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RENEWABLE ENERGY

by EOS Intelligence EOS Intelligence No Comments

Uncertainty Looms over Future of Solar PV Market in Malaysia

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With the support of Feed-in-Tariff (FiT) policy introduced in 2011, cumulative PV installed capacity in Malaysia reached about 225 MW in 2015 – owing primarily to residential and community solar projects. However, the country still has a relatively small installed PV capacity as compared to other emerging countries in Asia such as India and Thailand, due to underdevelopment of utility-scale solar projects.


This article is part of a series focusing on solar PV market across selected Asian countries: China, IndiaThailand, and Malaysia.
The series closing article Solar Rises in the East examines challenges and opportunities in all four markets, with additional look into Indonesia and
The Philippines.


 

Market Overview

Before 2005, there was only a handful of off-grid PV installations in Malaysia, which were funded by the government under rural electrification project. With the support of United Nations Development Programme – Global Environment Facility (international financial entity providing funds for environment projects), Malaysia government initiated the Malaysian Building Integrated Photovoltaic (MBIPV) project in 2005 with the aim to promote grid-connected PV systems and develop solar PV policy framework to support growth of solar PV market in the country. From 2006 to 2010, approximately 2 MW of grid-connected PV systems were installed on residential and commercial buildings under MBIPV project.

1 - Cumulative Solar PV

MBIPV can be considered a stepping stone in the development of solar PV market in Malaysia and it was pivotal in formation of National Renewable Energy Policy and Action Plan (NREPAP). NREPAP was approved in 2010, followed by introduction of feed-in tariff (FiT) as a key stimulus for development of renewable energy landscape, including solar.

Under NREPAP, Malaysia aims to install cumulative solar PV capacity of 399 MW by 2025 and 854 MW by 2030. However, observing the current pace of development of solar PV market, the country is expected to reach its target well ahead of time. This rapid growth can be partially attributed to country’s abundant potential for solar PV generation.

Being located in the equatorial region, Malaysia is exposed to ample and constant sunshine – an ideal environment for solar PV power generation. Malaysia receives an average of 17 Mega Joules per square meter (MJ/m2) of solar radiation per day. All regions in Malaysia have sufficient availability of land for PV installations, except for Kuala Lumpur, where the solar PV capacity is limited to 5 GW due to the limited area and locations for solar PV installations.

2 - Daily Solar Radiation

Key Growth Drivers

  • High dependence on non-renewable sources for electricity generation

Malaysia is largely dependent on fossil fuels, predominantly coal and natural gas, for electricity generation. Coal and natural gas accounted for about 79% of country’s installed electric generation capacity and 87% of the electricity output in 2012.

3 - Electricity Generation Capacity

Malaysia has limited indigenous coal reserves: in 2012, Malaysia produced 3.4 million short tons of coal, which provided only 12% of country’s coal consumption in that year. Remaining demand was filled in by imports. Such high reliance on imports puts country under the purview of supply risks such as price fluctuation or shortage of supply.

On the other hand, Malaysia has large reserves of natural gas: as per Oil & Gas Journal estimates, as of January 2013, the country had 83 trillion cubic feet of proven natural gas reserves. However, the natural gas supply is located mainly in East Malaysia, which is separated from Peninsular Malaysia (where the country’s power sector is located) by the South China Sea. Due to this geographic characteristic, in 2011, the high demand centers in Peninsular Malaysia experienced power outages because of shortage of natural gas supply in the region.

Thus, in order to strengthen its energy security, Malaysia needs to diversify its electricity generation mix and shift to alternative renewable energy resources such as solar.

 

  • Constructive solar policy framework and incentives

Malaysia introduced FiT in 2011 under the Renewable Energy Act 2011. The country has a well-organized FiT mechanism, which is administered and managed by Sustainable Energy Development Authority (SEDA).

4 - Quota under FiT

The FiT fund is financed by the electricity consumers – with implementation of FiT, consumers started contributing 1% of their total electricity bill towards a Renewable Energy Fund. However, this was not applicable to the low usage consumers (using less than 300 kWh per month). In order to ensure successful implementation of FiT policy, the contribution share was readjusted in 2014 that resulted in increase in monthly electricity bill from 1% to 1.6%.

The FiT rates vary by type of applicant – community, individual, and non-individual, who are subject to capacity limit of 48kW, 12kW, and 1,000 kW, respectively, per application. SEDA proposed 70 MW of cumulative solar PV quota for the year 2016. In case of solar, FiT is applicable for 21 years from FiT commencement date.

Following are the FiT rates by applicant category in 2016:

5 - FiT Rates

 

Key Challenge

  • Discontinuation of FiT for solar PV after 2017

 

Due to constraints in RE fund, Malaysia plans to end FiT for solar PV after 2017. Solar PV installations have increased significantly since the introduction of FiT policy. Thus, cessation of FiT might be a major setback for the industry.

6 - Returns in Solar PV

At the current rate of FiT, the payback period on investment is 6-10 years depending on the capacity of the installed PV system. Despite the costs coming down, the upfront installation cost for solar PV is still high. Thus, in absence of FiT the return on investment in the solar PV is expected to be unsustainable. Besides FiT, there is no other strong incentive for investment in solar PV. Malaysia is preparing a framework for net-metering, which will allow the solar PV system owner to sell excess solar energy to the utility companies such as Tenaga Nasional Bhd (TNB) and Sabah Electricity Sdn Bhd (SESB), and earn additional income. However, this is in the trial phase and the actual benefits of this system are yet to be assessed.

Opportunities for Global Solar Companies

  • Global solar PV module producers eye Malaysia as their key production center

 

Malaysia has relatively small installed solar PV capacity when compared to its massive upstream supply chain, which mainly caters to demand from overseas markets. The country has attracted many leading global solar PV module producers that have taken advantage of the relatively low cost and English-speaking workforce, as well as generous tax breaks. With around 3.3 GW solar module production capacity in 2014, Malaysia was the third-largest producer of solar modules, after China (33.8 GW) and European Union (4.2 GW). Moreover, the country is also benefitting from the anti-dumping duties levied by the USA and European Union on leading solar PV manufacturing countries such as China and Taiwan. Thus, Malaysia is set to become a hub for production of solar PV modules. Global solar PV module producers have been rapidly expanding their production base in Malaysia. For instance, Hanwha Q Cells, a Germany-based solar PV producer, has an annual production capacity of 1,100 MW in Malaysia as compared to only 200 MW in its home market.

 

EOS Perspective

Though Malaysia is blessed with abundant solar energy potential, the installed solar PV capacity is quite minimal. The FiT policy, introduced in 2011, has been the main factor encouraging general public and business enterprises to invest in solar PV systems.

The limited installed solar PV capacity in Malaysia can be partially attributed to underdevelopment of large utility-scale solar PV projects. There is no proper policy framework in place to support and benefit the utility-scale solar power developers. Malaysia announced development of its first utility-scale solar PV power plant in Kedah in April 2014. This 50 MW solar farm (which is still under construction) is a 60:20:20 joint partnership between the 1 Malaysia Development Bhd (an independent power producer, 1MDB), Tenaga Nasional Berhad (national electricity utility), and DuSable Capital Management (a USA-based private equity firm). 1MDB signed a 25-year power purchase agreement (PPA) with Tenaga Nasional Bhd following direct negotiations with the Energy, Green Technology, and Water Ministry.

Malaysian government is now preparing a framework for development of utility-scale solar PV projects. Preliminary discussions suggest that Malaysia is expected to target 1,000 MW of utility-scale solar PV capacity by 2020. Thus, we can expect rapid expansion of solar market in Malaysia provided the government introduces favorable policies and incentives for development of utility-scale solar PV projects.
The market for residential and community solar PV has been mushrooming in the past few years, but the investment does not seem to be sustainable without the support of FiT. Hence, after cessation of FiT in 2017, government will need to come up with some alternative incentives in order to protect the interest of investors of residential and community solar PV projects.

