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China’s recently announced decision to suspend approvals of new solar installations aims to improve the quality of the industry’s products and offload part of the financial burden on the government, according to an official who spoke to state news agency Xinhua.
The surprising announcement plunged solar panel manufacturers’ stocks into depths unseen for a long time on worries that the end of approvals will seriously depress the prices of solar panels. Some observers, however, noted lower prices would lead to more solar additions outside China, stimulating international competition, which is generally a positive thing.
Although surprising, the Chinese planning commission’s move makes sense: subsidy costs have been swelling at a fast rate and have become difficult to manage. Greentech media reports that in 2017, these hit US$15.6 billion (100 billion yuan) and the government has still not paid these in full. At the rate of new solar capacity approvals from the last few years, subsidy costs would have reached US$39 billion by 2020, according to Wood Mac estimates.
China has approved 30 GW of new solar capacity additions since the start of the year and this will be all until December, and some solar panel manufacturers are now facing closure because of excessive capacity.
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The industry cried out against the change, asking Beijing to reconsider, but the official, who remains unnamed, said “The costs of solving the difficulties facing the photovoltaic industry are now much lower than the costs would have been after the recent bubble. If this abnormal increase (in capacity) continued, the subsidy gap would widen further and have an even more unfavorable impact.”
Beijing has yet to pay some US$18.75 billion (120 billion yuan) in solar capacity subsidies, and the Finance Ministry is finding it increasingly difficult to find the money for the payments, Reuters notes. Last year, China’s solar capacity additions hit a record 53 GW, with the total at end-2017 standing at 130 GW.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.