Block’s Indicator of Sustainable Growth

by Ray Block

A story by Fu Chenghao in Shanghai Daily April 19 2008 says that the new subsidy scheme to boost Chinese consumption of solar rooftop panels will be a boost to hard pressed producers, who are dependent on export sales of solar modules to grow the market for solar photovoltaics (PV).

Solar power attached to buildings in projects involving more than 50 kilowatts would be eligible for a subsidy of 20 yuan (US2.90) per watt.

Although China is already the world leader in the manufacture of  PV cells (that is the panels on rooftops, which convert sunlight into electricity), almost the whole of the output has been exported. Local consumption has been tiny, representing about 2 per cent of  China’s total production.

This will begin to change in 2009, due in part to the price cutting in polysilicon, the key ingredient in the panels, but also as a result of the Chinese subsidy.

China has a renewable energy law requiring electricity suppliers to buy renewable energy from customers. But it lacks a feed-in-tariff system to galvanise local demand. The government’s decision to kick start the domestic market is part of the stimulatory fiscal package introduced in March to boost domestic demand.

There is finally a growing realisation among the planning bureaucrats that China can’t rely too heavily on cheap exports to grow local production, without also encouraging a healthy demand for local consumption. Otherwise, it will always be the case that when European and American demand falls away, Chinese producers are forced into closing down.

The new subsidy comes at a time when the European and American solar companies are struggling with reduced access to credit and a glut in the market due to oversupply. There has also been a drop-off in demand from the major European PV companies, due to the effects of a reduction in the feed-in tariffs in Germany and Spain, the two major solar PV markets.

“Based on the Chinese government’s solar subsidy, this year’s budget of 400 million yuan on renewable energy allows for 20 megawatts of solar capacity to be installed in 2009, says the China Securities Journal. That amount to a fifth of China’s total installed solar capacity in 2007.”

Longer term, the Chinese leadership has set a goal that renewable energy from all sources will represent 15 per cent of total energy supply by 2020.