The US Solar Market & the Integration of Clean Technology
Where is the solar industry heading, is there a future for solar on a global or even local scale, will solar live up to its hype and promise it has shown over the past few years? All these are questions that are currently frequently asked and that I come across at various conferences, meetings and trade shows. In my opinion, and of course you have the right to disagree or agree, depending on which side of the argument you stand, solar has an even bigger and prosperous future ahead than it has shown up until now. Yes, the prices of solar modules are dramatically decreasing, which puts many manufacturers in a bind and causes some protectionism as we have seen by actions lead by Solarworld in the recent weeks. Yes, the disaster around Solyndra has caused mainstream media to write-off solar and its promise of new technologies. However what I see in the market is just a boom driven by installers, integrators, and project developers who are able to install PV systems at prices that we were never able to project just one year ago. In some markets, solar can be installed at at the same cost than traditional energy, reaching grid-parity, which will just drive the solar market even further in these markets. The US solar market is driven at the moment by large scale utility projects, however, the ingenuity of the solar leasing companies out there and the hopeful return of the PACE program is driving residential installations forward as well.
The focus on clean technology as a whole and the combination of renewable energy generation with e-mobility using various methods of power generation, such as plug-in electric vehicles, hydrogen fuel-cell vehicles, and mixed developments such as plug-in hybrids will also created a tremendous market, which should be exciting to watch in the upcoming quarters. Our symposiums held together with the German State of Baden-Wuerttemberg gave us insights into the development of such projects and provided a platform for technology companies and institutions to showcase their research and developments for the future. Visit www.accessio.com/e-mobility for presentations, videos, and pictures of the events.
Combining all these efforts solar, e-mobility, wind power generation, with efforts undertaken in the roll-out of smart-grids should create a market place where renewable energy and technologies that are using clean energy should strive for many years to come. Yes, the solar market will see a shake-out in the next few months of companies that are not stable, have inferior quality products, however many segments of the market downstream should benefit from these developments as well as the end-user.
This allows me to look bullish at the future of the solar market and the market for clean-technologies as a whole. I do believe that it simply makes sense in the long run for the industry and for society as a whole.
Have a sunny day!
Boris
Spring in the US and the solar market is buzzing…but is it on track and what can we do to get the US solar market to jump in for the predicted decline in the European markets? It has been widely announced that Germany has been cutting its incentives on the Feed-In-Tariff (FIT) and many research firms and analysts, EUPD-Research among them, predict the German market to slow down in 2012 to around 2.5GW installed capacity. This would be a drop to the current installed yearly capacity of over 60%.
We still have to see what effects the disaster in Japan has on the renewable energy industry, as the public and some governments are pushing for an exit from nuclear power. Italy has been going strong and the delay of the FIT cap has helped, but the market expects for a cap to arrive sooner than later. France has a strong program, however there are signs on the horizon that changes to the incentive program are around the corner as well. As the China Daily reported last week, may double their solar power capacity goal from 5GW to 10GW by 2015, currently having 1GW installed, but the question is how much opportunity is in the market for non-Chinese manufacturers.
No wonder the solar industry is looking for new markets to develop and hopefully jump in to take on some of the production capacity that the industry turns out day by day. South American markets are slowly developing and some African markets and the Australian market are also showing growth signs, however most of these markets are still insignificant in scale. Therefore, many eyes are looking upon the US market to finally come online and really take on the growth that everybody is hoping for.
Solarbuzz (www.solarbuzz.com) has just announced that according to their new United States Deal Tracker report, the solar PV project order backlog for the U.S. has exceeded 12GW. With these figures in mind the market is now speculating that the US will again be able to double its install capacity in 2011. This would mean that the US market would reach roughly 2GW in scale this year and as PV Tech (www.pv-tech.org) states, it would make it “the highest growth market in the next two years”.
The new addition of the deal tracker logs, according to Solarbuzz, over 375 non-residential projects in the US project pipeline being planned or going through a Request for Proposal process. It also includes an additional 775 projects that total 0.7 GW of PV systems either installed or being installed since January 1, 2010. The main focus of these projects are non-residential PV systems, ranging from 50 kw, which I assume are mostly commercial rooftops up to a system size of 1GW, up to large utility scale projects of several hundreds of MW, which have been widely publicized as well. According to Solarbuzz and also what I have noticed following press announcements the US solar market in its scale is largely dominated by large scale ground-mount projects mostly driven by utilities and established solar module manufacturers.
Solarbuzz - Non-Residential Projects by System Size
Solarbuzz also states that utility-scale projects being developed are in 29 of 50 states, which is promising that a number of states in the US are now are supporting PV developments, with the largest being California, New Jersey, Massachusetts, Pennsylvania, Arizona, Texas, Colorado, North Carolina, Nevada and Florida. However four states dominate this project pipeline providing 80% of the total measured megawatts.
Uplifting is that the price development in the United States per watt installed PV is coming down and Solarbuzz states that the biggest U.S. projects are being installed at a range between US$3-4 per watt DC.
More information about the Solarbuzz market study can be found here – http://www.solarbuzz.com/our-research/recent-findings/united-states-solar-photovoltaic-project-order-backlog-surpasses-12-gw
I do believe that it is important for the US market to develop a healthy residential market in photovoltaics as such a market negates some of the issues larger utility scale developments face, mainly a lack in infrastructure, transporting the energy where it is needed most. Important is also that states, counties and cities develop an easier permitting process thereby further decreasing of the installation costs of PV. Hopefully a unified incentive program will be put in place in the near future or at least attractive financing for homeowners, making solar deployments on a residential scale more of a standard than the exception.
