China Cuts Subsidies for Solar Projects on Declining Costs

China, the world’s biggest producer of solar panels, cut subsidies for demonstration sun-power projects approved in 2011 and this year after the cost of components declined.

The government reduced the subsidy for projects approved last year by 11 percent to 8 yuan ($1.3) a watt, the Ministry of Finance said in a statement yesterday. It will offer a subsidy of 7 yuan a watt for those that are eligible for the assistance this year.

The subsidy applies only to projects developed by owners who will consume the power for their own use under the so-called Golden Sun program.

The cost of solar panels fell 47 percent last year as Chinese manufacturers increased production, leading to excess capacity after European governments cut back on subsidies. The price declines has led some some companies including Trina Solar Ltd. (TSL) to predict that solar technology is nearing parity with fossil fuels to supply power to national electric grids at a competitive price.

“The reduction in the subsidies is not significant, given slumping solar-component costs,” Lian Rui, a senior analyst for the research company Solarbuzz, said today by phone. “It’s not always that the government cuts subsides set a year ago, but developers can still secure high returns.”

China has been subsidizing projects under the program since 2009 to bolster the use of renewable energy and cut reliance on fossil fuels. Yingli Green Energy Holding Co. (YGE), China Guodian Corp., JinkoSolar Holding Co. (JKS) and LDK Solar Co. (LDK) have won subsidies under the program.

Intermittent Cuts

Lian expects the government to start making intermittent cuts in subsidies to respond if prices continue their decline. The U.K. government is expected to announce as early as next week a plan to reduce subsidies for solar energy once installations reach a predetermined level.

Developers who qualified for the assistance under the Golden Sun program last year can make amendments to or withdraw their projects if they can’t make “reasonable” returns, the ministry said.

The projects that are approved this year must be completed by the end of 2012. Subsidies for photovoltaic projects that aren’t connected to grids and mostly built in rural and remote areas as well as wind-solar hybrid farms will be assessed separately, the ministry said.

The government is planning to grant additional subsidies to projects using smart-grid and micro-grid technology, the ministry said in the statement, without giving details.

Chinese solar companies including Suntech Power Holdings Co. (STP) and Trina expect the excess panel capacity to be absorbed at home this year on anticipation that the country will double installations from the 2.2 gigawatts in 2011.

Editor: Baldave Singh

To contact Bloomberg News staff for this story: Feifei Shen in Beijing at +86-10-6649-7528 or fshen11@bloomberg.net

To contact the reporter on this story: Feifei Shen in Beijing at fshen11@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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