Further development of solar PV market in Malaysia will by large depend on the additional support and incentives extended by government.

———-
US$1 = MYR 0.26 (average 2015)

by EOS Intelligence EOS Intelligence No Comments

Utility-scale Projects to Boost Thai Solar Market

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In July 2015, Federation of Thai Industries’ renewable energy division indicated that Thailand is expected to add about 1,200-1,500 MW of solar capacity in 2015, which would require about THB 90 billion (~US$2.5 billion) of investment. Most of this capacity is expected to be installed through utility-scale solar PV projects.


This article is part of a series focusing on solar PV market across selected Asian countries: China, India, Thailand, and Malaysia.
The series closing article Solar Rises in the East examines challenges and opportunities in all four markets, with additional look into Indonesia and
The Philippines.


 

Market Overview

The development of solar market in Thailand can be traced back to 1993, when the solar PV installation was focused mainly on electrification of remote areas not connected to the grid. Between 1993 and 2011 a total of 1,756 systems, with a total solar power generation capacity of 3,905 kWp (output power achieved under full solar radiation conditions), were installed on schools, hospitals, community centers, military bases, national forests, and such other areas.

Thailand was one of the first Asian countries to pursue solar energy development by putting in place policy incentives. Introduction of feed-in premium or “adder” scheme for solar PV installations in 2006 attracted private investments in the sector (under the adder scheme, solar developers were offered premium/bonus in addition to basic electricity tariff, when selling electricity to power utilities).

The first commercial solar PV project was a 6 MW solar farm project, named Korat 1, built by SPCG which is now Thailand’s biggest solar power operator in terms of capacity. The project is located in Nakorn Ratchasima and has been operating since 2010. With continued support from Thai government and increasing participation of private investors, Thailand has become one of the fastest developing solar market in Southeast Asia. According to Thailand’s Ministry of Energy, by the end of December 2014, 294 solar farms had started selling 1.32 GW electricity to the grid, while 14 solar farms with total capacity of 296 MW had signed sales contracts but did not supply power yet.

This rapid development is largely attributable to Thai government’s support to solar PV industry to achieve its solar target: government of Thailand outlined a 10-year Alternative Energy Development Plan (AEDP: 2011-2021), with the aim to boost renewable energy output to account for 25% of the total energy consumption in Thailand by 2021. The target is to generate 13,927 MW of electricity from renewable sources by 2021, compared to 3,343 MW in mid-2013. Under AEDP, Thailand aims to achieve 3 GW of installed solar PV capacity by 2021.

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This appears to be a rather modest target considering that Thailand, being located in equatorial region, has abundant solar power potential. In 2012, Thailand Ministry of Energy – Department of Alternative Energy Development and Efficiency (DEDE) estimated country’s solar power potential at about 42,356 MW, with an average daily solar irradiation 18.2 Mega Joules per square meter (MJ/m2) per day. Northeastern region and certain areas in central region exhibit great potential for solar power generation.

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Key Growth Drivers

Commitment to develop a clean energy society

High dependence on natural gas for the country’s energy needs is affecting its energy mix. Natural gas has been Thailand’s primary source of energy for the past three decades. In 2014, 66.5% of country’s electrical power generation was fueled by natural gas. Moreover, country’s dependence on imported energy is high: Board of Investment of Thailand (BOI) indicated that about 67% of energy was purchased from overseas sources in 2012.

“As demand for electricity rises in Thailand, we believe that solar PV will play an increasingly important role in our energy mix, thanks to our country’s abundant solar resources.” – Mr. Soonchai Kumnoonsate, the Governor of Electricity Generating Authority of Thailand, 2014

Furthermore, Thailand encourages clean and environment friendly technologies in order to meet its obligations under Kyoto Protocol to reduce carbon emissions. Thailand is focusing on development of renewable energy sector, including solar PV, to strengthen country’s energy security.

Government incentives

Thai government provides several incentives to support the development of solar PV sector in the country

  • Financial Incentives

 

Thailand introduced adder program in 2006 to encourage participation of private sector in solar power generation. Approved projects received a premium of THB 8/kWh (~US$0.224/kWh) in addition to basic electricity tariff for a duration of ten years. The cost of adder payments was passed directly on to the end-consumers in the form of higher electricity bills. Considering the impact on end-consumers, in 2010, the premium was reduced to THB 6.5/kWh (~US$0.182/kWh). In 2010, the government temporarily stopped approving new projects under the scheme due to over subscription.

In 2013, Thailand introduced Feed-in Tariff (FiT) for rooftop solar PV projects and community ground-mounted solar PV projects.

2

These financial incentives are not only expected to yield good returns on investment in solar projects, but they are also likely to help to reduce payback period. Thai Photovoltaic Industry Association (TPVA) estimates that the payback period in case of rooftop solar ranges from 7 to 10 years depending upon the size of the solar project, while in case of community ground-mounted solar projects, the payback period is 8 years for 1 MWp solar project and 7 years for 5 MWp solar project.

3

  • Fiscal Incentives

 

Thailand Board of Investment actively promotes investment in renewable energy sector, including solar PV through several fiscal incentives:

6

  • Financial Support

 

Besides incentives, the government also extends financial support for development of solar projects. The Energy Conservation Promotion Act 1992 (ENCON Act) established the ENCON Fund, which is Thailand’s primary source of public finance for renewable energy investment incentives and subsidies. A part of ENCON fund is allocated to revolving fund that offers low-interest loans for renewable energy projects (including solar projects) in cooperation with eleven banks in Thailand. DEDE developed ESCO (Energy Service Companies) fund in 2008, under the financial support from ENCON fund, to extend support in the form of venture capital funding, equity investment, equipment leasing, carbon credit facility, technical assistance, and credit guarantee facility.

Government’s constructive measures have helped to create conducive business environment for solar investors and developers.

Challenges

Regulatory uncertainty and loopholes in policy framework have affected investor’s confidence

A major difficulty with the adder scheme, introduced in 2006, was that the project approvals far exceeded the completed projects. Projects of over 2,000 MW were awarded under the scheme, but only about 800 MW solar capacity was installed at the end of November 2013. There were many speculative rather than realizable project applications, as there was no set timeline recommended or mandated for the completion of the proposed project after receiving approval under the adder scheme. This led government to introduce corrective measures such as termination provisions. In 2009, the government also introduced bid bonds in the form of security deposits of THB 200/kW (~US$5.6/kW) for project size greater than 100 kW. The security deposit was introduced to discourage those applicants who had intentions of revising and reselling power purchase agreements (PPAs) for a profit. Furthermore, the approval of new applications under the adder scheme was stopped in 2010.

Such frequent changes in policy framework have resulted in reduced investor confidence. Moreover, lack of transparency in the process of approval of the proposed solar projects raises concerns whether the scrutiny mechanisms are fair and independent of business interests. These issues may continue to have a negative impact the growth of solar PV development in Thailand.

 

Poor governance and inadequate planning stall community ground-mounted solar projects

With announcement of FiT for community ground-mounted solar projects, government planned to install 800 MW of combined solar capacity by the end of 2014, by installing one MW per village in Thailand. Financing was to be provided by a government bank, either Government Savings Bank or Bank for Agriculture and Agricultural Cooperatives. However, the scheme could not be implemented as it faced issues in raising the required finance for the projects due to political crisis in the country. In 2014, following the ouster of the last government under Prime Minister Yingluck Shinawatra in a coup, the military took control of the country. Amid uncertainties in the status of the interim government, the Government Savings Bank rejected the loan request of THB 48 billion (~US$1.34 billion) for community ground-mounted solar projects. In an effort to still achieve the proposed 800 MW target, community ground-mounted solar was transformed into Government and Agricultural Cooperative Program. Revised program encourages construction of solar farms with up to 5 MW in size in the form of public-private partnerships with the governmental sector or agricultural cooperatives. The proposed deadline for 800 MW quota under this program has been postponed to December 2015.