I think it is exciting to see how quickly the market will develop…
Have a sunny Day
Boris
Win-Win in Wuhan
Chinese industry incentives: Evergreen Solar is moving its PV manufacturing plant from Devens, USA, to Wuhan, China. It’s sad for Massachusetts, but the move is understandable: China is offering generous support for high-tech ventures, especially in the clean tech space.
We in the solar industry have become used to national measures to support this industry as it matures and lowers its production costs to become increasingly competitive with traditional forms of power generation. Especially in Europe, there are national feed-in programs in place to promote the adoption of solar energy. And in the United States and Canada, regional initiatives, such as Ontario’s feed-in tariff or renewable portfolio standards adopted by numerous U.S. states, are key drivers of solar energy deployments.
Given the strong position of the Chinese central government in Beijing, we would think that China would also fall in this category of predominantly national or regional measures to drive the adoption of solar power. While Beijing and Chinese provincial governments certainly play a critical role, local government initiatives to embrace solar power and manufacturers in this sector play a pivotal role in China, much more so than in North America and Europe.
This might come as a surprise to many, but this fact was one of the noteworthy news items to emerge from a recent story involving Evergreen Solar’s decision to move its solar panel manufacturing plant from Devens, Massachusetts, to Wuhan, China. Most of the discussion this story generated in the U.S. was focused on the loss of jobs in the U.S. and the threat China posed to the Obama administration’s plans to make the U.S. a leader in solar and clean technology. The story ran in the New York Times on January 14, 2011, right before the critical summit between President Barack Obama and China’s President Hu Jintao.
So what are the facts in this case? According to the New York Times and Evergreen’s CEO Michael El-Hillow, “his company had decided to close the Massachusetts factory in response to plunging prices for solar panels. World prices have fallen as much as two-thirds in the last three years – including a drop of ten percent during last year’s fourth quarter alone.” The article goes on to say that the U.S. company Evergreen managed to cut its costs to two U.S. dollars (USD) per watt by the end of 2010 (from USD 3.39 per watt at the end of 2008), but that this was still much higher than the selling price of Chinese modules, which were selling for as little as one dollar per watt.
The big downside of this story is the 800 workers in Devens who will lose their jobs and the questions it raises regarding America’s competitiveness in the clean tech space. But there is an upside and credit should be given to the management team of Evergreen Solar in seizing upon the opportunities offered by China’s local approach to solar and clean energy development. In the U.S., regional aid was limited to a USD 21 million grant from Massachusetts covering only five percent of the cost of Evergreen’s production plant. For
the remainder the company had to borrow from American banks, that were insisting on double-digit interest rates, partly because of the fallout created by the financial crisis.
Far away in Wuhan, the capital of Hubei Province in central China, local and provincial governments were ready to help finance two-thirds of a modern production facility at an interest rate under five percent and with no principal and interest payments required until the loan matured in 2015.
Far from being the exception in China, generous local support for high-tech ventures, especially in the clean tech space, seems to be more the rule throughout China, as China’s provinces, cities and counties compete with each other to attract entrepreneurs and boost their performance and employment. According to Alexandre Xing, partner in charge of clean tech investments at the private equity (PE) firm SMC Capital China, “local officials are keen to deliver strong GDP numbers for their region. Gross domestic product is a key performance indicator for them and to boost their numbers they are keen to work with innovative companies, especially in the clean tech space, and they are prepared to offer a range of incentives to attract them.”
Levers to lure investors
Property and production facilities form one very important lever in attracting clean tech companies. Outright ownership of land is not possible in China, so businesses typically pay local governments for so-called “land use rights” or rent the needed facilities from a local landlord, often the local government as well. One PV manufacturer on Alexandre Xing’s radar as a PE investor was able to get the local government to put up a factory and offer three years of rent-free use as part of its business promotion package.
Another lever is on the financial side and local governments or state-owned enterprises (SOEs) controlled by them have a wide range of financial measures at their disposal. They can come in as early stage investors much like a business angel or venture capital investor (VC), but typically without many of the strings an angel or VC would insist on. Or they can come in at a later stage to provide growth capital together with PE firms like SMC Capital China. In Evergreen’s case the company created a joint venture with its local government partners (the Wuhan municipal government and the Hubei provincial government), which paved the way for the joint venture to receive favorable financing from Chinese banks.
Taxes are another lever used by local governments. One important tool in the tax tool kit is a reduced value-added tax (VAT). The days when foreign investors in China could get lucrative tax holidays and reduced income taxes on a national level have given way to a more uniform tax regime in China, where local and foreign players basically pay the same level of taxes. But both local and foreign firms can expect some flexibility on the local level. Value-added tax is one prominent example. Unlike in the European Union, where VAT is a consumption tax, VAT is a production tax in China and so payable on the supplier and not the buyer side. 70 percent of the 17-percent Chinese VAT is funneled to the national government with the rest allocated to local authorities. Local officials can tap into this 30- percent VAT pool to provide VAT reductions as an additional incentive. Finally, local authorities can also use their share of the corporate income tax (40 percent) to lure companies to their region.
At the end of the day, Chinese local governments are very creative in partnering with local and foreign investors to drive their business their way. This applies especially to renewable energy projects, including solar, not least because at a national level renewable energy is classified as one of seven strategic industries in China’s newest Five Year Plan (2011-2015). This plan has ambitious targets, including over 20 gigawatts in newly installed PV capacity by the year 2020 compared to today’s total installed capacity of just 400 megawatts.
