
Its advantages lie in its inexhaustible and widely distributed resources, which can be moved synchronously with energy-consuming terminals, and the scale of the installed system can be large or small, offering great flexibility. Its disadvantages, however, are its reliance on weather conditions, low energy density, and weak competitiveness within the existing energy system.
Due to the instability and uncontrollability of solar resources, photovoltaic power generation is characterized by seasonality, regionality, and intermittency. Its power production has obvious fluctuations and randomness. Under extreme weather conditions such as floods, droughts, and hail, there is also the risk of no harvest.
At the same time, compared with thermal power, hydropower, nuclear power and even wind power, the output per unit scale of photovoltaic power generation is relatively weak. Its low energy density means that its scale benefits require intensive capital and land space as support, and it will be subject to deep-seated constraints from land, environment, space and consumption.
In addition, the high cost makes photovoltaic power generation significantly less competitive, and it is unlikely to become a basic energy source for people's livelihoods like thermal power and gasoline in the short term.
The industry's value curve is severely distorted by prioritizing production over application.
The photovoltaic industry has been booming in recent years, but in the supply-side driven development, capacity investment and installed capacity have been soaring, while key issues affecting the return on end-user investment, such as subsidy arrears and power curtailment, have been repeatedly ignored.
Before 2013, China's photovoltaic industry was a typical example of "both ends outside," with raw material sources and production capacity almost entirely dependent on foreign markets. As a result, the entire industry was severely impacted by the anti-dumping and countervailing duties imposed by Europe and the United States.
However, after 2013, under the strategy of localization and domestic demand, it went to the other extreme. The entire industrial chain was basically self-produced, self-sold and self-used. Domestic production capacity and installed capacity quickly exceeded the planned capacity, resulting in a serious shortage of subsidies. The decision-makers had to suppress domestic demand, causing great suffering to both inside and outside the industry.
Data shows that although the "531" policy imposed strict control on the installed capacity quota, the actual growth of installed capacity is still strong.
Data shows that in the first nine months of 2018, China's newly installed photovoltaic capacity reached 34.5 GW; polysilicon production reached 178,400 tons, a year-on-year increase of 4.94%; silicon wafer production reached approximately 63.3 GW, a year-on-year increase of 2.1%; solar cell production reached approximately 53.6 GW, a year-on-year increase of 5.1%; and module production reached 54.9 GW, a year-on-year increase of approximately 3.58%.
However, the large-scale installations are not commensurate with the fact that due to the prominent problem of power curtailment and generation restrictions, the utilization rate of many photovoltaic power station equipment has been seriously insufficient for many years, resulting in a huge waste of investment.
Moreover, the utilization rate of its power transmission and distribution equipment is extremely low.
Compared to other energy generation modes (except wind power), which can basically operate 24 hours a day, the average annual power generation hours of centralized power plants are less than 1,400 hours, or about 4 hours per day. The utilization rate of photovoltaic power plants for transmission and distribution equipment is only 16.7%, and their transmission and distribution assets are idle for about 83.3% of the year, resulting in a huge waste.
Lagging energy consumption upgrades hinder the rise of the photovoltaic economy.
In terms of scale, the photovoltaic economy accounts for a small proportion of the national economy and has a weak position in the energy landscape; its actual influence is far less than its industry reputation.
Among listed companies, photovoltaic enterprises are far less powerful than petrochemical energy enterprises; in social life, the integration of photovoltaics with people's livelihood is also far less than that of petrochemical energy; and in the total power generation of the whole society, the proportion of photovoltaic power generation is negligible. In 2017, the national photovoltaic power generation was 118.2 billion kWh, accounting for less than 1.82% of the national power generation of 6.5 trillion kWh.
Even so, driven by government leadership and strong subsidy policies, and with the continuous acceleration of my country's energy transition, the photovoltaic industry has rapidly become a global leader in terms of production capacity and installed capacity, and its rise is an indisputable fact.