 

High up-front costs and insufficient FiT rate have impacted residential rooftop solar installations target

The Energy Regulatory Commission (ERC) of Thailand opened the first round of applications for residential rooftop solar PV FiT in October 2013 with a target to approve projects for total rooftop solar power generation of 100 MW. But the response was low, with only 33 MW of residential solar rooftop projects approved.

“In Thailand, 99% of the households that joined the solar feed-in tariff program are from the high-income segment. There has never been any inquiry or interest from customers in the middle-income household bracket.” – Dr. Dusit Krea-Ngam, Chairman of TPVA, September 2014

Subsequently, second round of applications was opened in February 2015, but applications for only 21.3 MW were received by May 2015. This low interest was partially attributed to higher than expected costs of developing power from solar energy in residential segment. In a media article released in May 2015, ERC Commissioner, Viraphol Jirapraditkul, emphasized that many people deem the FiT incentive insufficient as compared with the high investment required for installation of residential solar systems. Installation of solar rooftop systems involve high upfront cost, which is around THB 400,000 (~US$11,200) for a typical 5 kW solar PV system for residential usage in Thailand. This is a huge amount to shell out at once for people from middle income segment in Thailand. Hence, solar rooftop installation might remain a privilege only with higher income population in Thailand, unless third-party financing structures evolve to ease the need of out-of-pocket investment on installation of solar rooftop systems.

Opportunities

Developing solar market in Thailand offers ample opportunities for know-how and equipment producers from abroad

According to BOI, by first quarter of 2014, Thailand had only three companies manufacturing solar cells and modules using imported wafers, and another four assembling imported cells into modules. Local industry lacks expertise and competence to compete with the quality of solar PV modules from Germany or the USA, or with the price of solar PV modules from China. Thailand imports most of the equipment used in solar projects as the domestic supply does not meet the needs of expanding solar market. This could possibly create an unrest among domestic solar PV module industry, but as solar energy is high on Thai government’s agenda, imports of solar PV modules is likely to continue. Leading solar module producers from China, Japan, Taiwan, and Germany have already been able to tap considerable market in Thailand. Following is the list of some of the international companies whose solar PV modules have been installed in Thailand.

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Leading engineering, procurement and construction (EPC) companies see emerging market opportunity in Thailand

Solar developers in Thailand have been increasingly hiring leading international EPC firms owing to their experience and technical know-how. With push to realize the solar projects that have been approved for the FiT, a number of international EPC and project development firms have been able to rope in contracts to develop solar PV plants in Thailand. In October 2013, Conergy, a Germany-based EPC company having a joint venture with local company Annex Power, indicated to have a 20% market share in Thailand. The company has developed 70 MW with a further 100 MW in pipeline. Juwi, another Germany-based company, also has a strong presence in Thailand and it is developing 61 MW capacity solar PV projects. In 2014, Sharp, a Japanese company, signed EPC contract to construct a 52 MW solar PV plant in Thailand for Thai company Serm Sang Palang Ngan (SSP). Chinese EPC service providers, such as Anwell Technology and Yingli have also gained EPC contracts for development of solar projects in Thailand.

 

EOS Perspective

While rooftop solar market faces many challenges, the growth of Thai solar market is expected to be driven by utility-scale solar projects

Despite abundant potential for solar power generation, Thailand has set modest targets for solar PV development. In 2013, the share of solar power in Thailand’s total electricity generation (168,478 GWh) was only 0.553%. Under AEDP, Thai government targets only 3 GW of solar PV installation by 2021, though the country has the solar potential of around 42 GW.

Thai solar market is expected to exhibit high growth in the short term, owing to the uptake in utility-scale solar projects, till the government’s target for utility-scale solar PV installation is achieved. Government have approved PPAs for around 1 GW utility-scale solar projects in 2015. Thailand’s rapidly growing utility-scale solar market presents manifold opportunities for international solar companies with adequate experience and expertise.

Utility-scale solar PV installations accounted for 98.73% of grid-connected solar power in 2013, while expansion of the rooftop solar segment is still limited. In particular, development of residential rooftop solar market in Thailand has been sluggish and it will need more promotion and better incentives to shape up. The turnaround of solar rooftop market will largely depend on development of third-party financing structures to set up solar rooftop systems. Property developers have found unique business opportunity amidst challenging rooftop solar market. For instance, Prinsiri Plc, a Thai property developer, plans to invest in and install solar cells and other equipment for customers at its housing projects. The company will earn from electricity sold to the Metropolitan Electricity Authority (which supplies electricity to the Bangkok region) and as an incentive to home buyers, the company will not charge any common-area fees from them (common area is the area in the building that is available for use by all owners and tenants; common-area fees is the amount charged by the developer for upkeep and maintenance of common area). In June 2015, another Thai property developer, Sena Development PCL, signed a partnership deal with US-based First Solar and private equity firm Confidence Capital to develop a solar rooftop business in Thailand. Such business models, if successful, might change the scenario for Thai rooftop solar market. Moreover, it is yet to be seen whether public-private partnerships would be successful in achieving community ground-mounted solar targets.

The solar market in the country is currently witnessing interesting times. Utility-scale solar PV projects in Thailand are expected to drive the capacity build in 2015-2016, while further development of the Thai solar market is likely to depend on effective implementation of rooftop and community ground-mounted solar PV projects.

by EOS Intelligence EOS Intelligence No Comments

Biofuels: From Crest to Trough?

For the past decade biofuels have been contemplated as a sustainable source of energy that could alleviate global warming problems. The biofuel industry has experienced rapid growth driven by strong government support resulting in policy mandates and subsidies. However, the bucolic scenario of biofuels may soon be overshadowed considering the ecological toll on farm land and food crops from its production. The question still remains if we are ready to imperil food crops to grow energy crops.

The biofuel buzz sparked in the 2000s when several governments across the world offered subsidized ethanol and biodiesel to make it cost competitive with gasoline and diesel, and investors acquired lands to produce feedstock, particularly in emerging economies.

Biofuels are promoted as alternatives to fossil fuels, however, it seems that this green energy facade is impinging on our food and environment needs. Turning plants into fuel or electricity comes across as an inefficient strategy to meet the global energy demand. Irresponsible farming practices — to grow corn to suffice biofuel needs — in countries such as the USA are likely to result in adverse temperature and precipitation conditions due to climatic changes that will shrink corn and wheat yields in coming 10-20 years.

Biofuel development certainly creates employment opportunities in economies, improves vehicle performance, and reduces dependence on crude oil imports. However, this comes at the expense of higher food prices as biofuels compete with food production by using crops and lands. Moreover, biofuel production does not generally result in reduced greenhouse gases, as emissions still occur causing pollution.

Further, biofuels are less cost effective than fossil fuels. For example, biomass costs about 20% more than coal. Also, biofuels have lower energy content as compared with fossil fuels, which allows vehicles running on biofuels to travel shorter distances than on the same amount of fossil fuel. The energy content of biodiesel is approximately 90% of petroleum, while ethanol is 50% that of gasoline. Consequently, travelers would require higher amount of fuel, if running on biofuels, which will increase their expenditures. With the government laws supporting blending of ethanol in petroleum, motorists in the UK (for example) are likely to pay about £460 million annually due to higher fuel cost at pumps and lower energy content of biofuels.

While the disadvantages of biofuels has been widely known, in the past couple of years, bioethanol and biodiesel production has grown rapidly in several countries, supported by various policies and government subsidies. Currently, some of the leading biofuel producing countries include the USA, Brazil, and Argentina. It is interesting to look at the socio-economic and ecological impact of biofuel production on these countries.