The approach of local governments in China is very different from most local governments overseas. In foreign countries, local governments tend to avoid becoming too intertwined with business and focus mainly on administration. To a certain extent local governments in China reflect what the national government is doing, since Beijing is still the only or main player in many industries, where there is a strong national interest. Such markets include natural resources, power generation and transmission, defence, aviation, telecommunications, as well as banking and finance. In fact, one criticism of China’s RMB four trillion (USD 586 billion) stimulus program during the global financial crisis was that much of this money would go from state-owned banks to state-owned enterprises, leaving little stimulus for the private sector. But perhaps this became an opportunity for local governments to step in and create even more “win-win” partnerships with the private sector.
Attractive partnerships
It is important to note that these “win-win” partnerships are also available to foreign companies, especially if they are active in the renewable energy sector. According to
Alexandre Xing of SMC Capital China, “Evergreen Solar was very smart to partner up with Wuhan authorities to invest in their PV manufacturing plant in China.” So this is not just a one way street where Chinese authorities are doling out favors to their local companies, who then dump their clean tech products in foreign markets, perhaps contravening World Trade Organization rules prohibiting subsidies to drive exports. While Chinese firms certainly have a “home court” advantage in tracking down the best locations and getting the best deal from local governments, foreign firms can also benefit from these incentives to establish a very competitive production base in China. And as China’s domestic PV market ramps up, as it, based on the latest Five Year Plan’s targets, most certainly will, having a local production base will help to capture a slice in this booming market. When this happens, the very lopsided nature of China’s trade in PV products will also change, away from being almost entirely export-driven to being more balanced. This will ease trade tensions between China and the European Union and China and the U.S., which recently flared up in the solar sector with the United Steelworkers union lodging a complaint in September 2010 with the U.S. Trade Representative that China is unfairly subsidizing its solar manufacturers in contravention of WTO rules.
As Chinese solar manufacturers continue to boost their know-how, product quality and support, establishing a Chinese production base and developing a “win-win” partnership with local authorities will prove increasingly critical for foreign firms interested in tapping the budding Chinese PV market. Good government relations will also be helpful on the sales side, since PV projects in China will largely be utility driven (at least for the foreseeable future), meaning significant government involvement on the demand side as well (SOEs dominate the utility sector in China). The same applies on the R&D and standards side, where government institutions play a very important role in China and where tapping into the latest developments can be critical in anticipating industry requirements and trends.
To conclude, we should also mention the tremendous wage gap between factory workers in a place like Devens, Massachusetts, and Wuhan, China. The New York Times provided the following numbers in its January 14th article: USD 5,400 per month in a Massachusetts factory and only USD 300 per month in China. China is of course a vast region and wages can be much higher in cities like Beijing and Shanghai. But coupled with the generous support available from local authorities this wage discrepancy makes for a very compelling case to consider production in China or even launch a brand new PV venture in this country. Intellectual property (IP) protection remains a challenge, but as China’s PV industry develops even further and governments are tied in as active partners, there will be an increasing push from both the Chinese private and public sectors to protect this know-how. So even on the IP front, having local governments involved should prove a good thing, even for foreign players in this dynamic market.
China’s Local Approach to PV
Eckhart K. Gouras for pv magazine Shanghai, February 3rd, 2011
We in the solar industry have become used to national measures to support this industry as it matures and lowers its production costs to become increasingly competitive with traditional forms of power generation. Especially in Europe there are national feed-in programs in place to promote the adoption of solar energy. And in the United States and Canada, regional initiatives, such as Ontario’s feed-in tariff or renewable portfolio standards adopted by numerous U.S. states, are key drivers of solar energy deployments. Given the strong position of the Chinese central government in Beijing, we would think that China would also fall in this category of predominantly national or regional measures to drive the adoption of solar power. While Beijing and Chinese provincial governments certainly play a critical role, local government initiatives to embrace solar power and manufacturers in this sector play a pivotal role in China, much more so than in North America and Europe.
This might come as a surprise to many, but this fact was one of the noteworthy news items to emerge from a recent story involving Evergreen Solar’s decision to move its solar panel manufacturing plant from Devens, Massachusetts to Wuhan, China. Most of the discussion this story generated in the U.S. was focused on the loss of jobs in the U.S. and the threat China posed to the Obama administration’s plans to make the U.S. a leader in solar and clean technology. The story ran in the New York Times on January 14, 2011 right before the critical summit between President Barack Obama and China’s President Hu Jintao.
So what are the facts in this case? According to the New York Times and Evergreen’s CEO Michael El-Hillow “his company had decided to close the Massachusetts factory in response to plunging prices for solar panels. World prices have fallen as much as two-thirds in the last three years – including a drop of 10 percent during last year’s fourth quarter alone” The article goes on to say that Evergreen managed to cut its costs to $2 per watt by the end of 2010 (from $3.39 per watt at the end of 2008), but that this was still much higher than the selling price of Chinese modules, which were selling for as little as $1 per watt.
The big downside of this story is the 800 workers in Devens who will lose their jobs and the questions it raises regarding America’s competitiveness in the clean tech space. But there is an upside and credit should be given to the management team of Evergreen Solar in seizing upon the opportunities offered by China’s local approach to solar and clean energy development. In the U.S. regional aid was limited to a $21 million grant from Massachusetts covering only 5 percent of the cost of Evergreen’s production plant. For the remainder the company had to borrow from American banks, who were insisting on double-digit interest rates, partly because of the fallout created by the financial crisis.
