China’s Solar Close To Parity With Coal-Fired Power

Giles Parkinson reports the following on Climate Spectator.

“Hidden away in a government gazette this week was an announcement that China would introduce a national feed-in tariff for solar energy. It took a day or two for the significance to dawn on the market, but it is now being viewed by analysts in an industry full of landmark developments as possibly the biggest of them all.”

Slowly, Slowly..

With more than 100 million homes that use solar hot water, rather than jumping in with huge projects as their first investment, the Chinese have been keen to understand what works and what doesn’t.

They have been testing various solar tariffs on a strictly targeted basis – offering incentives for a series of utility-scale solar projects that have started at modest size and have gradually been scaled up – 1 megawatt, 5MW, 10MW and then 20MW – and now it is being rolled out on a national scale.

Tariff Structure And No Need For Domestic Solar Kickstart

At 1.15 renmimbi/kwh ($A0.16) for projects approved before July 1 and falling to 1 RMB for projects approved since then, China’s electricity tariff is the lowest national tariff in the world.

There Are Several Reasons

1. The cost of solar has dropped so rapidly in the past two years that it is now thought to be already competitive with wind in many regions in China.

2. These regions – largely in China’s western desert areas – have excellent solar radiation. They can produce solar energy at double the efficiency of other regions.

3. China needs a smaller tariff than other countries because of lower labour costs and supply chain advantages – they make it all there!

A Levelised Cost Of Energy

The calculation of the levelised cost of electricity (LCOE) provides a common way to compare the cost of energy across technologies as it takes into account the installed system price and associated costs such as financing, land, insurance, transmission, operation and maintenance, depreciation, and some other expenses.

Carbon emission costs and solar panel efficiency can also be taken into account.

The LCOE is a true ‘apples-to-apples’ comparison.

Solar Close To Parity With Coal-Fired Power

Local industrial users in China, unlike other countries, pay a significantly higher tariff than individual consumers.

A report from LDK Solar, China’s most integrated solar energy company, expects the levelised cost of energy of its solar modules to fall below average grid prices in China to around $US 0.07/kwh in 2012.

NB The coal-fired electricity used by companies such as LDK and Jinko Solar , to make their modules, is already more expensive than the energy produced from those modules.

A Lift In Production To Rival Wind

From its 2005 starting point in producing wind energy, China became the number one installer in 2010, with 17.5 gigawatts.

In 2008, only 40MW of solar were installed in China. In 2011 this is expected to reach 1GW, double in 2012, and by 2015 the installation rate is expected to reach 10GW a year.

Given its competitiveness with wind, some analysts expect China’s annual solar installation rate to match and overtake the wind installation rate of 15GW, which is by far the largest in the world.

The Future Of Solar

Analysts say China’s position re: solar effectively underwrites the growth of this market.

They believe the surge in domestic demand in China also means that costs will continue to fall. Module prices are coming down rapidly – falling by 20 per cent for each doubling in demand.

GCL-Poly Energy Holdings Limited, one of the leading green energy suppliers in China, has emerged as the world’s biggest supplier of poly-silicon, and is expected to deliver it at a price of $40 a kilo in 2012, around half of the price in 2010 and one tenth of the price in 2008.

“The economics of the varying power generation alternatives have been changing rapidly..solar power is close to rivalling industrial as well as wind power grid pricing..
China’s annual wind market alone is double Germany’s record solar market in 2010. Thus it would not be unreasonable to assume China’s solar demand could reach similar levels once the cost economies converge.” Seeking Alpha analysis.

They started out small, but now the scale of some of the projects being contemplated in China is enormous.

The US company First Solar, which makes thin-film solar panels rather than silicon-based panels, is planning one project of 2GW in inner Mongolia, which could be the size of Manhattan.

Some Predictions

Analysts estimate that at the current tariff, project developers can bank on an internal rate of return of up to 10 per cent over 15-25 years. With long-term power purchase agreements, that’s enough to attract 80 per cent debt funding for projects…It potentially pushes coal from being the lowest cost baseload supplier of energy to being the marginal supply because of its high raw material costs.

Even at a rate of 15GW a year, solar would remain a fraction of the 100GW that China plans to add each year to its national grid to meet the soaring demand. But, if solar’s costs continue to fall, energy efficiency measures take hold, and economic growth slows, then solar – along with hydro, offshore wind and onshore wind – could be accounting for nearly all of the new energy plants by the end of the decade.

Giles concludes:

“The most obvious victim is coal. That, in turn, could have significant implications for major coal exporters such as Australia.”

Another strand or two for our carbon tax debate