Impact of Biofuels on Top Producing Countries
Biofuels


A Final Word

To choose biofuels over fossil fuels is like entering into a race between food versus fuel. Countries such as the USA use 40% of corn harvest for fuels — devoting farmlands to energy needs instead of feeding people. With crude oil extinction almost 10 million years away, it is quite inappropriate to contaminate environment to yield economic benefits from biofuels. Biofuels have not lived up to the expectation and have ceased to provide lower carbon footprint, as they cause indirect emissions by ruining the farming land and vegetation. At a time, when demand for land is likely to grow 70% by 2050 to meet global food demands, it is highly wasteful to use the same land to suffice energy needs.

In April 2015, Renewable Energy Directive of the EU announced a cap of 7% on the contribution of food crops in biofuel production. Such initiatives will help to sustain a balance in food supply chain. In order to establish appropriate carbon footprint accounting, the European Commission has approved indirect emissions to be considered as part of a holistic picture of biofuel harmful effects. Moreover, the European Commission is likely to prohibit the use of first generation biofuel post 2020.

So, what’s the alternative to biofuels, or at least another source of energy that is more sustainable?

A sustainable solution to the problem could be clean renewable fuels like cellulosic ethanol, which is manufactured from inedible parts of plants. Greenhouse gas emissions from cellulosic ethanol are 86% lower than from petroleum sources. Companies such as DuPont are investing to build bio-refineries to manufacture cellulosic ethanol. The refinery is located in Nevada, USA and will produce 30 million gallons of cellulosic ethanol annually after commencing operations in 2016. Other avenues such as energy efficient batteries, fuel cells, and solar and wind energy for powering vehicles and factories should also be pursued. Companies such as Tesla, a US-based automotive and energy storage company, have made groundbreaking progress in manufacturing low-cost solar powered batteries that discharge to generate electricity for homes, businesses, and utilities. Solar and wind energy investments are at an all-time high, both across advanced and emerging markets.

Perhaps, the need of the hour is for governments to look at diverse sources of renewable energy as a whole, and invest in a way that is most effective and sustainable for the economies and the environment. Clearly, biofuels (as was perhaps once expected) is not the ideal solution to global energy needs.

by EOS Intelligence EOS Intelligence No Comments

Solarizing India – Fad or Future?

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The new Indian government, elected in 2014, has created a wave of enthusiasm in Indian solar sector with its announcement of an ambitious target to install 100 GW of solar power capacity by 2022. But considering that India had an installed solar PV capacity of only 3.74 GW as of March 2015, achieving this target seems to be a herculean task.


This article is part of a series focusing on solar PV market across selected Asian countries: China, India, Thailand, and Malaysia.
The series closing article Solar Rises in the East examines challenges and opportunities in all four markets, with additional look into Indonesia and
The Philippines.


Market overview

India’s still modest solar PV capacity indicates how ambitious the 2022 target is. The country expanded its cumulative solar PV installed capacity from a mere 35.15 MW in March 2011 to 3.74 GW in March 2015. According to Indian government calculations, the country would need to invest US$110 billion between 2015 and 2022 to achieve the target of 100 GW solar power capacity. While obtaining such funding seems like a challenging task, it seems India has it all sorted out. At RE-Invest 2015 (a renewable energy global investment promotion conference held in New Delhi in February 2015), Piyush Goyal, minister of state for coal, power, and renewable energy, managed to get commitments worth US$200 billion from Indian companies as well as foreign investors. Furthermore, government managed to get commitment to build 166 GW solar installations from several solar developers.

Government is in talks with leading multilateral funding and lending agencies, such as the Asian Development Bank, World Bank, Germany-based KfW, Japan International Cooperation Agency, and Japan Bank for International Cooperation, to raise US$3 billion for solar power projects. In 2014, India received a funding of US$1 billion from US Exim Bank for solar power projects in the country. Announcement of 100 GW solar target has also caught attention of several private equity firms such as Goldman Sachs, Morgan Stanley, IFC, and Standard Chartered. All of these efforts to secure funding for solar projects allow to hope that the 100 GW target by 2022 is achievable.

As India is blessed with virtually limitless solar energy, such inflow of NREL - Indialarge-scale investment can aid rapid development of solar market in the country. With more than 300 days of sunshine, India ranks among the highest irradiation-receiving countries in the world. Most parts of the country receives solar irradiation between 4-7 kWh/m2 per day (as seen in India Solar Resource Map, sourced from National Renewable Energy Laboratory).

A report, released in November 2014, by Indian Ministry of New and Renewable Energy estimated the country’s solar power potential at about 750 GW indicating that India has the prospects to become one of the largest solar power markets in the world. As per the report’s estimates, regions of Rajasthan (142 GW) and Jammu & Kashmir (111 GW) have the highest solar power potential in the country. More than 60 GW of solar power potential is estimated for Madhya Pradesh and Maharashtra, which are among the largest of the Indian states with large wasteland resources.

Key growth drivers

Rising Energy Gap

India is experiencing unprecedented energy demand from its increasing population (1.27 billion as of 2014) and rapidly developing economy (India’s economic growth rate for fiscal year 2014-15 is estimated at 7.4%). The country consumed 869,000 GW of electricity in 2012, representing 130% increase as compared to electricity consumption in 2000.

India remains a power-deficit country, with 25% of its population not having access to electricity, according to Census 2011. The country suffers from severe shortages of electricity, particularly during peak hours of demand. Moreover, significant dependence on oil imports to meet energy needs poses threat to country’s energy mix. Considering country’s tremendous solar potential, solar power generation can potentially fill in the mounting energy gap of the power-hungry nation.

 

Declining cost of solar power generation

Solar power is becoming increasingly affordable, with cost of solar equipment declining significantly over the last few years as a result of rising competition and technology advancements and innovation.

 

We are already close to grid parity as the cost of modules has come down and the generation cost of thermal and gas plants has gone up due to increase in fuel cost.
Rajya Wardhan Ghei, CEO, Hindustan Cleanenergy, 2014

In case of utility-scale solar PV projects, solar power generation costs in India have come down from about INR 18 (US$0.28) per kilowatt-hour (kWh) in 2010-2011 to INR 5.25 (US$0.08) in 2014, which is comparable to cost of electricity generation by power plants using imported coal (coal accounted for 59% of total installed electricity capacity in India in 2014, and about 23% of the demand for thermal coal, which is used primarily in power generation, was met by imports in 2014). Institute of Energy Economics and Financial Analysis concluded in 2014 that newly built imported coal-fired power plant would require power purchase agreement of INR 5.4-5.7/kWh (US$0.85-0.9/kWh).

Solar is going to become one of the lowest-cost forms of generating electricity, even cheaper than fossil fuel.
Pashupathy Gopalan, Head of Indian operations and President-Asia Pacific, SunEdison, 2014

An A.T.Kearney publication in 2013 suggested that solar power would achieve grid parity (grid parity occurs when an alternative energy source can generate power at a cost lower than or equal to the price of purchasing power from the electricity grid) with conventional power between 2016 and 2018. Similarly, in 2014, Bridge to India, a solar consultancy firm, suggested that the grid parity would be achieved by 2018.

In case of roof-top solar PV projects, experts believe that grid parity is nearly achieved. An article published in The Hindu in March 2015 suggested cost of electricity generation through roof-top solar PV was almost at par with cost of conventional power for commercial consumers (rate of electricity in India varies depending upon state of location, e.g. Gujarat, Rajasthan, Haryana, etc., and type of consumer i.e. domestic/residential, commercial, industrial, and agricultural consumers) in 40% of the Indian states.

As the economic viability of solar power generation continues to increase in India, solar power is expected to gain traction over conventional energy sources, which would further accelerate development of solar market in the country.

