“We’ve already halted work on 11 megawatts of industrial and commercial distributed solar PV projects,” says the marketing director for one solar photovoltaic (PV) module manufacturer in Guangdong province.
“Without subsidies there’s no return on investment for over a decade, so investors and property owners aren’t interested in distributed solar. With subsidies it only takes seven years to recoup the investment,” he adds.
This is one consequence of China’s “531” policy that was announced by the National Development and Reform Commission, the Ministry of Finance, and the National Energy Administration without warning on May 31 (hence the “531” name). The policy is designed to control breakneck growth in the solar sector, principally by accelerating the phase-out of subsidies.
China has led the world in new solar installations in each of the past five years, helped by guaranteed electricity prices. But the cost of subsidies has been growing unsustainably, and as manufacturers have expanded rapidly to meet demand the risk of overcapacity has grown.
The new policy brings the industry to a crossroads. During the 12th Five Year Plan period (2011-2015) subsidies were paid late and there was significant wastage of both solar and wind power. Those lessons should have been learned by now, says Meng Xiangan, deputy director of the China Renewable Energy Society. To avoid a repeat, the sector can either lobby for an extension of subsidies and continue its rapid and unsustainable expansion, or accept that new capacity will face a tougher challenge on costs.