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 China has a target of installing 14.5 gigawatts (GW) of solar
generating capacity this year - close to Finland's entire power
capacity.
Of that, it expects 8GW from so-called distributed solar, which
includes rooftop panels and other small installations. The aim is to
redress an imbalance caused by a glut of large solar farms in
China's vast western region, where there is plenty of sunshine but
not enough infrastructure to harness and transmit the power to the
densely populated south and east.
But unless China promises bigger subsidies and financing support,
and streamlines the process of acquiring rooftop rights, companies
say the rooftop installations just aren't worth it.
"The economics of distributed solar are in doubt," said Wang Xiangfu,
chief executive of Hong Kong-listed solar panel maker and solar
power developer Shunfeng Photovoltaic International Ltd. "The goal
is very difficult to achieve unless the state raises subsidy," said
Wang, echoing the view of officials at numerous major Chinese solar
makers and developers interviewed by Reuters over the past few
weeks.
Even state-run media have cast doubt on the government's projections
for distributed solar.
China Energy News, which is published by the People's Daily - the
flagship newspaper of the Communist Party - on Sunday quoted
industry experts as saying that it would be "difficult" to realize
the plan due to a series of challenges, from unattractive returns to
the quality of many rooftops in China.
U.S.-listed Yingli Green Energy, whose shares have doubled in the
past year, said its focus remained on solar farms even though it
announced in January that it had partnered with China National
Nuclear Corp to develop 500 megawatts (MW) of distributed solar in
China.
"We are increasing our efforts in the (distributed) market segment
... that said, the majority of our 2014 pipeline is from the utility
sector," said Yingli spokeswoman Qing Miao.
Lured by generous subsidies and easy loans, Chinese solar developers
installed 10-11 GWs of solar generating capacity last year, mostly
solar farms in the Gobi desert and barren hills of western China.
Some solar farms are still sitting idle, unconnected to the grids.
LET THE LOBBYING BEGIN
Chinese solar companies are lobbying Beijing to transfer part of the
quota for distributed energy projects this year to the construction
of solar farms, which offer more attractive annual returns of above
10 percent at a subsidized feed-in tariff of up to 1 yuan per
kilowatt hour (kwh).
But if there is no quick response, it could disrupt China's solar
installation plan this year and hurt sales of major solar panel
makers, analysts say.
After being hit hard by overcapacity, trade and price wars in the
past few years, companies including JinkoSolar, Trina Solar, JA
Solar and Canadian Solar saw a strong rebound in their business and
share prices over the last two quarters.
That was mainly driven by China's announcement in July that it
planned to more than quadruple solar generating capacity to 35 GWs -
which entails total investment of $50 billion - by 2015. Japan's
push to find alternatives to lost nuclear power following the 2011
Fukushima disaster added to optimism in the solar sector.
Analysts expect global panel shipments to rise by at least a 10th
this year to more than 40 GWs, led by China and Japan.
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That has fuelled investor optimism.
Edward Guinness, co-portfolio manager at Guinness Atkinson Asset
Management in London, which holds shares in Trina and Yingli,
believes the solar industry is moving into an upcycle, with demand
strong and panel prices unlikely to fall further.
"I think China can get to 14.5GW this year," he said. "I expect
China to exceed expectations over the next two years in terms of
installations."
UP ON THE ROOFTOP
China offers a subsidy of 0.42 yuan per kwh for distributed solar,
which solar companies say isn't enough to make up for the risks and
hassles. It is difficult to get rooftop rights, and customers have
to pay upfront to install systems that take years to pay off.
Some analysts say China would need to raise the subsidy by at least
0.10 yuan per kwh to make distributed solar attractive.
China hopes rooftops of industrial properties would become a major
target for solar installation and factory owners can become a source
of demand for solar-generated electricity. But solar power
developers have their doubts about credit-worthiness among China's
small businesses.
Financing is a problem because banks and local capital market
investors generally don't understand the economics of distributed
solar projects and have doubts about the earnings prospects.
Distributed solar yields annual returns of less than 10 percent,
industry officials estimate, compared with around 12 percent for
large-scale solar farms. That is not enough to attract the
cash-starved smaller businesses that it is hoped will play a big
role in distributed solar development.
Returns may be even lower if solar developers have to rent rooftops.
Most of China's existing 5 GWs of distributed solar projects were
installed under a pilot scheme called Golden Sun, which offers more
generous subsidies but will be terminated soon, industry experts
say.
"The 8-GW distributed solar may eventually get built this year. said
Jiang Zhe, chief executive of Shanghai-based Upsolar, which
specialises in installing rooftop solar in China. "But we all know
it is an extremely challenging target."
(Editing by Emily Kaiser and Alex
Richardson)
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