Solar Hops: US-China Cooperation; Provinces Get Going; Suntech Shining Strong
Posted by Julian Wong on Feb 23, 2010
Its been a while since we've had an extensive discussion of China's solar market. Here, we catch up with some of the major the developments in this space over the past half year or so -- A new US-China dynamic highlighted by two-large scale projects, policy action by provincial-level governments, and lots of activity by Chinese solar poster child Suntech, and more!
Let's kick off with this pretty cool video created by ClimateWorks:
Now, onto recent developments:
Going Big with the Stars and Stripes
Google-backed eSolar, a three-year old Californian solar start-up, has signed an agreement to provide technology and assistance to Penglai Electric, a privately-owned Chinese electrical power equipment manufacturer, to build a series of solar thermal power plants totaling at least 2 gigawatts over the next 10 years (see pictured right example of an eSolar installation). The first project, a 92-megawatt solar power plant, will be built this year and located in the 66-square-mile Shaanxi New Energy and Industrial Park in Yulin city, Shaanxi province of Northern China. The region has become a hot spot for renewable energy, with the 2,000-megawatt First Solar project planned 60 miles to the north in Inner Mongolia. China Huadian Engineering Co. will lead the construction process. At completion, China Shaanxi Yulin Huayang New Energy Co. will own and operate the first 92 MW plant. According to Todd Woody, eSolar already manufactures its heliostat arrays in China, and under the terms of the agreement with Penglai it will also build its power plant receivers there. The solar thermal power plants, using technology distinct from photovoltaics which currently dominate China's solar power market, will consist of mirrors and lenses to concentrate the sun rays to power a steam turbine. eSolar's technologies, in particular, boasts ease of transportation and installment, modularity, scalability, redundancy, and resilience against wind tear.
This announcement mark the first large-scale commercial effort to develop CSP in China, something that has been on somewhat of a slow track for two main reasons; (1) Limits of water availability: How eSolar and its Chinese partners deal with the issue of the water-energy nexus (I precisely highlighted concentrated solar thermal as a technology that would run up to limits of water availability in a previous post, "Charting China’s Water Future: Closing China’s water availbility gap results in $21 billion in net savings") since typical CSP designs require significant amounts of water for cooling turbines, and the sunny desert regions of Inner Mongolia, as we all know, is not exactly abundant in water; and (2) a policy emphasis on solar photovoltaics over CSP stemmed from the desire to absorb excess solar photovoltaic panel production capacity caused by several reasons (see below in "Too Much of a Good Thing").
Just 60 miles north of the eSolar project, in Ordos City, Inner Mongolia, another landmark solar project was announced exactly four months earlier to the day. Arizona-based First Solar, the world's leading manufacturer of thin-film PV modules, signed an MOU with the Chinese government to build a 2 gigawatt solar PV plant. The solar project in Ordos will be built over a multi-year period. Phase 1 would be a 30 megawatt demonstration project that would begin construction by June 1, 2010. Phases 2 and 3 would be 100and 870 megawatts, respectively, completed in 2014, while Phase 4 would be1,000 megawatts completed by 2019. This announcement was significant because it marked the first time a foreign company was invited to participate in such a high profile solar project, and came at a time when the China was coming under fire for being overly protective of its renewable energy (particularly wind) industry.
Best Solar, in conjunction with China Guangdong Nuclear Energy Development and Enfinity NV, won the right to operate the Dunhuang project with a tender of RMB 1.09/kWh. Jiangsu-based thin film and crystal solar module provider Best Solar President Fang Peng said he expects to make 8% internal rate of return from its 10MW solar energy project in Dunhuang, Gansu province. Some Chinese solar executives, however, think such a tariff might not be high enough to support the development of the PV market in areas other than the most highly irradiated regions such as Tibet. A range of 1.5 to 1.8 yuan per kwh is more reasonable (Chinese only), they suggest.
Suntech's CEO expects 500 MW to be installed in China in 2010. And Jiangsu province, where Suntech is headquartered and which is also dubbed the California of China when it comes to progressive clean energy policy, is going to be a big part of this equation. A while back, we said Jiangsu was poised to announce provincial incentives to stimulate the industry without having much details on hand (see previous post "Jiangsu Kicks Off Domestic Solar Market Race with Provincial Subsidies"). Since then, the full details of the JIangu's three-year solar PV development plan, officially called 《江苏省光伏发电推进意见》, Chinese only, have been released. Under the plan, Jiangsu aims to install 400 MW of solar PV (consisting of 260 MW of roof-top projects, 10 MW of building-integrated PV projects, and 130 MW of ground-mounted PV projects) by 2011. To put this capacity figure in context, the official national target for solar power (including solar thermal power such as CSP, which is a distinct technology from PV) capacity by 2010 is 300 MW, so Jiangsu is clearly blazing ahead. To support this deployment, a generous feed-in tariff for the next three years is provided along the following scale (in yuan/kwh):
The eventual goal of encouraging mass deployment is to spur innovation and achieve economies-of-scale that drive costs down to 1 yuan/kwh.
