China’s Solar Plan: Get Ready for Big New Spending

By newsdoug on August 2, 2011

China tries to rev up solar sector with new tariffs After months of talk, China has finally come out with some concrete details of how it plans to support its struggling solar panel makers, rolling out a new set of state-set electricity rates designed to make solar power generation economically attractive. Under the new rates announced earlier this week, solar power producers will be able to charge 1.15 yuan per kilowatt hour for their electricity, according to Chinese media reports. (Chinese article) Shares of major names like Trina Solar (NYSE: TSL), Suntech (NYSE: STP) and Yingli (NYSE: YGE) briefly surged on the news, but then gave back most of their gains after investors and industry watchers did some number crunching and realized the new rates were far from ground-breaking. One industry source told me that under the new rates, a relatively well-planned and managed power producer might expect to earn an annual return of 2-3 percent — not very exciting when other options are available at much lower risk levels. In order for this plan to work, local governments will have to step in and offer their own incentives for building new solar power plants — something that will probably happen on a much more piecemeal basis. Following the central government’s announcement, I would expect to see a string of announcements of new projects in the months ahead as local governments and big state-controlled power producers like Huaneng (HKEx: 902) fall into step with the central government’s policies. Industry leaders with strong government connections, such as Hong Kong-listed GCL Poly Energy (HKEx: 3800), could be some of the biggest beneficiaries of a new round of China construction that could see the nation install as much as 10 gigawatts of new capacity by 2015 and 50 gigawatts by 2020. (previous post) The new policy should also receive general public support because of its green nature, making it less prone to potential cuts under a likely new wave of cutbacks in major new government programs sparked by Beijing’s desire to cool the economy.

Bottom line: Beijing’s announcement of new tariffs for solar power projects presages a series of new solar power projects in the coming months to support the struggling solar panel sector.

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