The Chinese government's new feed-in-tariff (FIT) incentive program is expected to give a major boost to the country's solar industry, potentially increasing installations by a combined 1.5 gigawatts (GW) in 2011 and 2012, according to the new IHS iSuppli Photovoltaics (PV) Service report from information and analysis provider IHS.

China's PV installations previously were expected to amount to 1GW in 2011 and 1.4GW in 2012. However, the FIT could cause installations to increase by 50 percent, compared to the previous forecast in 2011 to reach 1.5 GW. Installations in 2012 then could rise by 71.4 percent compared to the preceding outlook to reach a total of 2.4GW. This will result in a 1.5GW upside for installations during the two-year period,

"The Chinese government's release of its nationwide FIT is sending a very positive signal to the country's solar industry-a signal that ultimately will increase PV installations by huge margins during 2011 and 2012," said Glenn Gu, senior analyst for photovoltaics at IHS.

"The establishment of the FIT has increased the confidence level among players in the China PV supply chain by guaranteeing the return on investment for many existing solar projects. PV companies are expected to take full advantage of the policy to accelerate the construction of solar projects and increase investments in future endeavors."

FIT for Growth
China's National Development and Reform Committee (NDRC) released its FIT document on July 24, marking the first-ever nationwide PV FIT in the country. A FIT promotes the use of solar energy by guaranteeing that utility companies will buy excess electricity produced by solar installations at homes and businesses.

This helps individuals or organizations to defray the upfront costs of investing in a PV system. Extensive use of FITs has helped Germany to become the world's leading country for PV.

Devil in the Details
Despite the strong impact of the NDRC move, the documentation provided by the government seems too simple to serve as an announcement of a formal FIT scheme and leaves several unanswered questions.

For one, the document doesn't mention the subsidy period. Furthermore, only a single FIT rate is offered for all PV projects installed in the different regions of China and for all installations methods.

Also, the source of subsidy capital may not be sufficient to fund all PV installations.

According to the NDRC document, FIT capital comes from a Renewable Energy Tariff account raised from the public. However, the Renewable Energy Tariff account itself has been suffering from a deficit since 2010, and the deficit is expected to widen starting in 2011.

IHS predicts this account will remain in deficit until 2014 because the majority of capital will be used to subsidize other renewable energy projects, such as wind and biomass projects, installed across the country.

Finally, the document doesn't address the issue of grid connection issue, which always has been a bottleneck constraining the development of renewable energy in China. The announcement of the nationwide FIT is likely to spur "solar fever" across the nation, especially in China's western provinces. But should the grid prove unready, the FIT scheme will be meaningless, as no electricity could be transferred to the grid.

Despite these unanswered questions, the NDRC document will pave the way for a more detailed FIT program to be released in the future.

For more information on this topic, see the new IHS iSuppli report entitled "China PV Market: A FIT is Coming"

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