According to the plan, JIangsu also sets its sights to ramp up its already-strong solar manufacturing base to 10 gigawatts of capacity for components, and 3.5 gigawatts of PV cells by 2011. The development plan doesn't shy away from picking winners and losers--or at least picking winners--naming specific cities and companies and their share of the provincial target. Suntech, based in Wuxi city, is mentioned most often. Suntech, in particular, will be a key driver of solar innovation as it establishes important R&D centers in the province. Other key provisions in the Jiangsu solar development plan include those on standards-setting and human resource development.
Beijing has also adopted its own solar development plan called 《北京市加快太阳能开发利用促进产业发展指导意见》 (Chinese only) as of the beginning of this year. By 2012, it aims to have established 700 million square meteres of solar thermal water heaters, 70 megawatts of solar power generation, solar manufacturing output of 20 billion yuan ($2.93 billion), and the formation of testing centers for PV and solar thermal heating applications. BY 2020, Beijing wants solar water heating to cover 11 million square meters, to install 300 megawatts of solar power, and to achieve national leadership in the solar value chain. To this end, It is dedicating a total of 1.44 billion yuan (about $210 million), consisting of 160 million yuan of central government money, 980 million yuan of municipal money, and 300 million yuan in district and county money. in investments across its various municipal departments. A focal point of the three-year development plan are the six "Golden Sunshine" projects (六大“金色阳光”工程) (Chinese only), which consist of:
50 megawatt solar power generation project--By 2012, achieve an installed capacity of 50 megawatts of PV. Hearteningly, land use will be a major consideration, with an emphasis on the use of otherwise degraded land as well as large-scale agricultural facilities to strategically deploy solar installations.
Solar campus project--install by 2012 in 50% of all primary and secondary schools solar water heating, solar-powered lights, grid-connected PV, solar energy science classrooms and other projects, also to educate students on the value of renewable energy.
Solar energy hot water project--among other things, will provide a subsidy of 200 yuan per square meter for the installation of solar hot water systems.
Rural solar project--the promotion of solar energy use in rural communities
Solar lights park landscaping prject--all city parks and 30 percent of district parks will be equipped with solar lights by 2012.
Ningxia Autonomous Region, which is highly rural, has also been aggressive in the solar space. In 2009, it installed 50 MW of PV, produced 600 and 1,700 tons of monocrystalline and polycrystalline, respectively, and established a solar panel manufacturing capacity of 20 MW. Just days ago, it announced the opening of a new 40 MW grid-connected PV power station (Chinese only) developed by a consortium of 5 companies, including the CECIC, described in more detail below.
...56 independently operating photovoltaic and photovoltaic-diesel hybrid power stations with a gross installed capacity of 1,539.4 KW, including 454.4 KW of solar power and 1,085 KW of diesel power. The project enabled 3,680 families of 10,400 farmers and herdsmen to use electricity in their daily life and also guaranteed power supply for 34 temples, 13 villagers' committees, two police stations, two schools and clinics in Hainan, Haibei, Huangnan and Yushu Tibetan autonomous prefectures, and the Mongolian-Tibetan Autonomous Prefecture of Haixi...The project cost 92.4 million yuan (13.5 million U.S. dollars), including 64 million yuan from the German government and 28 million yuan from the Qinghai provincial government and 400,000 yuan provided by a German free training...
Too Much of a Good Thing?
If one wanted to trace back the steps and causes for the Chinese government's sudden interest in promoting domestic deployment of solar, one of the key factor must certainly be the need to absorb excess capacity of domestically manufactured PV modules, especially in the wake of a collapse of overseas demand as the global economy slowed and key European markets (noticeable Germany and Spain) started reducing their own domestic financial incentives for solar deployment. In essence, as I argued in a policy brief in China Security last year, a solar industry bailout would be a good excuse to start creating a domestic solar market in China. Overcapacity is also happening further up the value chain the production of polysilicon, the raw ingredient to silicon-based PV modules (see also graphic, right). The crimp in demand for solar panels abroad, plus a collapse in polysilicon costs (to the range of $50 to $70 per kilogram today, dramatically down from its peak of almost $500 per kg) as a result of this oversupply, has brought down the prices of solar modules by roughly 40%. This situation has provoked a response by the NDRC to pour some cold water on the overheated polysilicon sector, among other industries (including wind energy components). Still, that is not stopping China Investment Corporation, the $300 billion Chinese sovereign wealth fund, from making an investment into GCL Poly Energy, which first focused on co- and poly-generation thermal combustion plants across China when it first went public a few years ago, but now is in the business of polysilicon production after a recent acquisition. Surely CIC, now a savvy energy investor, must see something in GCL's business that makes it interesting.