Far away in Wuhan, the capital of Hubei Province in central China, local and provincial governments were ready to help finance two-thirds of a modern production facility at an interest rate under five percent and with no principal and interest payments required until the loan matured in 2015.
Far from being the exception in China, generous local support for high-tech ventures, especially in the clean tech space, seems to be more the rule throughout China, as China’s provinces, cities and counties compete with each other to attract entrepreneurs and boost their performance and employment. According to Alexandre Xing, partner in charge of clean tech investments at the private equity (PE) firm SMC Capital China, “local officials are keen to deliver strong GDP numbers for their region. This is a key performance indicator for them and to boost their numbers they are keen to work with innovative companies, especially in the clean tech space, and they are prepared to offer a range of incentives to attract them.”
Property and production facilities form one very important lever in attracting clean tech companies. Outright ownership of land is not possible in China, so businesses typically pay local governments for so-called “land use rights” or rent the needed facilities from a local landlord, often the local government as well. One PV manufacturer on Alexandre Xing’s radar as a PE investor was able to get the local government to put up a factory and offer three years of rent-free use as part of its business promotion package.
Another lever is on the financial side and local governments or state-owned enterprises (SOEs) controlled by them have a wide range of financial measures at their disposal. They can come in as early stage investors much like a business angel or venture capital investor (VC), but typically without many of the strings an angel or VC would insist on. Or they can come in at a later stage to provide growth capital together with PE firms like SMC Capital China. In Evergreen’s case the company created a joint venture with its local government partners (the Wuhan municipal government and the Hubei provincial government), which paved the way for the joint venture to receive favourable financing from Chinese banks.
Taxes are another lever used by local governments. One important tool in the tax tool kit is a reduced value-added tax (VAT). The days when foreign investors in China could get lucrative tax holidays and reduced income taxes on a national level have given way to a more uniform tax regime in China, where local and foreign players basically pay the same level of taxes. But both local and foreign firms can expect some flexibility on the local level. Value-added tax is one prominent example. Unlike the European Union, where VAT is a consumption tax, VAT is a production tax in China and so payable on the supplier and not the buyer side. 70% of the 17% Chinese VAT is funnelled to the national government with the rest allocated to local authorities. Local officials can tap into this 30% VAT pool to provide VAT reductions as an additional incentive. Finally, local authorities can also use their share of the corporate income tax (40%) to lure companies to their region.
At the end of the day, Chinese local governments are very creative in partnering with local and foreign investors to drive their business their way. This applies especially to renewable energy projects, including solar, not least because at a national level renewable energy is classified as one of seven strategic industries in China’s newest Five Year Plan (2011-2015). This plan has ambitious targets, including over 20 GW in newly installed PV capacity by the year 2020 compared to today’s total installed capacity of just 400 MW.
The approach of local governments in China is very different from most local governments overseas. In foreign countries local governments tend to avoid becoming too intertwined with business and focus mainly on administration. To a certain extent local governments in China reflect what the national government is doing, since Beijing is still the only or main player in many industries, where there is a strong national interest. Such markets include natural resources, power generation and transmission, defence, aviation, telecommunications, as well as banking and finance. In fact, one criticism of China’s RMB 4 trillion (US$586 billion)
stimulus program during the global financial crisis was that much of this money would go from state-owned banks to state-owned enterprises, leaving little stimulus for the private sector. But perhaps this became an opportunity for local governments to step in and create even more “win-win” partnerships with the private sector.
It is important to note that these “win-win” partnerships are also available to foreign companies, especially if they are active in the renewable energy sector. According to Alexandre Xing of SMC Capital China, “Evergreen Solar was very smart to partner up with Wuhan authorities to invest in their PV manufacturing plant in China.” So this is not just a one way street where Chinese authorities are doling out favours to their local companies, who then dump their clean tech products in foreign markets, perhaps contravening WTO rules prohibiting subsidies to drive exports. While Chinese firms certainly have a “home court” advantage in tracking down the best locations and getting the best deal from local governments, foreign firms can also benefit from these incentives to establish a very competitive production base in China. And as China’s domestic PV market ramps up, as it most certainly will based on the latest Five Year Plan’s targets, having a local production base will help to capture a slice in this booming market. When this happens, the very lopsided nature of China’s trade in PV products will also change, away from being almost entirely export-driven to being more balanced. This will ease trade tensions between China and the EU and China and the U.S., which recently flared up in the solar sector with the United Steelworkers union lodging a complaint in September 2010 with the U.S. Trade Representative that China is unfairly subsidizing its solar manufacturers in contravention of WTO rules.
As Chinese solar manufacturers continue to boost their know-how, product quality and support, establishing a Chinese production base and developing a “win-win” partnership with local authorities will prove increasingly critical for foreign firms interested in tapping the budding Chinese PV market. Good government relations will also be helpful on the sales side, since PV projects in China will largely be utility driven (at least for the foreseeable future), meaning significant government involvement on the demand side as well (SOEs dominate the utility sector in China). The same applies on the R&D and standards side, where government institutions play a very important role in China and where tapping into the latest developments can be critical in anticipating industry requirements and trends.
