China’s Surprising Move To Cut Solar Subsidies

Chinese solar companies sold off sharply on Monday following an announcement by the Chinese government that it would take measures that may curb the astronomical growth of its solar industry. The South China Morning Post reported:

"A joint statement put out on Friday by the National Development and Reform Commission, Ministry of Finance and National Energy Administration said the allocation of quotas for new projects had been halted until further notice, and tariffs on electricity generated from clean energy will be lowered by 0.05 yuan per kilowatt hour, a cut of 6.7 to 9 per cent depending on the region, effective June 1."

The Chinese government indicated that the curtailment was aimed at "promoting the solar energy sector's sustainable development, enhancing its development quality and speeding up reduction of subsidies."

Of course, China isn't the first country to slash subsidies for renewable energy, but they are in a different position than developed countries like Germany and Spain, where power demand was relatively stable and renewables were helping to replace power derived from fossil fuels and nuclear power.

China's energy consumption, on the other hand, is growing rapidly. As a result, the country has had an aggressive "all of the above" energy strategy. China has added solar photovoltaic (PV) capacity faster than any other energy source and has done so at a rate faster than any other major country.

A primary motivation for its solar PV investments is China's need to rein in pollution. But China also knows it faces a future in which oil supplies are depleting while electric vehicles are proliferating. Thus, China sees renewables - and solar PV in particular - as a critical area of focus. Related: Is Russia Bailing On The OPEC Deal?

To put China's growth in perspective, in 2017 alone China added 53 gigawatts (GW) of new solar PV capacity. That addition was greater than the total solar PV capacity of any country at the beginning of 2017:

Solar PV Capacity and Additions, Top 10 Countries, 2017. Source: REN21 2018 Global Status Report

Given China's growing need for clean power, China's decision to curb subsidies caught many - including me - by surprise. Why would China make such a decision?

By Robert Rapier

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