On the other hand, due to the lack of consensus on the environmental costs of energy production, the green energy value of photovoltaic power has been consistently avoided. The price inversion between "low environmental cost" green power and "high environmental cost" fossil fuel power means that market players in green power not only do not receive material rewards, but also do not feel any sense of gain, resulting in end-use energy consumption still being dominated by traditional fossil fuels.
For example, as the largest recipient of photovoltaic energy, the power grid company has connected to the world's largest scale of decentralized and intermittent new energy sources, but it has not received a corresponding positive evaluation. Not only has it not gained better economic benefits, but it has also wasted a lot of manpower and resources, and even failed to achieve the result of losing money and gaining publicity.
The lagging consumer incentive mechanism has severely constrained the development of green energy, including photovoltaic power generation, making the transformation of the energy consumption incentive mechanism an urgent matter.
Recently, the macro-financial situation has been relatively severe. With limited financing channels and subsidies not arriving for a long time, photovoltaic power plant assets, which are capital-intensive, can hardly generate positive cash flow by relying solely on desulfurized coal-fired power price revenue. This poses a high risk of imbalance between income and expenditure and liquidity depletion for enterprises.
If exports are blocked or subsidies are canceled, the photovoltaic economy is likely to decline sharply, or even become stagnant. Meanwhile, addressing the industry's shortcomings, such as lagging basic research and applied innovation, and the elimination of low-end production capacity, will be a long way off.
Compared to petrochemical energy, photovoltaic power generation, as a clean energy source, is significantly less competitive in the existing energy system. Its sustainable development is constrained by multiple factors such as policies, markets, land, and subsidies. In addition, due to reasons such as the incomplete implementation of previous support policies and serious subsidy arrears, the industry's technological upgrading has not met expectations, and the market-oriented development model is still being explored.
In the short term, it will be difficult for the industry to achieve market-oriented circular development, and it still needs a certain degree of policy support.
The dual-track policy has led to a disconnect between supply and demand.
In reality, industrial policies have clearly lagged behind industry development, and market mechanisms and planned interventions are not well coordinated, resulting in the erosion of the economic value of photovoltaics in multiple ways.
(1) Market economy at the front end, planned economy at the back end, insufficient motivation on the user side
Currently, all aspects of the photovoltaic industry chain before a photovoltaic power station goes into operation have been marketized, such as the production and sales of silicon materials, cells, and modules, the procurement of electrical equipment materials, and the selection of power station design and construction, all of which are entirely determined by the market.
However, the sales volume and price of products after the power plant goes into operation are still determined by the government, leaving both supply and demand sides with no choice but to comply and no right to negotiate. Therefore, to put it bluntly, both sides can maximize their profits simply by maintaining good relations with the administrative agencies.
(2) Support policies have reached an inflection point ahead of schedule, and there is currently no good solution to the subsidy gap.
In 2013, to address the passive situation of anti-dumping and countervailing duties in the external market, the Chinese government launched an industry support model of subsidies per kilowatt-hour. This model has the following characteristics:
① Linking subsidies to the renewable energy fund solves the funding problem without increasing the fiscal burden;
② The fund is included in the electricity bill (electricity consumption increases year by year, and the source of funds is guaranteed), while having the power grid company collect it is equivalent to the government endorsing the source of subsidies;
③ After the power station is built, it will be centrally connected to the grid, and the generated electricity will be forcibly sold to the power grid company at the prescribed price;
④ With subsidies provided for 20 consecutive years, returns are guaranteed, and the power plant assets are used as collateral, so financial institutions see no risk.
⑤ The distribution of subsidies is carried out through a system of "separation of powers and mutual checks and balances" among the National Energy Administration, the Ministry of Finance, and the State Grid Corporation.
This system design can be described as perfect. Practice has also proven its effectiveness, not only enabling China to lead the world in photovoltaic installation growth for five consecutive years, but also allowing China's photovoltaic manufacturing industry to grow rapidly despite the encirclement by European and American markets, and forcing many of its European and American counterparts into bankruptcy.
However, every industrial policy has a turning point, and once that turning point occurs, it is very likely to produce negative incentives.