To conclude, we should also mention the tremendous wage gap between factory workers in a place like Devens, Massachusetts, and Wuhan, China. The New York Times provided the following numbers in its January 14th article: $5,400 per month in a Massachusetts factory and only $300 per month in China. China is of course a vast region and wages can be much higher in cities like Beijing and Shanghai. But coupled with the generous support available from local authorities this wage discrepancy makes for a very compelling case to consider production in China or even launch a brand new PV venture in this country. Intellectual property (IP) protection remains a challenge, but as China’s PV industry develops even further and governments are tied in as active partners, there will be an increasing push from both the Chinese private and public sectors to protect this know-how. (We plan to cover the issue of IP protection in China in later issues of pv magazine in the course of this year.) So even on the IP front, having local governments involved should prove a good thing, even for foreign players in this dynamic market.
Some interesting news on the Chinese solar front today with the Chinese Finance Ministry announcing on Thursday that solar power generation in China will hit 1 GW on an annual basis starting in the year 2013. That’s a lot better than the paltry 400 MW China reached at the end of last year, but still a very small part of its overall solar panel production capacity, which will reach 15 GW by the end of this year.
The Chinese Finance Ministry did not offer a national feed-in tariff, but instead a 50% subsidy on key equipment used in so-called “pilot projects.” “Pilot projects” is the best way to describe the current state of large-scale PV power plants in China and more of these are planned in the next two years. Solar power is simply further away from grid parity than wind power in China and the rapid growth of wind power makes this clear. China is already at 30 GW of installed wind power and just reading the latest issue of Shanghai Business Review shows the amount of money flowing into this sector. The French industrial group Alstom is looking to buy a Chinese supplier in this sector or find a suitable local partner; Spain’s Gamesa just signed three new contracts with China’s leading wind power operators for the delivery of products with a total capacity of 351 MW; and Denmark’s Vestas is putting $50 million into a brand new R&D center in Beijing. According to a joint report by Greenpeace and the Global Wind Energy Council (GWEC) China’s wind power capacity should reach 464.9 billion kW in 2020. This is all part of China’s quest to bring the non-fossil share of overall energy consumption to 15% by the year 2020. This not only includes major investments in wind and solar power production, but also in hydro and nuclear power.
Green Building in China: LEED and Three Star
I also learned more about green building in China this week. LEED is the dominant standard in the U.S. when it comes to building efficiency and environmental design, but in China a home-grown “three star system” is gaining ground. While LEED has made inroads in China (71 certified LEED projects exist in China), LEED will probably end up as the standard preferred by foreign investors and tenants. “Three star” on the other hand is the standard adopted by the China Green Business Council and will therefore be the system-of-choice for domestic property developments. Then again, the China Green Building Council was guided by the U.S. Green Building Council in developing the “three star system” and at the end of the day, all of these developments are an encouraging sign that “green building” is gaining attention and traction in China.
China’s domestic PV market – to what extent can the wind industry serve as a guide and what should foreign companies be prepared for?
At the IPVSEE conference in late September 2010 in Beijing, Mr. Zhang Jie, Vice-Chairman of the Energy Department & Research Center of the China Investment Association, cautioned that “this was not the right time for foreign companies to enter the Chinese solar energy market, at least in the area of large-scale PV power plants.” It became clear at the conference that China’s domestic PV market is still in its starting phase and that it would take some time before it made economic sense for foreign companies to invest in this market. This contrasts with the situation in the Chinese wind energy sector, which is much more developed and where foreign firms have a long track record of significant investment, including local production plants and the transfer of technology from their home country to China. As we try to predict the future development of the Chinese PV market, the wind industry can provide some helpful guidance on how the Chinese PV market might progress and what challenges foreign companies will most likely face as they seek to capture a slice of what promises to be a very large market as well.
If we look at the current state of the Chinese PV market, everything pales in comparison to China’s export-driven PV industry. From being a no name ten years ago, Chinese solar panel manufacturers now supply almost one-half of the global market. This export-driven industry has a capacity of several GW, but at home the installed base is only a paltry 160 MW. Clearly, the global financial crisis and recession in 2008 and 2009 prompted the Chinese government to lessen its dependence on foreign markets and think of measures to develop domestic demand.
One of the most important initiatives is in the utility-scale PV segment and involves a series of “demonstration projects” in China’s remote western regions. This program fits well with China’s overall policy to support development of China’s western (or inland) regions, which have fallen behind the much more prosperous coastal regions. The latest round of “demonstration projects” involves thirteen projects with a combined output of 280 MW. They are spread over six provinces, including Inner Mongolia (3 x 20 MW), Xinjiang (3 x 20 MW), Gansu (3 x 20 MW), Qinghai (1 x 30 MW and 1 x 20 MW), Ningxia (1 x 30 MW) and Shaanxi (1 x 20 MW). All of these projects were put out to tender with a deadline of August 20, 2010 for the submission of bids.
The results were quite surprising, since in a previous tender in 2009 (the first involving a utility-scale PV power plant in China) the successful bid had offered a power purchase agreement (PPA) price of 1.09 Yuan/kWh. The 2009 tender involved only one facility with a size of 10 MW. Located in Dunhuang in Gansu Province, this project marked the launch of the national government’s “demonstration project” program. One expected outcome of this program is a national feed-in tariff (FIT), which would provide a significant boost to the domestic PV market. (Wind power already enjoys a national FIT in the range of RMB 0.51 to RMB 0.61 per kWh.) The big surprise with the 2010 round of “demonstration projects” was the low level of PPA pricing. Most bids were well under the 1 RMB level with the lowest bid coming in at an incredible 0.7288 Yuan/kWh. (One US$ is worth about 6.8 Yuan, so the lowest bid amounted to US$ 0.10.) PPAs were for a 25-year term and in most cases the companies bidding for these projects were state-controlled utilities and not PV manufacturers.