Government incentives for solar development

Indian government has taken several initiatives to support solar market growth. Central and state governments offer both tax and non-tax benefits to promote investment in solar power sector.

TABLE I: Tax and Regulatory Benefits (Source: RE-Invest 2015)

Income Tax Holiday
  • 100% for 10 consecutive years – 20% Minimum Alternate Tax (MAT) to apply (if a company’s income tax in India is less than 18.5%, then it has to pay the MAT)
Accelerated Depreciation
  • Accelerated depreciation – 80% on solar assets
  • Additional depreciation – 20% on new plant/machinery in the first year
Deemed Export Benefits
(“Deemed Exports” refer to those transactions in which goods supplied do not leave country, and payment for such supplies is received either in Indian rupees or in free foreign exchange)
  • Advance authorization from Directorate General of Foreign Trade
  • Deemed export drawbacks on the customs duty paid on the inputs/components
  • Exemption/return of Terminal Excise Duty
Service Tax
  • Services of transmission or distribution of renewable source-generated electricity by an electricity utility are exempted from service tax
Customs And Excise Laws
  • Various duty concessions and exemptions to Renewable Energy (RE) Sector
Reduced VAT
  • Certain states allow reduced value-added tax rates (around 5%) on RE projects
Additional One-Time Allowance
  • 15% additional one-time allowance available in budget 2014 on new plant and machinery
Tax-Free Grants
  • Grants received from the holding company engaged in generation, distribution, or transmission of RE power

TABLE II: Non-Tax Benefits (Source: RE-Invest 2015)

Feed-in-Tariffs
  • Applicable when renewable generators sell to state utilities under the MoU route (MoU route means agreements entered into bilaterally without inviting bids)
Rebates
  • Available on the manufacturing of solar and wind components
  • Targeted at specific types of renewable energy technology
  • Include subsidies and rebates on capital expenditures
Government R&D Programs
  • Improve renewable energy technologies
  • Lead to growing performance, importance, and reducing costs

Government-led measures to create a conducive business environment for solar sector in India are expected to lure new players – local as well as global – and eventually expand the market space to support country’s solar mission.

Key challenges

Inefficient transmission infrastructure

Inadequate transmission infrastructure to connect solar power to the grid is expected to be a major roadblock to country’s 100 GW solar ambition. Federation of Indian Chambers of Commerce and Industry indicated in 2013 that the transmission and distribution losses due to poor grid structure were around 23% of the electricity generated. This clearly shows that a rapid up-gradation of transmission infrastructure would be essential to sustain the envisaged growth in solar power generation.

The solar target is very ambitious. There will be transmission and other infrastructure constraints to contend with.
Bharat Bhushan Agrawal, Analyst, Bloomberg New Energy Finance, 2014

India has begun to work on developing high capacity transmission systems to accommodate the projected solar capacity as part of the US$6.96 billion ‘Green Energy Corridor’ project (announced in 2013), under which the government has planned to construct inter-state and intra-state transmission infrastructure across seven states of the country by 2017-2018. KfW, a German government-owned development bank, is expected to lend an initial US$285 million for this project. However, despite availability of funds, not much progress has been noted in the proposed ‘Green Energy Corridor’ project. By early 2015, just two sub-stations were constructed, one each in Tamil Nadu and Rajasthan, to feed renewable power to the main grid. Power Grid Corporation of India, which is to execute the project, argues that there is not enough renewable energy capacity addition and they are still on wait-and-watch mode. With this approach, the proposed green corridor project is likely not to be completed within the proposed time frame. So, it seems that despite concentrated efforts to improve the transmission infrastructure, the progress has been slow, which will hamper the proposed development plans of solar market in the country.

Difficulties in land acquisition

The challenges and menaces involved in sourcing land for large-scale solar projects is daunting many solar developers in India. Large-scale solar power plants require huge space – construction of a 100 MW solar plant typically require around 500 acres of land. The issue is that, in India, land is very fragmented (according to a media article by The Indian Express in March 2015, the average landholding size in India was three acres). And, as per the Land Acquisition Act (The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013), in order to acquire a tract of land, private companies need to get consent of 80% of the land owners of the particular area, while public-private partnership projects need to get consent of 70% land owners. Thus, it becomes extremely difficult to individually negotiate with all the land owners in an area selected for construction of a solar plant, and convince them to sell their respective portion of land and make a large space available. Furthermore, in India, the records of landholding cannot be easily verified and authenticated and many land owners do not have clear title to the land they possess, which might lead to litigations and disputes over the land at a later stage.

Land titles are usually not very clear [and] even if a land deed is shown to be in one person’s name, another relative can come forward and stake his claim and the matter can be sub-judice for years, if not decades. – Jasmeet Khurana, Solar Analyst, Bridge to India, 2014

Many solar projects have been stalled in the country due to these challenges in land acquisition, which has eventually impacted the project budget and costs.

Challenges faced by Essel Infraprojects in acquiring land for solar power plants

In June 2014, Essel Infraprojects, infrastructure arm of an Indian conglomerate – Essel Group, were nearing the completion of a 20 MW solar power plant in Maharashtra, and only last 10 km of transmission lines were to be set up to connect the INR 2 billion (US$31.5 million) plant to the state electricity grid. However, owners of the land on which the transmission towers were to be erected refused to allow their construction.

Negotiating terms with the land owners resulted in delay of project completion by six days. Though the delay was relatively short, unlike in other large-scale infrastructure projects where the litigations with land owners can go on for years, even the six day delay lead to a considerable loss of INR 500 million (US$7.87 million) in bank guarantees.

Learning from their experience in Maharashtra solar power plant project, for their next solar project (a 30 MW solar power plant in Punjab) Essel Infraprojects first acquired the land for transmission towers. In this case, the company struggled to acquire the land for plant itself. The company had started negotiating land deals at INR 800-900 thousand (US$12,598-14,173) per acre, but during the talks the price demanded by land owners increased, and the company had to settle paying INR 2.5 million (US$,39,370) per acre.

Land acquisition for solar projects has proved to be challenging not only for private companies, but also for state-owned enterprises. In 2014, Mahagenco, Maharashtra state-run power utility company, reported delay in construction of solar projects of 125 MW capacity (100 MW in Osmanabad and 25 MW in Parbhani) due to difficulties in acquisition of land. The land holdings on the proposed construction sites are in small segments and Mahagenco is facing difficulty in convincing all the land owners in that area to sell their respective parcels of land to create a larger land area available for the solar plant. Because of the delay, the state missed its target of installing 313 MW of solar capacity for 2013-2014.

Difficulties in sourcing land for solar projects has resulted in delay of project execution and escalated costs. Government has proposed amendments in the Land Acquisition Act, including removal of ‘consent’ clause, to ease and expedite the process of securing land for reform-oriented projects. But this proposal has been stalled due to immense opposition from most political parties and social activists, who argue that the proposed amendments would weaken the rights of land owners. Unless the issues pertaining to land acquisition process are addressed, the country’s solar ambitions are likely not to be achieved in the desired time frame.

Opportunities for global solar companies

Global solar companies eye India as an emerging market opportunity

Indian government offers favorable policy framework for foreign investment in solar sector. 100% foreign direct investment is allowed under the automatic route, without any approval from the government of India. Further, no approval is required for up to 74% foreign equity participation in a joint venture. Additionally, 100% foreign investment as equity is permissible with the approval of Foreign Investment Promotion Board. Investors are also allowed to set up a liaison office in India.

Apart from this favorable framework, global companies are attracted to Indian market thanks to the promising returns on investments. Bridge to India concluded in 2015 that global utility companies could expect 13-15% return on equity invested in solar projects in India, while return for global solar developers could be expected to be in the range of 15-17%.

