Earlier this month, China’s energy regulator, the National Development and Reform Commission (NDRC), announced to the public the first nationwide feed-in tariff (FIT) incentive program applicable to solar power. The FIT was warmly received by project developers in China, and is expected to significantly incentivize the healthy development of China’s solar power industry.
The new NDRC FIT Circular (Fa Gai Jia Ge  No. 1594) provides for the following schemes to encourage the development of solar photovoltaic power generation projects in China:
- A FIT of RMB1.15 (approximately US$0.177) per kwh for projects that (i) are approved for construction by the NDRC prior to 1 July 2011, (ii) complete construction and commence production of electricity prior to 31 December 2011, and (iii) have not yet been verified by the NDRC in respect of its on-grid power tariff.
- A FIT of RMB1 (approximately US$0.154) per kwh for projects that (i) are approved for construction by the NDRC after 1 July 2011, or (ii) are approved for construction by the NDRC prior to 1 July 2011 but have not yet commenced production of electricity by 31 December 2011. (Exceptions being projects of this category but located in Tibet, where an FIT of RMB1.15 (approximately US$0.177) per kwh will apply.)
- The NDRC shall have the right to make adjustments to the FIT going forward, based on factors such as investment cost changes, technology development, etc.
Before the launch of the FIT, the NDRC had been implementing a “concession rights auction” regime in granting development rights for large solar projects in China. The auction winners were usually those offering the lowest grid power prices, almost invariably large State-owned enterprise power providers. Further, there has been a tendency in the past couple of years among project developers to recklessly lower their bidding prices in order to win projects for the mere sake of market expansion regardless of realistic returns achievable. It is expected that the FIT incentive program will effectively help improve the competition situation in the industry, as it provides for reasonable room for profit to developers with relatively advanced technologies. We would expect to see an increase in solar power investment in China in the coming year as NDRC’s implementation of the FIT becomes clearer.
On the other hand, the new NDRC FIT Circular specifically provides that solar power projects selected via the auction process shall not enjoy a grid power price higher than the FIT. This provision casts some uncertainty on the future of the auction regime. While the previous projects put by NDRC to auction had been very attractive in respect of the project sizes and solar resources, understandably it would not be that attractive to compete and bid for a price that can be at best equal to the FIT. It is therefore yet to be seen how the existing auction regime for large scale solar projects will evolve.
In respect of the previous central government subsidy programs for solar power, namely the “Golden Sun” projects and the BIPV (Building Integrated Photovoltaic) projects, while such subsidies will continue to be offered, the new NDRC FIT Circular provides that projects enjoying central government subsidies shall have the same grid power tariff as coal-fired power projects.
The new NDRC FIT Circular has not introduced any changes to the existing NDRC approval procedures for solar projects. Depending on the project size, approval may be granted by central or local NDRC.