In fact, companies in the private sector or from overseas either stayed away altogether or were not successful in their bids. They were simply not prepared to go under or near the 1 Yuan threshold to grab a slice in this market, as much as their participation would have boosted their visibility and given them a possible “first mover” advantage in the domestic PV market. The scale of these projects was certainly impressive, since 280 MW is just below China’s target of cumulative PV power (300 MW) for the end of this year.
However, 280 MW is still a small number when compared with China’s wind industry. At the end of 2009 China had 25.8 GW of installed wind power and another 18 GW of capacity should be added this year. 80 Chinese wind turbine manufacturers compete for this market, not to mention foreign manufacturers like Suzlon and Vestas. Vestas was the first foreign manufacturer to enter China way back in 1986 and in the meantime it has invested three billion RMB in China and has a total of six Chinese factories. The tremendous growth of the Chinese wind power industry mirrors that of the Chinese PV manufacturers with the big difference that the latter is almost completely export-oriented (almost 90%) and the former is mainly focused on its home market.
So can the development of China’s wind industry act as a guide for China’s nascent domestic PV market? There certainly are parallels. In both cases there is a strategic national objective to boost China’s performance and know-how in this sector. Both will play key roles in reaching China’s ambitious target for renewable energy of 15% of the nation’s total energy mix by the year 2020. And in the wind industry, a national FIT was developed following a tender process not unlike the current “demonstration projects” on the solar side.
How about the aspect of foreign involvement in this renewable energy market? In the case of wind, the national government boosted its domestic manufacturing base and know-how by requiring 70% local content for wind projects. This crippled foreign suppliers and only the concerted efforts of the European Chamber of Commerce and other chambers led to the recent removal of this requirement. However, the damage had been done and today Chinese wind turbine manufacturers have a 70-75% market share compared to only 25% in 2004. But as a representative of a major foreign wind turbine company points out, “even a small market share is attractive given the tremendous size of China’s wind market.”
Some industry observers would argue that the picture is in fact very similar on the PV side. Instead of adopting a strict local content rule, the approach in the PV sector is to provide large-scale and preferential financing to “national champions” in this industry, while at the same time keeping PPA and FIT rates at low levels to make it more difficult for foreign (and even private Chinese) players to enter the game. While the current round of “demonstration projects” shows a definite bias towards national champions, especially on the state-owned side, it can be argued that the domestic PV market is still very small and that a strong drive led by the public sector is needed to make this market more mature in a short timeframe. In addition, the virtues of scale seen in the wind power market might also be tilting the government’s preferences towards larger players, whether state-owned, private or foreign. (China’s PV industry has already achieved significant economies of scale based on its export success and one reason the Chinese government might be delaying a national FIT is to see how far PV system prices will drop. Establishing a FIT regime makes more sense once these prices have stabilized, which would again mirror the situation in which FIT rates were set for wind power.)
Low PPA and FIT rates effectively promote a local content regime as well, since in such a market there would be a strong pressure to reduce overall PV system costs. And the only way to do this is to drive up local content.
On the wind front this is exactly what has happened, even after the 70% local content rule was dropped. In order to compete in this highly competitive market with a rather low national FIT foreign suppliers are scrambling to go local. A pioneer in this respect is the Indian wind turbine manufacturer Suzlon, which not only has built up 600 MW of manufacturing capacity in China, but a 100% local supply chain for its wind turbines. Given this local supply chain and impressive economies of scale, Suzlon can compete head on with Chinese manufacturers.
Most likely First Solar will have to go down this road as well, if it wants to complete the most ambitious solar project in China to date, a 2 GW PV power plant in Inner Mongolia in northern China. The project has stalled, because a suitable FIT could not be secured from either the provincial or national governments. Most likely, the Chinese side would like to see more local content combined with a certain transfer of technology, which is often the price paid by foreign manufacturers interested in taking a slice of the Chinese market (foreign wind turbine manufacturers are a case in point). Even First Solar’s regulatory filings in the United States reveal that a certain technology transfer is in the works.
Just as Vestas had interesting know-how in the area of wind turbines, First Solar has a key competitive advantage in its proprietary thin-film manufacturing process. At the end of the day a certain balance will have to be struck, which involves a limited transfer of technology and local production, while at the same time protecting the company’s intellectual property (IP) as much as possible. Striking the right balance is not easy and whether the foreign company has IP in solar or wind, it has to utilize all available measures to protect its IP when doing business in China.
Fortunately, China has made significant progress in strengthening its IP protection and enforcement in the past few years. For example, a new patent law came into effect on October 1st 2009, which increases penalties and enhances the powers of the administrative authority. But these protections are only beneficial if the foreign company has registered its IP (patent, copyright or trademark) or license agreement in China. In addition, the relevant market should be monitored closely (e.g. at trade shows) and if cases of infringement are identified, the Chinese authorities should be notified immediately. Chinese customs authorities play a key role in IP protection and enforcement, since they can confiscate infringing products when they leave or enter China. Customs can also impose fines on infringers. One helpful resource for finding out more about IP protection and enforcement in China is the EU-funded China IPR SME Helpdesk (www.china-iprhelpdesk.eu).
