Clean Technology:China FIT Policy Better Than Expected

类型：投资策略机构：德意志银行研究员：德意志银行研究所日期：2017-12-27

What Happened?

    The Chinese renewable energy policy institute (NDRC) announced the highlyanticipated solar tariff cuts for 2018. This announcement was somewhat betterthan our expectations and could result in a stronger 2018demand environmentin China, in our view. As during previous years, projects approved before 2018and connected before June 2018would be considered for 2017tariffs. Given thisnew announcement, we anticipate a rush in 1H18timeframe, especially for utilityscale solar projects. Furthermore, we expect DG demand (which could exceed20GW in 2017) to accelerate in 2018.

    Key takeaways from the announcement include:

    1) Tariff cuts for distributed projects are relatively mild - for self generation andself consumption distributed solar projects, tariffs will be cut by RMB0.05/kWhto RMB0.37/kWh.

    2) Tariffs for poverty alleviation projects (0.5MW or lower and rooftop projects) areunchanged at RMB 0.65/kWh, RMB 0.75/kWh, and RMB 0.85/kWh across solarresource region 1, 2, and 3respectively for county level. DG poverty alleviationsolar PV project FiTs are also unchanged at RMB 0.42/kWh. Meanwhile, tariffs forsolar projects in Tibet were reduced from RMB 1.15/kWh to RMB 1.05/kWh.

    3) Utility scale tariffs (incl VAT) will be lowered by RMB 0.1/kWh to RMB0.55/0.65/0.75/kWh in tier 1, 2, 3regions for projects that are approved for 2018plan.

    Most industry participants were looking for a larger cut in utility scale FiT(up to 20%) vs current FiT cut of 13-15%. Investors were also anticipating alarger FiT cut for DG projects compared to ~10% announced cut. One of themajor developments in this year’s FIT announcement is that distributed projectsthat feed all of the power to the grid are subject to the on-grid tariff. Thiseffectively means that regular ground-mounted and distributed solar PV projectsare considered equal in terms of FIT and will receive RMB 0.55/kWh, RMB 0.65/kWh, and RMB 0.75/kWh across solar resource region 1, 2, and 3respectively.

    How Does This Change Our View?

    This new policy announcement reduces one of the major uncertainty for 2018as we now anticipate China market to remain robust and potentially grow at arapid pace in 2018. Note, our current global demand projections call for 2018Chinese demand to decline to 30GW (from 40GW in 2017) and we now expectChina demand could reach 50GW in the new FIT scenario. While utility scaledemand could remain flat or even possibly decline in 2018, we expect DG demandto approach 30GW vs ~20GW this year. In terms of 1H demand outlook, ourchecks indicate that tier 1Chinese module companies are fully booked for Q1withthis announcement, we anticipate strong demand in Q2as well. This developmentalso suggests that module/polynprices could remain stable in 2018, which in turnbodes well for FSLR, in our view.