China’s blistering solar sector is bracing for a slowdown

Solar farm developers are being squeezed as falling solar panel prices aren’t enough to offset delays in government subsidy payouts

PUBLISHED : Wednesday, 18 October, 2017, 11:58am
UPDATED : Wednesday, 18 October, 2017, 11:44pm

The sizzle will finally come off China’s solar power industry next year with a major slowdown unavoidable, according to analysts and industry executives.

The world’s largest industry harnessing the sun’s energy to generate electricity may finally succumb to cash flow difficulties, as overdue government subsidies weigh on developers’ capacity to fund new projects.

It could lead to the first drop in annual solar farms installation since 2014, if projections unveiled in the Photovoltaic Exhibition and Conference of China are realised.

“With developers’ elevated debt leverage and lengthening collection periods of tariff subsidies, projects’ payback periods are getting too long for comfort,” said Zhuang Yan, chief commercial officer at Canadian Solar.

Frank Xie Feng, senior analyst at consultancy IHS Markit, projected China’s annual solar farms installation to ease to between 30,000 and 35,000 megawatts (MW) in the four years to 2021.

This year China is set to install a record 45,200 MW of solar capacity, roughly half the global total.

This year’s volume could even surge to between 48,000 MW and 50,000 MW from 34,400 MW last year, amid a possible rush to install rooftop solar panels if Beijing announces that it will roll back subsidies for off power grid solar projects in the next few weeks, said Xie.

The industry has beaten analysts’ expectation s, as technological advancement helped to lower the cost of solar panels by 90 per cent over the past eight years, while power prices have been cut by 77.5 per cent, according to China Photovoltaic Industry Association secretary general Wang Bohua.

This has incentivised developers to keep building more projects than anticipated. But as installation soared, the demand for power transmission lines outstripped the capacity of grid companies.

The result was low utilisation of the panels, especially in remote but sunny northern regions.

Some projects have struggled with negative cash flow by the third year when they are required to make payments on principle and interest. Experts say the industry has been negatively impacted as Beijing has kept consumer electricity prices at low levels.

Xu Yang, vice president of GCL New Energy said it is owed 4 billion yuan of subsidies, on which no interest will be paid.

The company has sought funding from leasing firms to finance new projects. In the first half, GCL New Energy made a net profit of 485 million yuan and incurred finance costs of 606 million yuan while its average borrowing cost was 6.8 per cent.