However, as the IPVSEE conference in September clearly showed, it is still too early for foreign firms to enter the utility-scale PV market in China. While we wait for a national FIT (and do the homework on the IP side), some serious technical hurdles remain, which is delaying large-scale PV adoption in China. At the IPVSEE conference in Beijing, grid integration and network transmission from power plants in the remote west to demand centers in the east were key concerns limiting the growth of domestic PV power. These western regions of China also have to contend with severe sandstorms and this factor still needs to be assessed more carefully in order to make PV power plants withstand these natural forces, which are much less common in other markets where PV power has been deployed on a larger scale.
China is addressing these technical issues and one initiative highlighted at IPVSEE is the 10 MW demonstration plant in Yanxing just north of Beijing. This demonstration plant was launched in August of this year and will be completed in August of next year. Foreign suppliers are invited to participate as well and the overall aim of this facility is to test new photovoltaic technologies and products under Chinese conditions. While such initiatives will help solve technical challenges, on the economic side the economies of scale built up by Chinese PV manufacturers will continue to lower PV system costs, thereby making even a low FIT less of a hurdle than one might think. In fact, the biggest challenge for foreign PV companies might not be the level of national (or regional) FITs, but the economies of scale and high level of technological development the Chinese PV industry has achieved after its impressive success on the export front. Foreign firms will have to examine where they can add value and where their technology is still a step ahead of the Chinese competition. To name some examples, this might include First Solar’s technology, building-integrated PV (BIPV) and equipment to manufacture PV cells and panels.
The next chapter in China’s development of its domestic solar power industry promises to be an exciting one and a good dose of competition between local and foreign players promises to promote innovation and even lower PV system costs. And if the Chinese wind industry is any guide, foreign players will also feature prominently in the domestic solar market, but only if they have an attractive offer for the Chinese market, manage their IP wisely, develop a solid local production base and work with the Chinese to tap this very large market.
Eckhart
From Green Build 2010 in Chicago
Impressions from the show floor at Green Build 2010 in Chicago
Green Build is always a special place to be, yes it is cold in Chicago, the food is great, and the Christmas decorations are already plentiful throughout the city, but the attraction in these days is the trade show floor at McCormick Place where Green Build takes place. I cannot think of a trade show where the a complete industry is represented throughout the whole value chain in such diversity as it is presented at Green Build. You can get product information starting with recycled toilet paper over transparent solar window coverings to the most sophisticated building shell for high rises made out of green building materials.
One of the topics, which seems to be on everybody’s mind is to figure out where the Building Industry as a whole is headed in 2011 with a special interest of course regarding the impact of green building within the same industry. Walking around the floor I have the impression that the enthusiasm that existed in Phoenix last year has been toned down by a couple of levels. A realism has set in that there is not a quick way to step out of this slump and that the building blocks to recovery have to be set gradually.
Awareness though has set in among architects, developers and construction specialists that sustainable building practices can set them and their company apart from the competition. Therefore, the US Green Building Council (USGBC) is really focusing on educating the audience about their LEED qualifications and programs, encouraging ongoing education, and helping professionals to qualify and continue their path for green building certification.
Talking to professionals in the field, and as Jim Brock from the USGBC puts it, the industry really has to focus on “Case not Cause”. Viewing the show floor and based on how much attention is given to case studies I can see that the industry is firmly believing that it has to be demonstrated that being green is not only the right thing to do but also economical. As someone said, I can sit down with your accountant and you and demonstrate that investing $40,000 in improving your home will make much more economical sense and provide a greater return on investment than investing it into stocks or funds. The consensus was that sustainable living has to be made affordable and provide a return on investment, provide comfort and also please the aesthetic eye.
The US Green Building Council together with the National Real Estate Investor also used Green Build to announce its 2010 Green Building Survey and introduce it to the public (for additional information, please visit http://bit.ly/9YXgun). Some of the key data that jumped out at me reading the report was that you see an increase of 20% in executives that are looking for green measures in their building when looking for a new site or location for their offices. Furthermore, it becomes clear quickly what the demanded financing vehicle for green measures is. Over 77% of respondents interviewed called for tax incentives to drive their investment into sustainability. Coming back to the subject of return on investment, one stellar project listed in the survey lists the famous Empire State Building, having undergone over $20million in retrofit measurements, such as lighting, windows, furnaces, chillers, and air handlers. These upgrades are estimated to save the building operators a whooping $4.4 million per year in energy cost. Enough said?
I am sure that as soon we will see an upswing in the economy and more investment capital will be put in the market, the US Green Building industry will realize many more projects of equal and and much greater scale.
Boris
Solar power at Shanghai’s World Expo – the first step in wider adoption of PV and building-integrated PV in China?
Expo 2010 - Theme Pavillion on the right with the famous China Pavillion in the foreground. Both are using BIPV systems
Shanghai, November 4, 2010
Shanghai’s World Expo ended this past weekend with a new attendance record of 73 million visitors during the 6-month period of the Expo (May 1st until October 31st). Of course, this is a country with 1.3 billion people and a government with a tendency to set national targets for important projects, in this case a target of 70 million visitors.
The German Pavilion probably set a record as well with its 4 million visitors during the show. During my last visit to the Expo on October 27th, there was a four hour wait to get into Germany’s “Balancity” Pavilion. Luckily, I had my German passport with me, which allowed me to sidestep the long line and plunge right into the “Balancity” world. Inside the main attraction was an indoor circular theatre with a large ball or globe in the middle. Visitors lined up around the globe at various levels and if they created enough energy (i.e. made enough noise!) the globe would start moving.
