OREANDA-NEWS. December 03, 2014. The mainland is expected to see the installation of 10GW of solar farm capacity this year, well short of last year's 13GW, according to a researcher at the top energy policymaker.

The shortfall was due to financing and low return problems experienced by Beijing's "distributed projects" plan to relieve power transmission bottlenecks in the sparsely populated but solar resource-rich northern regions, said Wang Sicheng at the Energy Research Institute of the National Development and Reform Commission.

The 10GW forecast is well short of the 14GW target set by the National Energy Administration (NEA) early this year but matches the revised target of 10GW announced in June.

Then in August NEA head Wu Xinxiong gave a new target of 13GW, which industry executives said reflected his confidence that support policies subsequently launched in September would boost installation.

Wang's latest projection showed that challenges facing the industry remain despite the September policies designed to address problem areas.

In the first nine months of the year, total solar installations reached 3.79GW in capacity, comprising 1.34GW of distributed projects and 2.45GW of large-scale ground-mounted projects. Only 0.34GW of distributed projects and 0.15GW of ground-mounted ones were added in the third quarter.

The fourth quarter is traditionally the peak installation season for solar and wind farms.

"Distributed projects' returns and project volumes have been low partly because over 60 per cent of the nation's buildings are residential ones that enjoy low power prices of about 52 fen per kilowatt-hour," Wang told the China International Photovoltaic Forum.

Prices paid by industrial and commercial users are much greater, some as high as 1 yuan (HK\\$1.26) per kWh, making them the only feasible targets for roof-top solar farm development.

Subsidies announced in August last year were calculated assuming that 80 per cent of roof-top projects' output could be absorbed by local consumption, with the rest sold to the local power grid, Wang said.

It turned out that only 60 per cent was taken up locally on average per project, meaning more-than-expected output was needed to be sold to the grid, he added.

But the 42 fen per kWh subsidy announced last year, paid on top of the average on-grid coal-fired power price of 35 to 45 fen per kWh, was insufficient to meet developers' return criteria.

Addressing the problem, in early September the NEA allowed distributed projects to charge the higher subsidised tariffs of 90 fen to 1 yuan per kWh enjoyed by the large-scale ground-mounted projects mostly invested in by utilities firms.

Wang said this led to abnormally high returns of up to 24 per cent for projects in western and northern regions where solar resources were more plentiful, compared with 8 to 15 per cent returns in coastal and central provinces.

Owing to low power demand in western and northern regions, new solar farm development is subject to quotas since it needs to be connected to long-distance power transmission lines.

This led to resale of project development rights, with a 50MW project sold for up to 45 million yuan, half the annual cash flow expected from the project.

"If you have government connections to obtain rights to a project development, you can make a handsome quick profit," Wang said. "The NEA has recently banned such resale of rights, but this can only delay the sale by a year since developers are allowed to sell projects after they are completed."

Wang believes solar subsidies, in the form of price premiums to coal-fired power, will not change next year. Instead, they will be cut starting from 2016 and end up at zero by 2025 when solar power prices are projected to match coal-fired power prices. He based the estimate on the assumption that solar prices fall 4 per cent annually while coal-power prices rise 4 per cent annually.

Xu Yi, a commercial lending manager at China Merchants Bank, said commercial banks had so far avoided lending to the solar farm sector because of high technical risks and lack of confidence in the sustainability of their output.

Stone Wu Xiexiang, the chief engineer at GD Solar, a solar farms unit under state-owned power generator China Guodian Group, said the industry's core problem was not lack of funding but lack of regulation to ensure solar farm output was subject to independent audits.