India is seen as an upcoming solar investment hotspot. Given the conducive business environment and attractive returns, many global solar firms have announced investment plans in Indian solar market. These include leading global solar developers and utilities such as Acme (joint venture between France-based EDF Energies Nouvelles, Luxembourg-based EREN, and India-based ACME Cleantech Solutions), US-based SunEdison, US-based First Solar, France-based Solairedirect, to name a few.

Insufficient domestic solar PV cells and modules production capacity offers opportunities for global suppliers

Minister Piyush Goyal stated in 2014 that domestic manufacturing capacity of photovoltaic cells (PVCs), which accounts for 60% of the cost of a solar module, is 700-800 MW, which is not sufficient to meet country’s solar ambitions. Indian PVCs manufacturers have also been unable to compete with cheaper Chinese and Taiwanese imports. In 2014, the Ministry of Commerce in India proposed anti-dumping duties of between US$0.11-0.81 on PVCs/modules imported from China, USA, Malaysia, and Taiwan (accounting for about 80% of modules used in Indian solar projects).

Indian government rejected the proposal to impose anti-dumping duties on import of solar PVCs and modules, explaining that as the domestic solar PVCs and modules production capacity was inadequate to meet the demands of country’s envisaged solar plans, the proposed anti-dumping duties would result in higher costs for solar projects and eventually hinder the growth of solar market in the country. With no protective measures in place to support the indigenous PVC manufacturing industry, India’s dependence on imports of solar PVCs and modules is likely to increase with expansion of solar PV market, creating manifold opportunities for global solar PVCs and module suppliers.

EOS Perspective

Abundance of solar irradiation along with continuously falling solar PV prices have created a distinctive opportunity for electricity-deprived India to bank on solar power generation. Realizing this, Indian government is marching towards the goal of installing 100 GW solar PV capacity by 2022. Favorable policy environment and government incentives would be pivotal for the growth of solar market in India. Government’s dedicated efforts to raise institutional funding and develop other financing avenues to support country’s solar power ambitions have received impressive response from investors across the globe.

However, experts caution that most of the announcements in solar sector are made based on just preliminary commitments or MoUs. It is yet to be seen to what extent these plans materialize over the coming years. Despite challenges, Indian solar market is poised to grow rapidly in the near future owing to the euphoria created by recent announcement of government’s ambitious solar vision followed by private sector’s surge of enthusiasm in the solar market. However, whether the country will be able to sustain the growth stride, remains a question.

by EOS Intelligence EOS Intelligence No Comments

China’s Solar Power Boom

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Solar power, once perceived as a luxury that only developed nations could afford, is becoming a viable energy source for a broader set of emerging nations, which are leaning towards solar power generation to meet their obligations under the Kyoto Protocol, conserve scarce traditional resources, reduce dependence on imports of oil and fuel, or address escalating power demand.

In particular, several emerging countries in Asia are showing signs of intensified solar photovoltaic (PV) development in the coming years. For instance, China and India, the two Asian giants, are aiming for solar revolution with the target of installing 100 GW of solar PV capacity by 2020 and 2022, respectively. Solar energy is gaining popularity in many other emerging countries in Asia as well, such as in Thailand, Malaysia, Indonesia, and the Philippines. This intensive growth of the region’s solar markets is offering a gamut of opportunities to domestic and global developers, investors, and financial institutions operating in the solar power industry.


This article is part of a series focusing on solar PV market across selected Asian countries: China, IndiaThailand, and Malaysia.
The series closing article Solar Rises in the East examines challenges and opportunities in all four markets, with additional look into Indonesia and
The Philippines.


 

Solar PV Installations

Currently, China represents the fastest growing solar market globally. While, in 2014, a total 38.7 gigawatt (GW) of new solar PV capacity was installed globally, China accounted for the largest share (roughly 27%) of this new capacity, adding some 10.6 GW, followed by Japan and the USA.

China’s strengthening position in the global solar power market is a matter of the past few years. At the end of 2010, China had an installed solar power capacity of less than 1 GW, and within three years it became a leading nation in terms of solar PV installations per year. Present outlook for China’s solar market is indicative of its bright future. Amidst burgeoning market growth, global solar companies are exploring diverse routes to benefit from China’s solar boom.

Market Overview

Total grid-connected solar power capacity in China reached 33.12 GW by the end of March 2015, with 27.79 GW from utility-scale solar PV projects and 5.33 GW from distributed solar PV projects. The country continues to add new capacity on an ongoing basis: it added 5.04 GW of new solar PV capacity in the first quarter of 2015 alone and aims to connect a total of 17.8 GW of new solar PV capacity to the grid in 2015.

Utility-scale solar refers to large-scale grid connected solar power generation, whereas distributed generation refers to electricity produced at or near the point where it is to be consumed. In China, solar power generated through rooftop solar PV systems on residential and commercial buildings as well as ground-mounted solar systems on abandoned lands, unused slopes, canopy for agricultural uses, and fish ponds are recognized as distributed solar PV projects.

All of this is just part of a larger plan to increase solar power output in this country, as according to the 13th Five-Year Plan (2016-2020), China aims to install a total 100 GW solar power capacity by 2020 (doubled from the target of 50GW set in 2013 under 12th Five-Year Plan, which we mentioned in our Perspectives in January 2015).

Growing solar market is expected to offer ample opportunities for new investments. A report released by Ernst & Young in 2014 indicated that China would require about RMB 737 billion (US$120 billion) of capital investment between 2014 and 2017 to meet its solar targets. About 71% of this capital investment value would be required for development of distributed solar PV projects.

“China’s continued demand for new energy capacity, its ongoing battle against air pollution and energy poverty, and its focus on economic development, meant the 100 GW solar target set in Beijing’s last Five-Year Plan could be treated as the bottom.” – Liansheng Miao, Chairman and CEO, Yingli (world’s second-largest solar panel producer), 2015

Such large-scale investments can be aptly utilized to capitalize on country’s abundant solar power generation potential. World Energy Council 2007 estimated China’s solar power potential at around 19,536,000 terawatt-hours (TWh) per year. 17% of mainland China receives annual solar radiation of more than 1,750 kilowatt-hours per square meter (KWh/m2) and more than 40% of China receives between 1,400-1,750 KWh/m2.

According to China National Renewable Energy Centre, several provinces in western and northern parts of the country (including Qinghai, Xinjiang, Tibet, Inner Mongolia, Sichuan and Gansu provinces) represent more than two thirds of the national solar energy resource potential. Most utility-scale solar PV power plants are concentrated in the northern and western parts of China, while distributed solar PV installation is gaining momentum in eastern parts of the country.

Solar Resource of China – Direct Normal Solar Radiation
Solar Resource of China

Source: National Renewable Energy Laboratory

Key Growth Drivers

Attempts to counteract deteriorating air quality

China became the largest consumer of energy in the world in 2010, with majority of its electricity generated from domestic coal reserves. In 2014, coal accounted for 64% of the total energy consumed in the country. Consequently, air pollution, which impacts public health, is a major problem for China to combat. Chinese Ministry of Environmental Protection indicated that nearly 90% Chinese cities did not meet government-recommended standards related to air quality in 2014.

China’s solar boom is driven largely by a progressive policy framework intended to improve country’s energy mix by generating greater portion of energy from clean and abundantly available renewable sources. This push towards solar power generation is also partly aimed at creating additional demand for domestic solar equipment manufacturers.

China, being the largest emitter of carbon dioxide in the world (accounting for about 23% of global carbon dioxide emissions in 2014), is committed to move towards cleaner energy sources including solar power, and to cut down consumption of coal for electricity generation. In November 2014, Chinese President Xi Jinping pledged in an agreement with the US President Barack Obama to increase the share of non-fossil fuels in primary energy consumption in China from 9.8% in 2013 to around 20% by 2030. Country’s abundant solar power potential along with a strong commitment to move towards cleaner energy sources for electricity generation has been a contributing factor that boosted development of solar market in China.

