Trend Analysis of China’s Solar Photovoltaic Industry

Trend 1: Industrialization Gradually Maturing, Entering a Phase of Quality Optimization

1.1 Solar Power Generation Has Reached Initial Scale, with Installed Capacity Ranking First in the World

2015 and 2016 were both years in which PV maintained its rapid development momentum. According to available data, by the end of 2015 global cumulative installed solar power capacity had reached 230 million kW, with new installations exceeding 53 million kW for the year, accounting for 20% of newly added power generation capacity worldwide. Over the past decade, PV power generation has recorded an average annual growth rate of over 40%, making it the fastest-growing energy source globally. With technological progress and industry scale-up, the PV sector has basically achieved industrialization, and PV power generation costs have fallen rapidly. In many countries and regions such as Europe, Japan, and Australia, grid parity has already been achieved in commercial and residential electricity use, and China has also formulated plans for grid-parity PV. Beyond PV power, the market for solar thermal power is also expanding, becoming a low-cost hot water supply method. Solar heating has become economically viable in Europe, the Americas, and other regions.

In China, PV development has been even more rapid. Since surpassing Germany in installed capacity in 2015, China has ranked first in the world in both cumulative and newly added installed capacity each year. In 2016, China’s new PV installations doubled compared with 2015, reaching 34.54 GW, an increase of 128% year-on-year. In 2017, newly added PV installed capacity in China reached 53 GW, up 54% year-on-year.

1.2 Curtailment and Grid Constraints Urgently Need Resolution; Distributed PV Is Poised for Rapid Growth

The consequence of high-speed growth and expansion is that China’s PV curtailment and grid constraint issues have long remained unresolved. In recent years, investment in China’s PV application market has consistently emphasized “heavy development, light consumption,” with heavy investment and focus on centralized PV power plants, while distributed PV projects have developed very slowly and attracted little attention. The development trajectories of the two segments have been drastically divergent. Although distributed PV projects have increased in the past two years, their share remains low. By the end of the first quarter of 2017, China’s cumulative installed PV capacity stood at 84.63 GW, with centralized PV power plants accounting for 85% and distributed PV only 15%.

Because western China is vast with sparse population and rich land and solar resources, centralized PV plants are mainly built there. However, these regions have relatively weak power demand, so a large amount of solar-generated electricity must be transmitted to other areas. Given the high intermittency of PV power, coupled with inadequate grid infrastructure, injecting large volumes directly into the grid can impact grid stability. As a result, these regions have had to resort to curtailment and grid constraints, limiting the amount of surplus PV power that can be fed into the grid. The curtailment problem is clearly at odds with the repeated investment booms in centralized PV plants.

In June 2016, the National Energy Administration stipulated that in some provinces that did not meet market conditions for new PV power plants, the allocation of 2016 construction quotas for new PV plants would be halted or postponed (except for PV poverty-alleviation projects). At the same time, the construction scale of distributed PV projects installed on fixed rooftops, walls, and auxiliary spaces, as well as ground-mounted PV plants for full self-consumption, would not be subject to capacity limits. Local energy authorities would accept project applications at any time, grid companies would promptly handle grid connection procedures, and projects would be included in the subsidy scope once completed.

Compared with traditional centralized PV plants, distributed PV is much less constrained by geography and does not require large-scale concentrated construction. It can be more widely deployed in central and eastern China and allows for local consumption of generated power, thereby better addressing the curtailment and grid constraint issues. Hence, China’s 13th Five-Year Plan explicitly sets a target for solar power generation capacity to exceed 110 million kW by 2020, including 60 million kW of distributed PV, 45 million kW of PV power plants, and 5 million kW of solar thermal power. The government will vigorously promote rooftop distributed PV systems, aiming to build 100 distributed PV demonstration zones by 2020, with PV installed on 80% of new building rooftops and 50% of existing building rooftops within the zones. In eligible regions in central and eastern China, “1 kW of PV per person” demonstration projects will be carried out, along with the development of PV towns and PV villages. PV projects are encouraged to be built close to load centers and connected to medium- and low-voltage distribution networks to achieve local consumption.

In addition to vigorously promoting distributed PV, in regions where curtailment is severe, the government will strictly control the construction scale of centralized PV plants and adopt a combination of local consumption and expanded power transmission to increase utilization rates of existing centralized PV plants and reduce curtailment ratios. In the “Three North” regions (North China, Northeast China, and Northwest China), existing and planned ultra-high-voltage power transmission corridors will be used to orderly build solar power bases, following the principles of prioritizing existing capacity and optimizing incremental capacity. The share of renewable energy in outbound power transmission will be increased, and the consumption region for solar power in the “Three North” areas will be expanded. A development pattern of coordinated growth in eastern, central, and western regions, with both centralized and distributed PV, will gradually take shape.

