Small is big as China leads world in solar

China leads the world in solar power production, but it's increasingly coming from small scale plants on the roofs of homes and factories.

One year ago when I asked my friend who works for a power company how their solar energy business was going, he mockingly lamented: “We are quitting that ‘sunset industry’; we’ve lost too much amid declining subsidies.”

Recently, however, he gave me a follow-up.

China installed 42.3 gigawatts of solar power capacity over the first nine months, up 88 percent from a year earlier.

Among that total, distributed solar power surged over threefold to 15 gigawatts, according to the China Electricity Council.

Distributed power is generated from solar panels around users rather than transmitted by the state’s grid from power plants.

These are normally smaller scale facilities and helps save power wastage through long-haul distribution and ensure energy security.

While for years China’s solar energy development has been criticized for deferred subsidy payment and an unbalanced industry structure as most of the installation came from large solar farms rather than scattered panels above households’ roofs, things are improving.

Compared with developed countries such as Germany and United States, few residents and companies in China were willing to install solar power above their roofs.

More than 80 percent of the installations in the US comes from this method, compared with just 10 percent in China last year.

Gu Yueming, vice president at Shanghai SMEs Going Public Promotion Center, said investors prefer large solar farms rather than small and scattered projects for higher returns, “especially in Beijing and Shanghai where land is expensive and space is limited.”

But the good news is distributed solar power is surging. The newly added 15 gigawatts of distributed installation has accounted for 40 percent of the total.

Although that is still small compared with developed countries, “significant changes have started,” Wang said.

Zhang Zhengling, deputy director of development and planning at the State Grid Corporation of China, said in a recent speech “415,600 distributed solar power generators have been plugged into the state’s grid, doubling the amount last year.”

While large solar farm builders get below 0.8 yuan (US$0.12) for a kilowatt-hour of electricity, distributed solar power producers can make a profit of around 1 yuan per kWh as they don’t have to pay the regular electricity fee which is around 0.5 yuan per kWh.

They also receive at least 0.42 yuan per kWh from the state’s grid, said Alex Liu, analyst for energy and public utilities at UBS.

The National Development and Reform Commission lowered the feed-in-tariff for centralized power producers by 13-18 percent nationwide last December.

But for distributed solar producers, their price has remained 0.42 yuan per kWh as since 2013.

 In Zhejiang, producers can receive another 0.1 yuan as a subsidy for selling a kWh of distributed solar power.

“Wise investors and companies should learn from the policy changes and shift to distributed solar power business,” my friend, Sam Zhou, said.

Shanghai Zhenhua Heavy Industries Co, an industrial equipment provider, has installed solar panels above the roofs of its plants in Shanghai.

They take up 20,000 square meters, pumping 2.2 megawatt-hours per year to help it save at least 220,000 yuan in power costs, as well as  making money from the state grid.

Air Liquide, a French industrial gas maker, installed a solar farm above its plant in Jiangsu province to produce 45 KWh per hour for its operations.

“More and more investors and companies have shifted to small and scattered solar projects bolstered by the higher profits,” Liu said. “The feed-in-tariff is in effect for 20 years, which means producers will enjoy long-term constant higher income.”

In a trip from Hangzhou to a nearby city, Lin’an in Zhejiang, three months ago, I saw mass of solar component producers along the outskirts.

Nearby, distributed solar panels are ubiquitous, some installed above the traffic lights, some above newsstands and houses.

“Solar power has been part of the income for local residents, who benefit directly from selling electricity or by renting roofs to power producers,” Liu said.

Noticeably, China’s installed solar power passed wind power for the first time last year as new solar power was almost double that of wind.

That trend is continuing this year as the figure expanded to six-fold over the first half.

Wind power’s price is lower than  solar for now, with every kWh of wind power costing less than 0.6 yuan.

“But in the long term, solar energy will be cheaper amid declining costs of components while for wind power a large windmill is still needed,” Liu said.

China’s surging solar power this year defied analysts predictions, who expected a fall caused by declining subsidies and delayed payments.

But despite falling subsidies, the falling cost of equipment has boosted the sector.

The cost to generate one kWh of solar power fell to 0.6 yuan by the end of last year from 1.5 yuan five years ago.

Meanwhile the government has addressed the delayed payment .

With a 60 billion yuan shortfall in renewables subsidies last year, China opened the trading of green certificates for solar and wind power on July 1 this year, granting certificates to buyers for each megawatt hour of power.

Nearly 700 buyers rushed to trade in the first four days, paying around 646 yuan for a certificate for solar power and 190 yuan for wind.

Although whether the trading will cover the subsidies shortfall remains a question, “it does help ease the financial problems for quite a lot of solar producers,” said Chen Xuesong, an officer at the Green Consumption Cooperation Organization.

Heraeus, the world’s largest silver paste maker, gas posted 50 percent annual growth in sales in China “with more producers able to expand after settling their financial problems,” said Andreas Liebheit, president of Heraeus’ global photovoltaic business.

Years ago Zhou complained that few companies accepted their proposal to install scattered and small panels above their roofs for fear of high costs.

And it was hard for such small plants to compete with the giants and then large solar farms.

His company eased off solar business at end of last year when falling subsidies and high component costs were squeezing profits.

“But the rise for this industry in fact just started,” he said. “It has been easier to persuade common citizens and companies to add a panel above their houses bolstered by the government’s support, while producers can more easily manage the business with lower costs.”

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