PV’s fortune cookie? November, 2009: A Chinese PV power plant installation wish list of 12.5 GW – including 2 GW through First Solar – waits for a rumored FIT to make it all come true © Enfinity N.V.  Getting dirty: Gino Van Neer, CEO of Belgium-headquartered PV project developer Enfinity, ceremoniously gets to work on a 10 MW solar farm being installed by his group – which includes LDK – in Dunhuang, Gansu province, after the initial winner was rejected for a bid judged much too low. On Sept. 12, international trade took a turn for the worse in Washington, DC as an economic turf skirmish between the US and China suddenly flared up. President Barack Obama announced plans for tariffs of up to 35 percent on tires made in China. A visiting Chinese delegation of the Standing Committee of the National People’s Congress (NPC), headed by Chairman Wu Bangguo, considered the second-most powerful Chinese politician, quickly retaliated. Seemingly threatening to use those targeted tires to run down American fowl, it immediately put US-bred chicken meat on its list to get similar treatment. With the world trying to climb out of a year of recession, an unpleasant tit-for-tat battle of trade protectionism appeared to be brewing. Tip of the iceberg But prior to this game of chicken in the lead up to the late-September Group of Twenty meeting of industrialized and emerging nations in Pittsburgh, Pennsylvania, was an event that showed Chinese-US trade ties may be stronger than ever – at least when it comes to PV. The very same Chinese delegation that reacted with scorn in the US capital had actually made its first American stop some 3,000 km to the west in Phoenix, Arizona, a few days before. Why there? Because nearby Tempe is the headquarters of First Solar Inc., the hot cadmium-telluride module manufacturer that apparently is not only gunning to take over the lead in PV production, but is making a move for downstream dominance. The proof came on Sept. 8. In the presence of NPC Standing Committee chairman Wu, First Solar CEO Michael Ahearn signed a memorandum of understanding that could lead to the PV company installing an incredible 2 GW of ground-mounted solar parks in the sun-rich northern Chinese province of Inner Mongolia by 2019 – the biggest, single arrangement involving PV installed capacity ever. But as big as it was, it may be just the tip of a PV iceberg for Chinese installed capacity. By going through hundreds of English and Chinese media reports, and company press releases, aiming to weed out any possible double counting, PHOTON International has tallied up installation plans by the country’s PV manufacturers, local governments and above all its major utilities. The total? At least 12.5 GW of ground-mounted and rooftop grid-connected PV, mostly by 2020. And there is undoubtedly much more that has not yet been reported. While PV manufacturers, largely in China, are forging many of the deals, the country’s major power utilities have turned out to be equally big drivers. Of the more than 60 agreements PHOTON International has identified, about half – representing 7 GW – are being pushed either directly by utilities and their subsidiaries, or local governments and investment groups, heralding a potentially lucrative market for PV module suppliers. But before popping the champagne corks, a sober perusal reveals a hefty measure of hope, if not hype. Almost none of these deals – certainly none of the big ones – are hard and fast. For the moment, they represent little more than glorified wish lists that only a few of the companies were willing to confirm (of the 12 Chinese PV companies contacted, only three responded to a questionnaire on plans). The reason for their reticence is simple. Since the contracts are largely based on such tenuous agreement terms as »non-binding,« »framework,« »strategic,« »memorandum of understanding,« and »letters of intent« that still require feasibility studies and provincial or municipal approvals, the deals could be more speculation than expectation. What this 12.5 GW really represents is a jockeying of position for players. They are lining up in the hope that a PV feed-in tariff from the central government will be announced ahead of the Copenhagen meeting in December to replace the Kyoto Protocol on global warming. The NPC, they believe, wants to use the new solar incentive program to show its commitment to fighting climate change. The government may also be looking to create a backstop market for the Chinese PV industry. Why? Because China, the world’s leading producer of wafers, cells and modules, has to worry about major markets either collapsing, as occurred in Spain last year, or not fulfilling their promise. Then there is the fear that, like Obama’s proposed tariffs on Chinese tires, Western governments could impose trade barriers on ever-cheaper Chinese modules. Such low pricing even has some German companies lobbying to limit the import of Chinese modules. But while all of this may lead understandably to the conventional wisdom that a Chinese PV feed-in tariff is just around the corner, in the end such a move could simply prove too unconventional for a lumbering NPC giant that has traditionally