China Sets Solar Power Price to Boost Profits, Investment

China, the world’s biggest polluter, set a price for electricity supplied by photovoltaic projects approved under non-competitive tenders to boost industry profitability and investment.

Grid operators will pay solar developers 1.15 yuan (18 cents) per kilowatt-hour, the National Development and Reform Commission said today. The projects must have been approved before July 1 or be completed by the year-end, the NDRC said. Projects approved after July 1 will supply power at 1 yuan per kilowatt-hour, according to the top economic planning agency.

China offers solar projects to developers under both open and non-competitive tenders. Under the government’s two rounds of competitive bidding in 2010 and 2009, project approval was granted to companies offering the lowest on-grid tariffs.

“This feed-in tariff is much higher than the prices from China’s first two rounds of bidding,” Luo Lu, an analyst at Bloomberg New Energy Finance, said in Beijing. “At current costs, this guarantees margins and will encourage more companies to participate in the industry.”

Tariffs in the last bidding round ranged from 0.73 yuan to 0.99 yuan a kilowatt-hour, Luo said.

The government seeks to keep on-grid tariffs of electricity generated by solar projects as competitive as those set by plants using coal, oil and gas as fuel to encourage consumers to shift to cleaner-burning energy sources.

Based on the prices announced by the government today, solar projects approved under non-competitive tenders may get an internal rate of return of as much as 8 percent, according to Luo.

--Chua Baizhen. Editors: Ryan Woo, Jane Lee.

To contact the reporter on this story: Baizhen Chua in Beijing at bchua14@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net.

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