1.3 A More Complete Industry Chain with Continually Falling Costs and Prices

The PV manufacturing industry chain mainly comprises five segments: polysilicon, wafers, solar cells, PV modules, and system application products. Polysilicon and wafers belong to the upstream segment; cells and modules form the midstream; and system application products are at the downstream end. In recent years, China’s huge volumes of new PV installations have driven development across the entire PV manufacturing value chain. Products across all segments can now be produced domestically, manufacturing capabilities have steadily improved, and costs and prices continue to decline.

From the upstream raw materials side, China’s polysilicon output reached 165,000 tons in 2015, accounting for 48% of the global market. In 2016, driven by massive new installations, Chinese polysilicon output rose to 194,000 tons, an increase of 17.6% year-on-year, while imports also reached as high as 136,000 tons. Demand has driven continuous technological advances in production, resulting in persistent cost reductions; for some companies, costs have fallen below 70 yuan/kg. Wafer output exceeded 63 GW, with more than 31% year-on-year growth. Technologically, Chinese companies have mastered the modified Siemens process for industrial-scale polysilicon production at the 10,000-ton level, and fluidized-bed polysilicon production has begun industrialization. For leading companies, the average comprehensive power consumption for polysilicon production has fallen to 80 kWh/kg, production costs have dropped below USD 10/kg, and full closed-loop trichlorosilane processes with zero pollution emission have been realized. The application of diamond wire cutting for multicrystalline wafers has accelerated, while monocrystalline ingot charge volume and pulling speed have continuously improved, driving steady declines in wafer production costs, with per-wafer costs now below 1.4 yuan.

Midstream development has been equally robust. In 2015, China’s PV module output was about 46 GW, accounting for 70% of the global market. In 2016, module output reached about 53 GW, up more than 15.7% year-on-year, and technologies such as half-cut cells, multi-busbar (MBB), and shingled modules continued to emerge. Solar cell conversion efficiencies have been steadily improving. In 2016, China’s solar cell output exceeded 49 GW, up more than 19.5% year-on-year, with ongoing advances in production technologies. PERC and black silicon technologies achieved large-scale production. Economies of scale combined with “Top Runner” competitive bidding mechanisms have driven cost reductions across the entire PV value chain, with module prices falling below 3 yuan/W and some companies reducing costs to under 2.45 yuan/W. In regions with good resources, PV power generation costs have fallen to around 0.65 yuan/kWh, closing in on grid parity.

At the downstream end, the marked declines in the costs of polysilicon, solar cells, and modules have led to continuous reductions in PV system costs, with overall PV power generation costs falling by more than 60% during the 12th Five-Year Plan period and still trending downward. The improving manufacturing capabilities across the chain have also further strengthened the international competitiveness of China’s PV industry. During the 12th Five-Year Plan, China’s PV manufacturing capacity posted a compound annual growth rate of over 33%, with annual output value reaching 300 billion yuan and nearly 1.7 million jobs created, demonstrating strong new growth momentum. International markets are also being steadily expanded, primarily via direct exports of terminal module products.

1.4 Industrial Upgrading Drives Technological Progress, Optimizing Existing Capacity and Benefiting the Monocrystalline Market

As the PV value chain is completed, the prospect of grid-parity PV power generation is steadily improving. In recent years, China’s benchmark feed-in tariffs for PV have been continuously reduced, and the country plans to cut PV power tariffs by more than 50% from 2015 levels by 2020, in order to achieve grid parity on the consumption side and bring solar thermal power generation costs below 0.8 yuan/kWh. Lower tariffs and tighter controls on the approval of centralized PV plants will force the PV industry to upgrade its technologies, shifting from a volume race to a quality race.

From a technical perspective, solar cells can be categorized by material into crystalline silicon cells, thin-film cells, and new-type solar cells. The latter two currently have not been widely applied due to issues such as scarce or toxic raw materials, low conversion efficiency, poor stability, and technical immaturity. At present, crystalline silicon solar cells—including monocrystalline, multicrystalline, and amorphous silicon thin-film cells—are the most widely used.

Globally, multicrystalline silicon solar cells have steadily increased their market share in recent years because of their lower costs and relatively lower manufacturing difficulty, while monocrystalline’s market share has declined noticeably. In reality, monocrystalline silicon has better grain uniformity and superior mechanical and electrical properties compared with multicrystalline silicon. Once made into cells, monocrystalline cells also deliver higher photoelectric conversion efficiency. Currently, per watt, monocrystalline cells generate about 5% more electricity than multicrystalline, and their conversion efficiency is higher as well. Moreover, monocrystalline cells can operate in a wider temperature range, perform better in low-light conditions, require fewer cables, and exhibit significantly better long-term degradation performance than multicrystalline. Thus, from the perspective of long-term plant operation, although the initial installation cost of monocrystalline is higher than that of multicrystalline, total investment returns over a 25-year lifetime are higher.

