China has announced that it will install 21GW of solar panels by 2015, raising its target by 16GW. This projected growth, which will likely be driven by government incentives, bodes well for a solar industry plagued by low panel prices. The target increase is the latest in a series of solar energy policy developments in Asia, following Japan's decision to implement feed-in tariffs on renewable energy.
Members and analysts of the solar industry have had mixed reactions to the target increase. Prior to the announcement, many expected Chinese installations to speed up. Generally the predicted number of installations was lower than the new target set by the Chinese government. For example, earlier this year Suntech and Trina CEOs Zhengong and Jifan told Bloomberg that China may double its installations of solar panels. Others such as Lian Rui, a senior analyst for the research company Solarbuzz, think that solar power installations will exceed the target. He told Bloomberg that "The new target is still very conservative; we expect the installation to surpass 30 gigawatts". Reaching 30 GW would represent a 600% increase in solar power installations in just 4 years. While this growth will certainly help the solar industry weather its recent crisis, it is unlikely to absorb the entire surplus of solar panels. Global solar panel manufacturing capacity is roughly double the estimate at 59GW. In addition, some have expressed fears that artificially raising the rate of panel installations will prevent much needed consolidation in the solar industry.
A brief look at China's energy portfolio can explain why the country is committed to increasing its renewable energy production. 70% of the country's energy comes from coal plants that pollute its cities and industrial regions. Fossil fuels and large scale manufacturing in China have also caused severe environmental damage. In an effort to move away from fossil fuels, China has been providing market incentives through its Golden Sun fund. This fund subsidizes solar projects greater than 1.7GW at a 5.5 yuan per watt. Though renewable account for only 1% of China's energy portfolio, it is now clear that this percentage will grow in the coming years.
The decision to install more solar panels has economic as well as environmental goals. The plan aims to minimize a surplus of solar panels that would cause a further decrease in panel prices. Recently, the price of solar panels dropped dramatically due to cheaper silicon wafers, causing many solar companies to go out of business. Abound and Konarka, two solar thin film companies declared bankruptcy this year. In addition, speculation over European solar energy subsidies delivered a second blow to the industry. In these turbulent times for solar technology, the renewed commitment to solar energy in Asia is good news.
Naturally, certain firms stand to benefit most from this development. Companies such as Yingli, Trina and Suntech already have a foothold in many Asian countries that are set to become world solar energy leaders. Even prior to the new target in an earnings call, Yingli Chairman Miao Liansheng said that his company's revenue from China would increase to 30%. As expected, solar stocks rallied in response to this week's announcement. Suntech, China's largest solar panel producer was up 4.2% and foreign companies such as Canadian Solar and First Solar also benefited, rising 4.7% and 4.1% respectively.
Chinese and Japanese government efforts on solar power have provided hope and a measure of relief to the global solar industry. Should China's solar efforts succeed, the country would install as many solar panels in 2015 as the world did in 2011. This would absorb some of the surplus solar panels and thus increase panel prices. The projected growth of solar installations in Asia is therefore very promising for solar companies. However, it also exposes some of the weaknesses of the industry, such as its reliance on government support.