OREANDA-NEWS. August 11, 2014. Chinese solar companies jumped after China’s National Energy Agency (NEA) posted on its website that the agency head, Wu Xinxiong, discussed a new solar installation target of 13GW or more for 2014 during a meeting on distributed solar power held in the eastern province of Zhejiang (link in Chinese). This target is much higher than the 10GW target discussed mid-year.

Trina Solar (TSL) jumped 8.1%. JA Solar (JASO) advanced 4.2%. Canadian Solar (CSIQ) rallied 4.4%. Yingli Green Energy (YGE) rose 3.2%. The Guggenheim Solar ETF (TAN) gained 2.2%.

China will fine tune its policy on distributed systems. According the Deutsche Bank analysts Eric Cheng and Michael Tong, the new policies are likely to contain the following measures:

feed-in-tariff can be applied to projects with a low self-consumption ratio, unstable power load, or unable to implement energy management contract (but once the project chooses to receive feed-in-tariff, it cannot be switched back to receive the distributed solar subsidies); (ii) allowing projects located in abandoned land, ponds, lakes, etc. with <20MW of size, grid connection at <35kV, and electricity generated to be consumed locally to receive the feed-in-tariff; and (iii) encourage additional subsidies from the local governments, finance leasing, and local government guarantees on project financing.

The choice for distributed solar generation to receive feed-in-tariff would allow the project to at least achieve a certain level of return when the project has difficulty in achieving a high self-consumption rate and collecting tariffs from end users. While receiving feed-in-tariff would remove the risk of tariff collection (since the grid company will be the off-taker), project return would generally be lower (as the project will receive Rmb1/kWh of feed-in-tariff, vs. >Rmb1.1/kWh for distributed solar which comprises Rmb0.7/kWh cost savings from self consumption for industrial users, Rmb0.42/kWh distributed solar subsidies, and any additional local government subsidies if any). Uncertainty may also come from which projects can be considered eligible to receive feed-in-tariff.

Lack of access to financing is one of the key factors that have held back distributed system installations in China.

This new development is a near-term catalyst to the Chinese solar stocks, but Deutsche cautions that targets are just targets – the key is implementation:

We believe the market should view this as a near-term positive, as this seems likely to be followed by an actual release of the fine-tuning policy on distributed solar generation by NEA in the next couple weeks.

14GW…10GW…13GW…, actual implementation is what really matters. There was c.3GW of solar installation in 1H14, and our current newly added solar installation forecast for China this year is 10-12GW.