The need to support the struggling indigenous solar panel manufacturing industry

China has been the largest manufacturer and exporter of solar PV panels since 2007, producing the cheapest solar PV panels in the world owing to massive subsidies granted by the government. China has been known to export about 90% of its solar panels. In the face of such a heavy reliance on exports, the trade tariffs recently applied by EU and the USA have affected the growth of this industry.

In 2013, EU and China came up with a trade settlement, under which in a given year, Chinese companies are allowed to export to EU solar equipment able to generate up to 7 GW power without paying duties, provided that the price is not lower than US$0.56 per watt. Any solar products sold above the permissible volume quota or below that minimum price would be subject to anti-dumping duties of an average of 47%. Consequently, EU’s share in overall Chinese solar PV module exports reduced from 65% in 2012 to 30% in 2013, and further down to 16% in 2014. At the same time, in December 2014, the USA, which accounted for 3% of the Chinese solar PV module exports in 2014, imposed anti-dumping duty rates of 52% and anti-subsidy rates of 39% on imports of solar panels made in China.

Chinese government’s aggressive efforts to drive significant expansion of domestic solar energy generation capacity is concentrated to spur new demand for solar PV equipment, and thus provide new market opportunity for indigenous solar panel manufacturing industry, dampened by series of anti-dumping duties levied by top export countries.

Favorable policies and generous government incentives for Chinese solar market
Impressive growth rate of Chinese solar market in the recent years has been largely driven by conducive investment and policy environment. The government has introduced several incentive schemes to encourage solar developers to ramp up solar PV installation in China.

Key Policies to Promote Solar PV Installations in ChinaKey Policies to Promote Solar PV Installations in China

While the introduction of subsidies and other solutions to fuel investment and installations of solar power facilities led to considerable positive results and increase in solar power generation capacity in China, the government intends to stop providing subsidies for solar projects by 2020 in line with falling costs of developing and operating solar projects in the country. With advancements in technology, leading Chinese solar companies’ solar PV modules cost decreased from US$1.31 per watt in 2011 to US$0.50 per watt in 2014, representing about 62% decrease in three years. In 2014, Deutsche Bank noted that the solar PV module cost could further decrease by 30-40% in next several years. Moreover, solar power generation cost in China is expected to reach a level comparable with the cost of conventional power generation by 2017. With the decrease of solar panel production costs and the decrease in cost of electricity generation using solar energy, the government will no longer consider subsidies a necessary tool to drive the solar market growth. While generous government incentives are likely to dry out over time, many renewable energy-friendly policies introduced since 2006 remain in place, and continue to ensure a favorable environment for solar power market.

Key Challenges

Lower development of China’s distributed solar PV sector in comparison with utility-scale solar PV generation

Most large-scale utility projects are concentrated in the highly irradiated northwestern regions of China, where the economy is relatively underdeveloped and electricity consumption is limited. Inefficient grid infrastructure in the country poses substantial challenge of power loss in long-distance transmission from northwest China to other regions that are rapidly developing and experiencing shortage of energy.

Considering transmission challenges and costs involved in utility-scale solar PV projects, most observers of China’s solar energy sector suggest that the country should ideally shift its solar PV market, which concentrates primarily on utility-scale solar PV in remote locations, to distributed solar PV in densely populated areas in the north, south, and east. However, as the current subsidy structure favors utility-scale solar PV projects over distributed solar PV projects, the development of distributed solar PV sector is relatively low. As of 2014, distributed solar PV installations connected to the grid accounted for only 16.65% of the total grid-connected solar installed capacity in China.

Current FiT Policy (Introduced in 2013)

Current FiT Policy (Introduced in 2013)

Source: National Development Reform Commission

Furthermore, the market for distributed solar PV in China faces other challenges, such as the possible dearth of rooftops suitable for installations of solar systems. Therefore, solar energy developers continue to be more interested in utility-scale solar PV projects in northwestern regions over distributed solar PV projects in other parts of the country, which leads to great loss of power during long-distance transmission, a challenge that could be overcome only if the grid infrastructure is significantly improved.

 

Rising concerns about the quality of domestically produced solar PV modules

Solar developers, investors, and financial institutions are increasingly concerned about the quality, performance, and reliability of solar PV modules produced in China. General Administration of Quality Supervision, Inspection and Quarantine, a Chinese regulatory agency, indicated in 2014 that about 23% of solar PV modules produced by Chinese companies for the domestic solar market did not meet recommended quality requirements related to panel’s antireflective coating. Findings were based on inspection conducted in the third quarter of 2014 with samples from 30 companies, which represented about half of China’s suppliers of antireflective glass. Flawed antireflective coating may result in gradual deterioration of power output, thus increasing operational inefficiencies in the long-term. Experts suggest that such quality defects may not have immediate effect and can go undetected for two or more years of operation of the solar plant, raising uncertainty among investors and developers.

“A reduction in power generation caused by quality imperfections means declining investment returns or even losses from solar farms.” – Meng Xiangan, Vice Chairman, China Renewable Energy Society, 2015

Quality inspection of 3.3 GW of installed solar PV projects (about 10% of China’s installed solar capacity at the end of 2014) by China General Certification Center in 2014, indicated that a third of 425 utility-scale solar parks surveyed had several defects including faulty solar modules, poor construction, design flaws, and project mismanagement. These solar parks, built in China between 2012 and 2014, are likely to yield lower power output than originally estimated.

In light of recently identified quality issues in the domestically manufactured solar PV modules, investors and developers have increased caution in selection and implementation of solar projects in China. For instance, in a recent interview with Bloomberg, CEO of Sky Solar, a Hong Kong-based solar developer, said that the company plans to invest in China only at a “careful” pace because of quality concerns. This might be indicative of broader industry’s concerns that might hamper the rapid development of solar plants in the country.

 

Opportunities for Global Solar Companies

Global solar developers seek manifold opportunities in China’s expanding solar market

Global solar companies are keen to grasp the opportunities offered by rapidly growing China’s solar market. With the market’s expansion, a surge is expected in demand for imports of certain materials and instruments utilized in solar equipment manufacturing in the country.

Participation from foreign solar firms in development of utility-scale solar PV projects in China is increasing in the form of joint development ventures. For instance, in 2014, SunPower, a California-based solar developer, announced plans to develop 3 GW of solar PV in Sichuan province in collaboration with four Chinese partners. SunEdison, another US-based solar energy company, is planning to partner with Chinese companies for development of 1 GW of utility-scale solar project in the country.

Foreign solar developers also see opportunity in China’s distributed solar PV sector. For instance, UGE International, a US-based firm offering renewable energy solutions, has partnered with Blue Sky Energy Efficiency, a Hong Kong-based energy investor, to offer the power purchase agreements (PPA) to customers in China.

“Blue Sky and UGE are bringing an innovative solar energy financing structure to China that will make it possible to rapidly expand use of on-site renewable energy with no money down.” – Rosie Pidcock, Senior Manager of Commercial Solar, UGE International, 2015

According to Solar Energy Industries Association, solar PPA is a financial agreement where a developer arranges for the design, permits, financing, and installation of a solar energy system on a customer’s property (rooftop) at little to no cost. The developer sells the power generated to the host customer at a fixed rate that is typically lower than the local utility’s retail rate. This lower electricity price allows the customer to purchase electricity at a rate lower than when purchased from the grid while the developer receives revenue from selling electricity as well as tax credits and other incentives generated from the system. PPAs are common in the USA, but they will be introduced in China for the first time in 2015. PPA financing structure will provide solar electricity to local and multinational corporations operating in China at a cost lower than conventional electricity without any capital investment. Hence, success of PPA is expected to boost the growth of distributed solar PV in China.

