In 2011, a new feed-in tariff (FiT) scheme for solar projects was introduced by the NDRC (National Development and Reform Commission of the People’s Republic of China), a group that formulates and implements strategies of national economic and social development. A “feed-in tariff” is a form of subsidy that encourages development in alternative energy and increased grid-connected capacity.
In China, these government mandated tariffs guarantee that the state grid will purchase electricity per kilowatt hour (kWh) at a certain price from power companies. The price of alternative energy is typically higher than conventionally generated electricity as the cost of alternative energy generation is normally higher than conventional generation. The 2011 tariff was intended to offset this and to boost the number of grid connected solar projects in China. Under the new scheme, the FiTs for solar projects completed before December 31 of 2011 have a rate of 1.15 RMB kWh (about $0.1825/kWh), and for projects completed after that date (except for those located in Tibet) the rate is 1 RMB/kWh. (The renminbi, RMB, is the official currency of the People’s Republic of China; $1.00 = 6.30 RMB.) As this tariff was announced by the central government and was applicable nationally, it eased the economic fears of project investors and created lots of enthusiasm for investing in China’s domestic photovoltaic (PV) market. By the end of 2011, there were 2.9 gigawatts (GW) of installed solar power capacity added to the grid in China, almost quadruple the 2010 installed capacity. By the end of 2012, this figure is estimated to reach 5–6 GW. At a time when the world is casting a spotlight on China’s burgeoning domestic solar market, it is important to evaluate government subsidies, profitability, and the financial sourcing of these projects. Doing so reveals hidden problems within this current development trend.
Concession Bidding
In 2009 China started to use a bidding system that granted concessions to PV project operators to build and run solar plants after proposals for such projects were submitted. A concession gives an operator the long term right to use the projects’ assets conferred on the operator, including responsibility for all operation and investment. This form of bidding gave PV investors the chance to evaluate potential return on investment (ROI) and partner with appropriate solar panel and inverter suppliers. Concession bidding results have served as a guideline to policymakers to understand potential project profitability, and assisted them in setting a suitable FiT. Bidding results, however, show the tariffs in 2010 were generally under 1.0 RMB/kWh and projects lacked profitability. Some of the projects bid for in a second round of concession bidding in 2010 have only recently begun construction. Today, concession bidding projects have a total installed capacity of 290 megawatts (MW). With concession bidding below the new FiT rate benchmark, this form of project bidding is expected to fade out.
... to continue reading you must be subscribed
