China Reduces Solar Subsidy on Declining Costs of Components

China, the world’s biggest maker of solar panels, cut the subsidy for demonstration sun-power projects approved this year by 21 percent amid a decline in the prices of components.

The government reduced the incentive to 5.5 yuan (87 cents) a watt from the 7 yuan set in February, according to a statement on the central government’s website. The subsidy applies only to projects whose developers will consume the power for their own use under the so-called Golden Sun program.

A supply glut in all parts of the solar manufacturing chain has led to declining prices as European governments cut back on subsidies. The average spot price of polysilicon has fallen by a third since September, wafers are 35 percent lower and silicon-based solar panels are 25 percent cheaper, Bloomberg New Energy Finance data shows.

“The reduction in the subsidy is significant and is likely to discourage developers that applied when it was higher,” Lian Rui, a senior analyst for the research company Solarbuzz, said today by phone. “Developers will only get about a 10 percent of internal rate of return with the new rate.”

The nation chose GCL-Poly Energy Holdings Ltd., Yingli Green Energy Holding Co. and about 100 other developers of projects with 1.7 gigawatts of combined capacity to be eligible for the subsidy under the program in 2012. China began offering financial assistance for projects under the program in 2009 to bolster the use of renewable energy and cut reliance on fossil fuels.

The projects that are approved this year must be completed by the end of 2012, the Ministry of Finance said in February. 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.

Governments in Germany and Italy, the two biggest markets for solar energy, are cutting subsidies after incentives for the industry created an installation boom.

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