In recent years, amid the rush to install PV capacity, investors have often prioritized module unit prices and favored lower initial-cost multicrystalline modules. However, from a long-term perspective, monocrystalline modules have more pronounced advantages. In China, rising production efficiencies and the introduction of diamond wire sawing technology have also driven rapid cost reductions in monocrystalline cell production. In addition, efforts to resolve curtailment issues and optimize PV plant layout aim to build 60 GW of distributed PV plants by 2020. Unlike ground-mounted centralized plants, distributed PV usually faces higher rental and labor construction costs, which makes conversion efficiency, long-term generation stability, and low degradation over the entire lifecycle more critical. Therefore, the development of distributed PV will inevitably boost demand and market share for monocrystalline modules.

Trend 2: Industry Integration Will Become a New Policy Focus

2.1 Coordinated Development with Traditional Industries and Multiple Approaches to PV-Based Poverty Alleviation

After distributed PV plants are built, they can generate stable cash flows through electricity sales and leasing, giving such investments the characteristics of high returns and relatively low risk. Also, because distributed PV investments are generally one-off and incur no subsequent fuel costs, and as long as equipment quality is up to standard, follow-up maintenance costs are low, the overall investment is highly predictable. Depending on government subsidies, solar irradiation, and self-consumption ratios, payback periods vary. In China, they are typically around 4–11 years, while PV modules have lifetimes of 25 years or more, implying long-term returns.

These investment attributes of distributed PV are highly conducive to poverty alleviation projects. In the State Council’s “Notice on the 13th Five-Year Plan for Poverty Alleviation,” it is proposed to encourage the integration of distributed PV power generation with facility agriculture, tilt capacity quotas toward impoverished areas, and promote the use of small-scale solar energy facilities in rural areas such as solar water heaters and solar cookers. By enabling coordinated development between distributed PV and local industries, regional industrial upgrading can be achieved while ensuring reliable power supply, increasing local residents’ incomes, and improving their living standards.

At present, China Southern Power Grid and State Grid Corporation have both launched grid-connection services for individual distributed PV plants, and have introduced a series of preferential measures—for example, providing owners with free customized grid-connection solutions, testing, commissioning, and other full-process services; waiving backup capacity fees; and purchasing surplus electricity at full price as mandated by the state. These measures have powerfully supported PV-based poverty alleviation. Meanwhile, the state is actively promoting new models that organically integrate PV power generation with building rooftops, tidal flats, lakes, fishponds, agricultural greenhouses, and related industries; encouraging the use of subsidence-prone and abandoned mining lands for PV projects; prioritizing impoverished households for employment; and expanding distributed utilization in central, eastern, and southern regions. Among these, “agri-PV” (agriculture-PV complementarity) can solve the land occupation issue of PV plants by enabling three-dimensional land use and value enhancement, forming modern, high-efficiency agricultural economic complexes. It is suitable for agricultural greenhouses, livestock farming, and aquaculture. PV power can be used to drive irrigation, provide power for mechanical equipment, and any surplus electricity can be fed into the grid, enjoying national subsidies for new energy generation.

Several models of agricultural PV are being deployed in China. For example, in winter-warm off-season PV agricultural greenhouses, solar modules and transparent glass are used instead of conventional plastic film. A 1,000 m² greenhouse roof can host 75 kW of PV modules, generating 90,000 kWh annually. The total investment in the greenhouse and PV system is about 800,000 yuan, with annual revenue of 108,000 yuan from electricity and 80,000 yuan in net agricultural income, totaling 188,000 yuan per year. Similarly, low-light PV greenhouses, livestock greenhouses, and “fishery-solar complementary” facilities all involve covering greenhouse roofs with solar modules, with typical payback periods of under five years.

2.2 The PV Industry Brings Multiple Benefits to Society

Industry integration is not only suitable for impoverished areas; it also has significant potential in economically developed rural regions. PV agriculture requires integrating solar power generation with traditional agricultural production processes and applying it widely across modern agricultural activities such as planting, breeding, irrigation, and pest control. Compared with traditional agriculture, PV agriculture offers higher land-use efficiency, longer service life, and stronger weather resistance. It plays an important role in enhancing efficiency and scale in agriculture and can be further extended into high value-added sectors such as agri-tourism and ecological agriculture, generating higher returns for project owners.

PV industry integration also plays a prominent role in driving the development of the global new economy. Many countries treat PV as a strategic emerging industry and a new engine of economic growth. They have rolled out plans for related industries and increased support for PV technology R&D and industrialization, allowing the global PV industry to maintain strong growth momentum. The economic benefits generated through PV industry integration will attract more social capital into the PV sector. Currently, financing models in the solar industry are not substantially different from traditional ones and have yet to fully reflect the financing advantages of the clean energy sector. In the future, China will innovate more in investment and financing models to inject additional vitality into the solar industry. Examples include encouraging financial regulatory bodies and institutions to implement green credit policies that promote renewables and other clean energies; exploring loan mechanisms that use electricity sales revenue rights and project assets as collateral; improving innovative financial support mechanisms for distributed PV; and promoting cooperation between banks and local governments to establish investment and financing service platforms for PV projects.

Looking ahead, the favorable economic returns of the PV industry will attract more social capital investment, and the expansion of PV will, in turn, bring multiple benefits to society, forming a virtuous cycle.