 

Inadequate domestic supply of some materials and instruments used in solar equipment manufacturing will encourage global exporters to strengthen their focus on Chinese market

Foreign companies may explore opportunities to export critical materials and components used in manufacturing of solar equipment to China. According to a report released by CCM in 2015, a Guangzhou-based research firm, China relies on imports for about 40-50% of its polysilicon (a key commodity for solar PV panel production) needs. In 2014, China imported around 93,000 tons of polysilicon worth US$2 billion. Other materials used in production of solar PV modules, including silver paste, TPT back sheets, EVA encapsulant film, and slurry material, are also short in supply in China. Furthermore, huge demand is anticipated for advanced equipment required to separate high-purity polysilicon, including hydrogenation furnaces, large-scale casting furnaces, plasma enhanced chemical vapor deposition (PECVD) coating equipment, and automatic screen printing presses. China is dependent on imports of these materials and technologies used in solar PV module production, and thus, the ongoing expansion of Chinese solar market will provide great opportunities to global suppliers of these commodities.

 

 

Despite a few challenges, China’s solar market is believed to be set for rapid expansion, at least for the foreseeable future

China is installing solar PV capacity at a breakneck pace. The country is already the largest producer of solar PV modules in the world and if it is able to achieve its solar targets, it might become the largest solar power consumer as well. Chinese government’s support for the development of solar market to achieve its ambitious solar targets by 2020 will serve as a key growth driver. However, China’s ability to establish strong and lasting position as the world’s largest solar power market will be dependent on its ability to efficiently deal with challenges it is facing, challenges significant enough to cause caution amongst private investments. The industry would need to focus on potential quality issues identified in domestically produced solar equipment in order to uphold investors’ confidence. The government’s role must also extend beyond the support for solar generation targets, to include development of distributed solar PV sector, that would need additional stimulus from government to pick up pace.

by EOS Intelligence EOS Intelligence No Comments

China’s Green Energy Revolution

China is widely criticized as the world’s largest emitter of carbon dioxide and other greenhouse gases. Less noticed, however, has been the fact that the country is also building the world’s largest renewable energy system. China plays a significant role in the development of green energy technologies and has over the years become the world’s biggest generator and investor of renewable energy. As China heads towards becoming the global leader in renewable energy systems, we pause to take a look at the major drivers behind this development and its implications on China as well as on the rest of the world.

Reducing CO2 emissions has become one of the top priorities and the Chinese government has set its eyes on developing sustainable energy solutions for its growing energy needs. To support this objective, China has set forth aggressive policies and targets by rolling out pilot projects to support the country’s pollution reduction initiatives and those which reflect the strategic importance of renewable energy in country’s future growth.

Why has China suddenly become so environmental conscious and investing billions on renewable energy?

  1. Air and water pollution levels have become critical, causing tangible human and environmental damage, which lead Chinese authorities to rethink on the excessive use of fossil fuels. Considering current and potential future environmental hazards of burning fossil fuels, China decided to decrease the use of coal and is actively seeking for greener energy solutions. While serious concerns about climate change and global warming are key drivers towards expanding the use of renewable energy for any country, for China, the motives are well beyond abating climate change; they are creating energy self-sufficiency and fostering industrial development.

  2. China is witnessing a dramatic depletion of its natural gas and coal resources and has become a net importer of these resources. China’s increased dependency on imported natural gas, coal and oil to meet its growing energy demands bring along some major energy security concerns. The current political volatility in Russia, the Middle-East and Africa pose serious challenges not only for China, but, for other countries as well to secure their energy supplies for the future. Not to mention the risks associated with energy transport routes.

Taking into account these geo-political risks and in order to achieve a secure, efficient and greener energy system, China started its journey towards developing an alternative energy system. A new system that reduces pollution, limits its dependency on foreign coal, natural gas and oil was envisioned.

China’s Ambitious Renewable Energy Plans

According to RENI21’s 2014 Global report, in 2013, China had 378 gigawatts (GW) of electric power generation capacity based on renewable sources, far ahead of USA (172 GW). The nation generated over 1,000 terawatt hours of electricity from water, wind and solar sources in 2013, which is nearly the combined power generation of France and Germany.

The country has now set its eyes on leading the global renewable energy revolution with very ambitious 2020 renewable energy development targets.

China’s Renewable Energy Development Targets













In May 2015, we published an article on the solar power boom in China, in which we presented the revised, higher solar power generation targets.

To achieve the 2020 renewable energy targets, China has adopted a two-fold strategy.

  1. Rapidly expand renewable energy capabilities to generate greener and sustainable energy.

    It has significantly expanded its manufacturing capabilities in wind turbines and solar panels to produce renewable electricity. As per data from The Asia-Pacific Journal, China spent a total of US$56.3 billion on water, wind, solar and other renewable projects in 2013. Further, China added 94 GW of new capacity, of which 55.3 GW came from renewable sources (59%), and just 36.5 GW (or 39%) from thermal sources. This highlights a major shift in energy generation mix as well as China’s commitment towards cleaner energy technologies.

  2. Reduce carbon footprint.

    The government has banned sale and import of coal with more than 40% ash and 3% sulphur. Government’s Five year plans have stringent targets on reducing coal consumption as well as CO2 emissions. It is expected that environmental and import reforms will become more stringent along with greater restrictions, which would help accelerate China’s migration to a green economy.

The government has also announced a range of financial support services, subsidies, incentives and procurement programs for green energy production and consumption. Solar PV and automotive industries are good examples.

  1. By supporting domestic production and providing export incentives, China has become the global leader in solar panels. Over the last few years, the government has also financed small-scale decentralized energy projects, deployed and used by households and small businesses, in order to make them self-sufficient in their energy needs

  2. China has also positioned itself as the leading manufacturer of electric vehicles globally. According to Bloomberg, China is mandating that electric cars make up at least 30% of government vehicle purchases by 2016. To achieve this target, the government has started investing on essential infrastructure and providing tax incentives for purchasing of electric vehicles.


China has laid the foundations for a future where renewable energy will play a vital role. The advancements in technology and changes in policies will further enhance the country’s renewable energy landscape and will drive affordable, secure and greener energy. How the Asian giant achieves to balance between its economic, industrial, regulatory and environmental goals with sustainable renewable energy investments will, however, only become clear in the next few years.

by EOS Intelligence EOS Intelligence No Comments

Japan’s Quest for Renewable Energy

Japan, for many years the symbol of safe use of nuclear energy, started to revise its focus on atomic power following the 2011 tsunami and Fukushima plant meltdowns. After the accident, atomic plants were shut down, and in 2012, the government declared its commitment to the diversification of energy sources, working towards making the country renewable energy-powered.

Yet this wishful thinking was soon confronted with the reality of slow growth of renewable energy generation. In April 2014, a new energy plan re-designated coal as an important long-term electricity source, with similar importance given back to nuclear power. While Japan is unlikely to abandon fossil fuels and nuclear power in any foreseeable future, the shifting focus and public reluctance to atomic power gave start to a more dynamic development of renewable power generation technologies.

Several projects across solar, hydro, biomass, and to a lesser extent geothermal, had already been developed prior to Fukushima accident, but it is now the time for Japan to embrace its renewable energy potential at a larger scale.

Read our report – Japan’s Quest for Renewable Energy

 

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Wind Energy in South Korea – Aiming High

SouthKoreaWind

Over the past couple of years, South Korea has undertaken considerable efforts to research and develop renewable energy generation across technologies such as fuel cell, solar, wind, geothermal heat, and tidal power. While supporting growth in several renewable energy sectors, the country has focused on expanding wind power generation in particular, given Korea’s access to strong and steady winds due to its long coastal line and mountainous terrain, as well as relatively well developed wind power technology and related skill set. We take a look at current state of affairs in the renewable energy sectors in Korea as well as the development of wind energy capacity goals set by the country’s government.

Read Our Detailed Report.

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