China’s National Energy Administration has increased its solar installation target to 17.8 GW for 2015, marking a 20% increase from the provisional installation target of 15 GW outlined in January. The new target is likely to be met with some skepticism given that the country failed to meet its 14 GW target in 2014. However, despite the previous missteps, we believe that the ambitious new target signals that the government is determined to drive solar installation growth and is also more confident about some of the regulatory and structural changes that have taken effect in the country’s solar market. In this note, we take a look at some of the issues that prevented China from achieving its 2014 installation targets, the recent changes to the solar landscape in China and also some of the potential beneficiaries of the higher installation target.
Why China Failed To Meet Its Target in 2014: China failed to meet its solar target for 2014, installing only about 10.5 GW, against an initial plan of 14 GW. The shortfall was due to multiple reasons. Firstly, last year’s target was heavily skewed towards distributed generation (DG), which is a nascent market where project sponsors encountered property and regulatory issues in both rooftop and ground mounted installations. [1] The country is estimated to have installed only 3 GW of DG — less than half the planned amount. Secondly, there was a transfer in the solar project approval process from state level to the provincial level last year and many provinces weren’t well prepared to deal with applications, slowing down the pace of installations. Additionally, capital remained relatively scarce last year, with Chinese banks supplying only about $3.2 billion to the sector, well below the $12.8 billion that the market required. [1]
How Solar Companies Can Benefit: We believe that the increased target could prove positive for solar companies such as Trina Solar (NYSE:TSL) and Yingli Green Energy (NYSE:YGE), considering their sizable manufacturing capacity and their large exposure and understanding of the domestic market. China accounted for 35% of Trina Solar’s module shipments for 2014. Yingli estimates that about 30% of its revenues for FY 2014 will come from the Chinese market. [2] Both companies also have significant manufacturing capacity that could cater to increased domestic demand. Trina Solar intends to increase module capacity from 4 GW per annum as of Q4 2014 to 4.8 GW by the end of 2015, while Yingli has a nameplate module manufacturing capacity of over 2.4 GW. Both companies are also likely to have flexibility in expanding their capacity further by forming joint ventures or taking over operations of weaker solar players in China. However, we believe that Trina Solar will have an edge when it comes to potential project developments over the long term, considering its strong financials and its greater credibility with lenders.
by Trefis Team
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