viewed China as the factory to the world. Chinese feed-in tariff precedents Still, the recent past gives some reason for optimism. The NPC’s initial response to the fear of a recession-based downturn in PV exports was a stimulus plan with the promise of subsidy support for domestic installations. This included a March announcement by the Ministry of Finance of a rooftop program, largely aimed at BIPV (see PI 4/2009, p. 34). In July, it added the Golden Sun scheme with central government support aimed at the provinces for 500 MW of both off- and on-grid PV (see PI 8/2009, p. 26). While being relatively small demonstration programs where the money is only just starting to trickle out, this was at least an indication that the central government was not averse to putting its considerable weight behind the sector. And this is when the idea of a PV feed-in tariff, although first talked about as long as 5 years ago (see PI 1/2004, p. 32), started to be taken seriously. Indeed, there are precedents in China. In the midst of the national subsidy schemes, the east coast province of Jiangsu – one of China’s richest provinces – made a surprising announcement in June. It was starting a PV feed-in tariff with this year’s prices of 2.15 CNY (31.5¢) for ground-mounted systems to 3.70 CNY (54.2¢) for rooftop systems targeting 400 MW of PV installations by 2011, albeit with no guaranteed payment period (see PI 7/2009, p. 36). Another recent precedent is the latest support mechanism for wind. In late July, the National Development and Reform Commission (NDRC), China’s economic planning agency, announced feed-in tariffs for onshore wind in four regional categories ranging from 0.51 to 0.61 CNY (7.5¢ to 8.9¢) to replace a bidding process. Development of wind farms can take advantage of a surcharge levied on electricity rates that was instituted after passage of China’s Renewable Energy Law in 2005 of 0.001 CNY (0.00015¢) per kWh, which was doubled in 2008. The devil in the details And it is just this kind of regional-based feed-in tariff solution that several observers are expecting as a model for PV. An Aug. 3 announcement by the NDRC included a statement that a benchmark feed-in tariff for PV is underway. And indeed, Wang Zhongying, assistant director of the Energy Research Institute in Beijing, an arm of the NDRC, acknowledges that his organization has done a study for the NDRC on PV feed-in tariffs complete with suggestions on how it could be set up. Still, few observers are venturing to put a number to the dream. One exception is Rory Macpherson, director of investor relations at China’s biggest PV company, Suntech Power. He thinks it could be between 1.10 and 1.50 CNY (16.1¢ to 22¢) per kWh. But Li Junfeng, the secretary general of the Chinese Renewable Energy Industries Association (CREIA), says the level of payment, rather than on the verge of being set, is the subject of hot debate among the ministries of finance, science and construction, as well as China’s energy bureau. »They all have different worries,« Li notes, »and that makes for confusion.« Nonetheless, he remains confident that a PV feed-in tariff, »distinguished by region,« will be announced with payment guarantees set at between 10 and 15 years, if not this year, then certainly next. The danger, however, is that the current expectations of a feed-in tariff could turn out to be more fiction than fact. If it fails to pan out, or the per-kWh support offered is too little and too late, or it ends up being capped at the low end, these paper plans for 12.5 GW of large-scale PV installations could collapse like a house of cards. The First Solar deal in Inner Mongolia planned for the city of Ordos, is a case in point. »The Chinese feed-in tariff will be critical to this project,« said CEO Ahearn when the memorandum of understanding was signed. In an interview with PHOTON International, a high level First Solar manager, who declined to give his name, reiterated the point. »The establishment of a feed-in tariff program is a key market-maker, and a critical sign from the Chinese government they are serious about and committed to solar energy over the long-term,« he says, noting the current subsidy programs as »tangible« indicators of the government’s intent. »If China continues to take such clear actions over the next 10 years, it will become one of the leading – if not the leading – solar market in the world.« While it is unlikely First Solar would have gone into this agreement without some inside knowledge of a coming feed-in tariff, the company source declined to make any predictions on details or even if it would come to pass. »There is no point in speculating what may or may not happen if a feed-in tariff is not available.« First Solar first in line If it does happen, Ordos could be become a hub for installed PV. The city is currently developing the Ordos New Energy Industry Demonstration Zone for just under 12 GW of renewable energy installations. Of this, 3.9 GW would be for PV, nearly twice the size of First Solar’s 2 GW deal. Whether this means First Solar would do more or that agreements are in the works for other companies is unclear. The only additional player at the moment is China Energy Conservation Investment Corp. (CECIC), an entity that Suntech has apparently been working with, which says it has a plan for 200 MW in Ordos. As for First Solar, which is also looking at setting up a production facility in Ordos, following a financial feasibility study, the first phase to install the fixed modules would be a 30 MW demonstration project to be started by June 2010 and completed »as soon thereafter as practicable.