In my opinion, the turning point of the current photovoltaic industry support policies can be seen from the functional relationship between the "annual total amount of renewable energy surcharge (photovoltaic portion)" and the "annual total amount of photovoltaic subsidies". The result may lead to three trends: extensive growth, extreme growth, and high-quality value-added.
Remark
N: The year in which new photovoltaic subsidies are completely phased out; F: The total annual renewable energy surcharge (photovoltaic portion); S: The total annual photovoltaic subsidy.
Under the extensive growth model, the frantic pursuit of quantity and scale has led to excessively rapid growth in annual installed capacity, which cannot guarantee the high-quality development of the industry. Even before the subsidy phase-out period has arrived, the total amount of annual renewable resource surcharges is already far lower than the total annual photovoltaic subsidy. Subsidy demand will quickly exceed funding supply, resulting in photovoltaic power generation subsidies not being paid on time.
Under an extreme growth model, the ideal situation is a balanced increase in installed capacity, where the annual growth rate of renewable energy surcharges far exceeds the annual increase in photovoltaic subsidies. Subsidy demand is less than funding supply, resulting in a consistent cash surplus and the ability to gradually phase out subsidies. However, the worst-case scenario is slow or stagnant growth in photovoltaic installations, with almost no demand for subsidies, hindering industry development and rendering industry support policies ineffective.
In the high-quality value-added model, while maintaining a certain growth rate, high quality can also be ensured, the growth of installed capacity is controllable, and the industry develops healthily. The functional relationship between the annual growth rate of the total renewable energy surcharge and the annual increase in the total photovoltaic subsidy can be adjusted at any time. The subsidy demand moderately exceeds the funding supply, achieving a balance between subsidy and funding needs precisely in the year of subsidy reduction, but never resulting in subsidy arrears.
China's photovoltaic (PV) subsidy system initially had a significant positive impact on the industry, but later it developed a serious path dependency. The government's intervention failed to be withdrawn in a timely manner, nor were decisive adjustments made. This led to an earlier inflection point, resulting in extensive growth and a significantly larger-than-expected increase in installed capacity. This resulted in a huge subsidy shortfall and a series of complications, including:
The development of the photovoltaic economy is extremely unbalanced.
There are photovoltaic (PV) highlands with both favorable electricity prices and abundant sunshine, and PV lowlands with poor electricity prices and abundant sunshine. The former, such as Shandong, southern Hebei, and northern Jiangsu, have seen resource competition overburdening land and power grid resources. The latter, such as Guizhou, Chongqing, and eastern Sichuan, are still able to enjoy a certain degree of PV economic benefits.
The proportion of subsidies in the investment returns of power plants is too high.
Excessive subsidy ratios and arrears have severely impacted the revenue and cash flow of power plant investment companies. Furthermore, the imbalance between the development of ground-mounted power plants and distributed generation, and between grid-connected and self-consumption models, has exacerbated the subsidy arrears.
The subsidy payment process is rigidly designed.
This has resulted in subsidies and data circulating aimlessly among energy, finance, and power grid departments, causing great distress to power plant investment companies.
The design of subsidy funding sources lacks foresight.
The renewable energy fund is included in electricity bills, but the collection is insufficient, and the total annual fund amount is limited, which is no longer enough to meet the subsidy needs of existing photovoltaic power plants and wind power plants, let alone the annual increase.
The policy adjustment was too drastic.
The "531" policy adjustment has resulted in some legacy issues and unfinished projects. How to absorb these costs and resolve the conflicts remains a mystery.
Objectively speaking, the current photovoltaic industry subsidy system tends to resemble an imperial examination system, pursuing the maximization of subsidy benefits under the guidance of scale and cost targets. All companies are trying to guess what questions the policies will pose and what the standard answers will be, and taking shortcuts to win projects or obtain scale quotas has become the ultimate goal of the entire industry.
Even more tragically, the Leader Program, which is highly touted in the name of innovation, continues to reinforce this imperial examination-like approach.