Over the Slump?
If the bellweather Chinese solar companies are any indication, the solar industry, hemorrhaging in for at least the first half of 2009, seem to be on the road to recovery. At the beginning of the third quarter, HSBC already suggested that the solar sector had turned a corner. Suntech, Yingli, Trina and LDK Solar subsequently reported bullish financial results for that quarter. The good times, in fact, appear to be back for a sustained period of time as Reuters has reported that Suntech are basically in a "sold out" situation through at least the second quarter of this year, and that the "solar majors" (as I will call them) are all ramping up capacity again to cater for more diversified demand, particularly from Japan, which recently rejuvenated its domestic market with new incentives after discontinuing them in 2005. Suntech, for instance, is expanding capacity by opening a new facility in Suzhou city (Chinese only) in Jiangsu province, near its Wuxi city headquarters.
Suntech not doing too shabbily abroad as well. In fact, it has already secured 10 percent of the market share of California, also known as the Golden State and that accounts for 40 percent of the U.S. solar market. Suntech's domestic competitor, Yingli Green Energy, based in Baoding, Hebei, has been even more impressive, capturing an astonishing 27 percent of the California market.
Separately, Suntech announced plans to establish a modest 30 megawatt manufacturing facility in Arizona, the first solar manufacturing site in the United States by a Chinese firm, that would employ up to 75 people. Politically, this is important as it came at a time when China was accused of "stealing green jobs" from the United States through unfair practices (whether rightly or wrongly). From a pure life-cycle energy economics analysis point of view, it may also be the right thing to do, especially as oil prices rise and increase the cost of shipping.
ENN, a private diversified alternative energy company headquartered in Hebei province, is partnering with Duke Energy of North Carolina, USA to develop solar PV projects in the United States. The projects will be of two varieties--utility-scale solar power plants and commercial distributed generation (e.g. rooftop). This solar partnership is the latest in a series of arrangements between ENN and Duke to work together on exploring and developing a series new clean energy technologies, including cleaner combustion of coal and CO2-absorbing algae biofuels.
State-owned China Energy Conservation Investment Corporation, or CECIC, is an emerging solar project developer. In fact, by some accounts, it was as of the end of third quarter last year China's largest investor and operator of solar projects totaling 1.1 GW in capacity. In September, it completed contruction of China's first 10 MW solar PV power plant (the first phaseof a 50 MW project) in Ningxia Automous Region together with Suntech. CECIC has since cemented its relationship with Suntech by entering into a 5-year partnership in which CECIC will be responsible for project investment and development while Suntech supplies the solar products, system design and technical support. Suntech and CECIC plan to focus on the development of large scale on-grid projects, urban BIPV projects, rural off-grid projects, and wind-solar hybrid projects. Separately, CECIC is reportedly building Asia's largest grid-connected BIPV project (6.5 MW in Shanghai) amongst other deals. Typically focused on domestic projects, CECIC, with a growing confidence, now has ambitions to build solar projects overseas in Germany, Spain and Italy.
More Eagles visit the Dragon's Lair
Mid-last year, Evergreen Solar, a U.S. company that is the pioneer of "string ribbon" wafer technology, is shifting some of its wafer and cell manufacturing operations from Massachusetts, USA to Wuhan in Hubei province. Production in Wuhan at about 100 MW capacity will commence by mid-2010 and be ramped up to 500 MW bY the end of 2012. Evergreen hopes its strategic move into China can help to bring down production costs to $1/watt by the end of 2012. Evergreen's efforts sees it partnering with a local PV manufacturer, Jiawei Solar (Wuhan) Co., which will be a subcontractor, and the Wuhan Donghu New Technology Development Zone Management Committee, part of the Wuhan city government, which will provide financial incentives. More details of the arrangement can be found here.
We're doing R&D in China because they're becoming a big market whose needs are different from those in the U.S.," says Mark Pinto, Applied Materials' CTO. Going forward, he says, "energy will become the biggest business for the company," and China, not the U.S., "will be the biggest solar market in the world.