In the early part of 2013, when China announced its domestic photovoltaic installation target of 10GW at the National Energy Work Conference, it sparked widespread debate about subsidy standards and support mechanisms for solar power plants. Currently, the government provides a uniform on-grid tariff of 1 yuan per kilowatt-hour for large-scale photovoltaic projects, while a specific subsidy rate for distributed systems is expected to be introduced by the end of the first quarter of the year. Industry experts predict that the distributed subsidy will likely fall between 0.4 and 0.6 yuan per kWh.
With the simultaneous push for both large-scale and distributed photovoltaic projects, the addition of 10 GW this year is estimated to require over 1 billion yuan in national subsidies. When combined with the 4.5 GW “Golden Sun†project and building-integrated photovoltaic initiatives completed by the end of 2012, total annual PV subsidies are expected to exceed 30 billion yuan, with the “Golden Sun†initiative alone requiring 24.75 billion yuan in funding.
The prospect of 30 billion yuan in annual PV subsidies has reignited discussions about whether a competitive mechanism should be introduced into the subsidy system. While some argue that competition could drive efficiency, others warn that it may harm the industry’s long-term development.
China’s current subsidy models include the unified on-grid tariff for large-scale projects, the “Golden Sun†initiative, and the Ministry of Housing and Urban-Rural Development’s integrated photovoltaic projects. These programs have required billions in annual funding from the Ministry of Finance, making the need for a more efficient system increasingly apparent.
In 2009, China experimented with a competitive bidding model for the Dunhuang 10 MW photovoltaic demonstration project. Despite a minimum bid price of 0.69 yuan/kWh, the final price was adjusted to 1.09 yuan/kWh, showing that the initial goal of cost reduction wasn’t fully achieved.
Wang Haisheng, an analyst at Minsheng Securities, noted that the effectiveness of a competitive mechanism depends on the country’s broader goals. He pointed out that previous bidding rounds for wind and solar projects had not delivered satisfactory results, and even the 2009 PV demonstration project saw unrealistic bids that did not benefit the industry.
He warned that introducing competition into subsidies could force companies to accept lower profits, which might worsen the already fragile state of the photovoltaic sector. Instead, he argued that the government should focus on supporting the industry through reasonable profit margins to ensure sustainable growth.
Meng Xianji, vice chairman of the Renewable Energy Society, emphasized that the government’s intention to support the industry is clear. As a strategic emerging sector, photovoltaics require nurturing, and the state must invest appropriately to ensure long-term stability. He suggested that rather than focusing on competitive bidding, the government should concentrate on improving grid connectivity and resource allocation.
Sun Tuo, an energy analyst at Maghwa Energy Power, acknowledged that competition is a global trend but warned that it may be premature for China’s PV sector. He pointed out that the current power market is still imperfect, and introducing a competitive mechanism now could lead to price wars, stifling innovation and favoring large state-owned enterprises over private firms.
Additionally, Sun warned that a poorly designed competitive system could lead to short-term gains at the expense of long-term development. Some companies might prioritize quick profits over research and development, leading to a loss of technological leadership and a decline in industry quality.
Wang Haisheng also highlighted the risk of companies engaging in "short-term grabs" by sacrificing long-term interests for immediate benefits. This could result in unqualified players gaining access to subsidies through connections rather than merit, contradicting the original purpose of the subsidy system.
Experts have also raised concerns about the inefficiency of fund usage, particularly with the “Golden Sun†program. While a 7 GW project would only require 4.2 billion yuan in subsidies at 0.6 yuan/kWh, the 4.5 GW “Golden Sun†project requires over 20 billion yuan, raising questions about the fairness and transparency of the subsidy criteria.
Despite these concerns, some analysts believe that a well-structured competitive mechanism could promote efficiency and select the most capable companies. However, they stress that such a system must be carefully designed to avoid unintended consequences.
Ultimately, the debate over introducing a competitive mechanism into PV subsidies reflects a broader challenge: balancing efficiency with sustainability. While competition can drive progress, it must be implemented at the right time and in the right way. For now, many believe that the focus should remain on supporting the industry’s growth rather than rushing into market-driven solutions that may not yet be ready.
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