Energy creation and conservation were key themes of “Balancity” and it therefore comes as no big surprise that solar power featured prominently in this pavilion as well. The 6,000 square meter pavilion is covered by 12,000 square meters of ASI glass PV modules produced by the German manufacturer SCHOTT Solar.
In fact, the Expo is a pioneering effort to boost building-integrated PV in China. Three of the four permanent building structures in the Expo Park use BIPV to meet their energy requirements and even supply power to the grid. The most prominent examples are the China Pavilion and the Theme Pavilion with a combined power output of 3.12 MW. Dr. Zhengrong Shi, Chairman and CEO of Suntech, the PV supplier for these pavilions, described the benefits of BIPV as follows: “With the combination of advanced solar technologies and architecture, we can seamlessly integrate solar systems into a building’s structure. These promising capabilities will help reduce the urban carbon footprint and facilitate sustainable development.”
Suntech is the leading manufacturer of PV products in China and also an innovator in the BIPV segment. Its headquarters are not far away from Shanghai in Wuxi in Jiangsu Province. Perhaps not surprisingly given the presence of solar heavyweights like Suntech, Trina and Solarfun within its borders, Jiangsu is a rare bird in China when it comes to promoting PV and BIPV in particular. It was the first province to adopt a provincial feed-in tariff (FIT) in 2009 and its FIT provides an additional incentive for BIPV installations. Instead of 1.7 Yuan per kWh for ground-mounted systems (or 3 Yuan for roof-top systems), the 2010 rate for BIPV installations is 3.5 Yuan per kWh.
Despite the fact that Jiangsu is a neighbouring province of Shanghai, its big urban neighbour is still on the ground floor when it comes to BIPV and PV in general. Given the size of this metropolis and the rather good radiation, this should be a very big opportunity. But hopefully, the World Expo that just ended will kick-start PV and BIPV development in Shanghai and for that matter, in all of China. (China’s domestic PV market is only a fraction of the GW volume it exports around the world and on a national level all eyes are set on the introduction of a national FIT, which should provide a big boost to the domestic market, much as a national wind power FIT did so in that renewable energy market a few years ago.)
Eckhart
Solar Power International 2010 – Round Up
Booth Activity at Solar Power International 2010 - Los Angeles
I wanted to take the opportunity to give my personal view on the past Solar Power International in Los Angeles. There have been plenty of write-ups on the new technology that has been shown, on the new deals that have been struck before, during, or right after the show, and the industry outlook as a whole. What I would like to provide is a personal view on the show and experiences interacting with visitors and exhibitors alike. In general I have to say that different from last year I felt that visitors, such as installers & integrators, project developers, and providers of BOS systems and other aspects of the solar industry have had a much more realistic sense to the state of the industry and what is possible to accomplish in the short, mid, and long-term. Fewer people are trying to build “the gazillion giga-watt system” and more people are concentrating on realistic goals and expectations. I have had more educated talks about projects, planned developments, technology and state of financing for solar projects than I probably had at the 3 previous shows combined, which in my view is very encouraging. All of this gives me a very positive outlook on the industry as a whole and I am looking forward to 2011 and seeing more projects developed with sound financing, realistic expectations, and great technology. Next stop is Green Build in Chicago where I am excited to see how the building, architectural, and construction community is adapting PV in its plans for the future and if we are going to see a growth in Building Integrated Photovoltaics (BIPV). Beginning of December the Canadian Solar Industry Association has its annual conference and trade show in Toronto, which will provide an updated market view on a market that has been heavily influenced by the Ontario Feed-in-Tariff.
IPVSEE 2010 Exhibition and Conference in Beijing, China
IPVSEE Entrance Hall, Beijing, China - Sept 28 2010
Since my arrival on Sunday evening, September 26, 2010, I’ve only had very pleasant fall weather in Beijing, as this city readies itself for National Day on October 1st. (The People’s Republic of China was founded right here in Beijing on October 1st, 1949, so just over 60 years ago.)
In just the last decade China has made tremendous strides in developing its PV industry. Amazingly, it now supplies almost half of the worldwide market in solar panels. On the other side, its own PV market is still miniscule with about 160 MW of installed power in China. This discrepancy was criticized at the Golden Sun PV Industry Summit 2010 by Mr. Gert Gremes, President of GIFI, Italy’s solar association. (The Golden Sun PV Industry Summit is the name of the IPVSEE 2010 conference. I attended yesterday’s sessions, the second and last day of the two-day Summit.) Gert cautioned the Chinese not to be overly dependent on export markets, since feed-in tariffs could drop in key overseas markets, thereby reducing the demand for PV products.
In fact, this is what happened during the global financial crisis in 2008 and 2009 and China’s Golden Sun initiative was likely born as a response to the global downturn in PV demand during this crisis. The Golden Sun initiative involves PV power plants, mostly in western China, and in the latest round of bidding, 13 projects were awarded to Chinese state-owned firms. The winning bids promised PPA terms under 1 Yuan per kWh, which is about US$0.15 per kWh. At this very low range private firms could not compete and foreign players stayed out altogether.
A similar bidding process happened before China introduced a national feed-in tariff for wind power, so the Golden Sun initiative is probably a preparatory step leading to national feed-in tariffs for solar power. This is sorely needed for China’s domestic PV industry to take off and the empty entrance hall of the IPVSEE exhibition (including quite a few empty booths) might be indicative of the stage this market is in. People are waiting on the sidelines and will jump in once the needed incentives are in place.
Eckhart
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