Winter is already upon us. The subsidy funding gap is widening, and there is still no good solution. As financial and social capital gradually withdraws, the number of market players will decrease sharply, and some power plant companies that are owed subsidies may not be able to survive this winter.
(3) Imbalance in production, sales and consumption
The upstream manufacturing sector is fully market-driven, with entry and exit entirely regulated by the market itself. However, the downstream market demand side—investment in power plants—is still dominated by planning and controlled through annual construction scale targets, land resources, environmental approvals, and grid connection capacity.
In other words, while supply-side capacity continues to expand in a market-driven manner, demand-side capacity faces uncertain planned control. Market mechanisms and planned interventions run in parallel, resulting in the forced fragmentation of the industrial chain.
At the same time, in terms of policy regulation and planning, the excessive emphasis on some regional and key projects that are difficult to replicate and promote across the entire industry has also constrained the innovation and prosperity of the end-user application market to some extent.
In reality, some top-runner base projects and specially approved energy base projects not only failed to secure land and grid access, but also failed to pass environmental impact assessments. Many projects were built but could not be connected to the grid for a long time. There were also illegal construction projects, such as the Weishan Lake Fishery-Solar Hybrid Power Station in Shandong, which took shortcuts and played on the edge of regulations. These projects were eventually forcibly demolished, resulting in a huge waste of investment.
This phenomenon of focusing on investment without seeing benefits and emphasizing equipment installation while neglecting management is not an isolated case.
The inverse distribution of production and demand affects the maximization of the economic value of photovoltaics.
The coupling between my country's energy output and load characteristics and the existing power grid is too weak. The emergence of photovoltaic energy has exacerbated the contradiction between the reverse distribution of energy production and demand.
The current business model of the photovoltaic economy is negatively correlated with the national conditions. The dual spatial and temporal divergence between the photovoltaic power output center and the energy consumption load center exacerbates the structural imbalance between energy supply and demand, which can easily lead to dissatisfaction among stakeholders such as power generation, transmission and distribution, power consumption, and regulation.
The time discrepancy makes it difficult to maximize the economic benefits of the most valuable portion of photovoltaic power generation.
Solar power output is concentrated between 11 AM and 2 PM, a period characterized by high power generation and good power quality. However, under the current electricity pricing system, this period falls under the grid parity period for large industrial electricity use (0.64 yuan/kWh, taking Jiangsu Province as an example), which is significantly lower than the peak period price of 1.07 yuan/kWh. Therefore, the economic viability per kWh is not strong. Furthermore, this time coincides with lunchtime, when industrial energy demand is relatively low, resulting in weak instantaneous absorption of solar power. Consequently, solar power generation cannot maximize its value in terms of both price and absorption.
Remark
1. The red line represents the peak and off-peak electricity prices and time periods for large industrial users in Jiangsu Province;
2. The blue line represents the photovoltaic power generation output ratio by time period.
Due to spatial constraints, long-distance transportation is limited by the power grid system, making it difficult to achieve real-time and instantaneous balance between generation, supply, and consumption, thus hindering the maximization of the value of photovoltaic power generation in balancing supply and demand.
Photovoltaic power generation is mainly installed in the "Three Norths" region (Northwest, North, and North China), while my country's energy load centers are concentrated in East China, Central China, and South China. In order to absorb photovoltaic energy, it is necessary to increase the proportion of photovoltaic power in the "West-to-East Power Transmission" and "North-to-South Power Supply" projects year by year. This has disrupted the stability and balance of regional interests and exacerbated the contradictions between different departments and regions.
The optimal closed loop for the power economy is a real-time balance between generation, supply, and consumption, where electricity generated is transmitted promptly and consumed instantaneously. The intermittent, volatile, and random characteristics of photovoltaic power generation easily lead to structural misalignments between generation, supply, and consumption; coupled with the lack of conventional power source performance, a significant decrease in grid short-circuit capacity, and a severe deficiency in system dynamic regulation capabilities, all of these exacerbate the imbalance between power production and instantaneous consumption across the entire grid.