« A 100 MW power plant and then an 870 MW system, both to be finished by the end of 2014, would follow. Upon completion, the biggest installation, a 1 GW system, would be constructed by 2019. But that is a decade down the road. Currently, there is just a little more than 100 MW of systems expected to be completed by the end of this year in China, in addition to the 140 MW already in place at the end of 2008. About another 180 MW is either under construction or expected to start construction before the year-end. That leaves just over 12.2 GW of proposals up in the air with no guarantee they will land safely on the ground as solar farms or on buildings as rooftop installations. Nearly a third of that is in Inner Mongolia with just over 4.3 GW (including the 2 GW for First Solar). Next is the western province of Qinghai with 2.6 GW, more than two-thirds of which is related to deals with utilities for installations in the Gobi Desert city of Golmud. This is followed by the smaller northern province of Ningxia with just under 2.2 GW. The last in the gigawatt range is Jiangsu with 1.4 GW – again, China’s only province with a feed-in tariff. The PV company connection As for PV companies, after First Solar, the biggest player for China-based installations would appear to be Suntech. It has plans for installing 1.8 GW, at least according to its press releases – the Wuxi, Jiangsu-based company would only confirm the existence of two relatively small domestic rooftop projects with a combined capacity of 4.5 MW slated for completion by the end of the year. Its future large-scale installations are probably mostly related to module supply deals Suntech is striking with investment groups and utilities. Next is LDK Solar with 1.4 GW, again according to press releases as the company declined to provide any confirmation. But in an Aug. 13 conference call on second-quarter results, LDK CEO Peng Xiaofeng also boasted the company had nearly 4 GW of framework agreements in the southeastern Jiangxi province where it is headquartered (as this could not be verified, we have only included a Golden Sun LDK project for 120 MW in our table for the province). To get an idea of the strange relationships being forged in China, it is worth noting LDK’s involvement in a 10 MW desert-based installation in the Gansu province city of Dunhuang through its module subsidiary Best Solar High-Tec. The lead partner for the system is Belgium-headquartered PV and wind project developer Enfinity NV, which is expecting to do 500 MW in the region. The other partner is the utility China Guangdong Nuclear Power Holding Co. (CGNPC), which itself is working on PV deals for another 510 MW in the provinces of Qinghai and Ningxia. But the NDRC had originally awarded this 10 MW project to SDIC Huajing Power, a subsidiary of China Development and Investment Corp. However, after complaints that this winning bid of 0.69 CNY (10.1¢) per kWh was too low, in June the NDRC gave the deal to the LDK/Enfinity/CGNPC group, the second-highest bidder at 1.09 CNY (16¢). As a consolation, the NDRC then gave another 10 MW deal to SDIC in Dunhuang at that same price. Then in July, Yingli Green Energy announced it would be the module supplier for the SDIC installation. Later in the month, Yingli signed a strategic alliance with a subsidiary of CGNPC, the partner for the rival Dunhuang installation. And on Sept. 8, according to a news report by JLM Pacific Epoch, Yingli also signed a strategic cooperation with China Longyuan Electric Power Group, a subsidiary of China Guodian Corp., one of the country’s five largest utilities that is involved with at least 1.6 GW of potential PV installations in China. This includes several systems where the supplier is supposed to be Canadian Solar Inc., a PV company looking at 600 MW of installations that, despite its name, has its heart in Chinese cell and module production. The flow of trade And that brings up a final point – free trade. Few of the potential installations at this point appear to have any foreign module suppliers or connections. Even the First Solar agreement for Ordos includes »the possibility of module and supplier manufacturing« on site. If the Chinese actually end up announcing a feed-in tariff that opens up the floodgates to a windfall – or given the technology, a better term might be »sunrise« – of PV profits, there are many who will undoubtedly expect modules to flow not just from China but to the country as well – at least, if foreign manufacturers can compete on cost. Otherwise, it’s not only tires and chickens that could end up facing trade restrictions. William P. Hirshman © PHOTON International, November 2009 Duplicate only with allowance of PHOTON Europe GmbH, Aachen, Germany  back