On June 1, 2018, only two days after the completion of 12th SNEC International Photovoltaic Power Generation Conference, the world’s biggest solar conference and a central gathering of all the Chinese PV manufacturers, the Chinese central government announced a nation-wide solar subsidy cut that resulted in the Chinese solar stocks tumbling with the falling range from 7% to 31%. Specifically, the National Development and Reform Commission, the Ministry of Finance and the National Energy Administration of China issued the “2018 Solar PV Generation Notice” (the “Notice”), imposing caps and reducing the feed-in tariff (“FiT”) mechanism in connection with China’s domestic PV projects, and at the same time setting rules at the central government level to urge marketization of China’s solar industry.
Overview of the Notice
Imposition of Project Cap
Firstly, the Notice imposed a 10 GW cap on capacity for distributed generation projects and stopped utility-scale project for 2018. This is a steep drop from last year’s installation of 19 GW distributed generation projects (out of 53 GW of all PV projects in China). Also, the Notice provided that only those distributed generation projects that are connected to the grid no later than May 31, 2018 would be covered by central government’s budget, whereas the financial responsibility for other distributed generation projects would be shifted to local governments. In addition, the Notice encouraged the local governments to come up with more solar supportive policies, to reduce non-technological costs, and as a result to reduce the needs for central and local governments’ solar subsidies. Separately, the Notice abolished the utility-scale projects and instructed local governments not to approve any utility-scale projects until central government’s further notice.
Reduction of Energy Subsidy
Secondly, the Notice reduced the renewable energy price in the current FiT mechanism by￥0.05/kWh. In addition, the subsidy for off-grid distribution generation projects is also reduced by ￥0.05/kWh. After such reduction, the energy subsidy of off-grid distribution generation systems would be ￥0.32/kWh.
Marketization of Chinese Solar Industry
Finally, the Notice specifically emphasized that marketization of China’s solar industry is crucial in all respects. The Notice required further implementation of marketization of allocation of various resource in China’s solar market, and further implementation of bidding process for power purchase (newly built utility-scale solar projects), project acquisition and project development for utility-scale and distributed generation projects, and urged the local governments to enact regulations to push forward the fair competition in the local solar markets, etc.
According to the following press meeting by the issuing agencies, the agencies expressed some of the reasons behind the Notice: (i) the central government concerns about the current insufficiency of transmission infrastructure; (ii) the central government’s budget shortfalls as a result of the pre-existing large amount of solar subsidies; (iii) the central government intends to shift more responsibility of the further development of solar industry to local governments; and (iv) the central government wants to transit China’s solar industry from quantity-oriented to quality-oriented.
Reaction to the Notice Announcement
In reaction to the Notice, apart from the shake-up of Chinese solar stocks, the executives from eleven Chinese solar companies submitted a letter urging the central government to delay the surprise subsidy cuts, protesting the move to withdraw governmental support had come far too soon and requesting a grace period for those companies that need it. The Chinese central government hasn’t responded to the executive letter yet, and it is not clear to us to what extent, when, and even if such executive letter would affect the policy changes described in the Notice, because in our experience, the political power of non-state-owned companies (such as most Chinese solar companies) is much less than that of the state-owned companies (such as electric utility companies) or governmental agencies in China.
The Notice’s Significant Impact on the Global Solar Market
Assuming that the policy changes described in the Notice go into full effect, an immediate result from the cap and halt of China’s domestic solar PV projects imposed by the Notice would be a steep reduction of demand in China’s domestic solar market, and as a result of such reduction of the world’s biggest solar market, the global average selling price of solar modules is expected to decline, according to Bloomberg New Energy Finance, by thirty-five percent (35%) in 2018 as a result of manufacturing overcapacity. However, the expected decline of module global average selling price in the second half of 2018 could stimulate demand growth in 2019 and 2020, which may then slow further module price decline.
China is not just a module manufacturing country; it also has large amount of investment capital, solar PV accompanying equipment such as racking and inverters, and countless of professional solar experts and workers. As a result, the Notice’s impact on the worldwide solar industry could be much more than the impact of global module prices. With the freeze of project development in China’s domestic market, billions of dollars of capital and thousands of development personnel that were planned for the Chinese domestic solar projects could seek a new home outside of China, which could in turn affect the worldwide prices on professional services and project investments. The accompanying racking systems, inverters and other equipment that are produced for the domestic solar projects will also find their home outside of China, which could lead to a change of the global prices on this equipment as well.
In short, this recently issued 2018 Solar PV Generation Notice by China’s central government regarding various restrictions and cut on solar subsidies, and its impact in China’s domestic solar market is likely to have a significant impact on the global solar industry.
 See Eric Worrall, China Slashes Solar Subsidies, Green Stocks Tumble, available at: https://wattsupwiththat.com/2018/06/china-slashes-solar-subsidies-green-stocks-tumble/ (last visited June 7, 2018).
 National Development and Reform Commission, the Ministry of Finance and the National Energy Administration of China Notice in connection with 2018 Solar PV Generation (Chinese only), available at: http://www.ndrc.gov.cn/zcfb/zcfbtz/201806/t20180601_888637.html (May 31, 2018).
 See Mark Osborne, China Putting Major Brakes on Solar Deployment as New Market Rules Imposed, available at: https://www.pv-tech.org/news/china-putting-major-breaks-on-solar-deployment-as-new-market-rules-imposed (last visited June 7, 2018).
 See supra note 2.
 See supra note 3.
 See supra note 2.
 The National Development and Reform Commission and the National Energy Administration of China press meeting records (Chinese only), available at: http://money.163.com/18/0606/08/DJJTRFCK00258169.html#from=keyscan (last visited June 7, 2018).
 See Chinese Solar Panel Makers Urge Government to Delay Subsidy Cuts, South China Morning Post, available at: http://www.scmp.com/news/china/policies-politics/article/2149752/chinese-solar-panel-makers-urge-government-delay (June 7, 2018)
 See Mark Osborne, Solar Module Prices Set to Fall 35% in 2018 – BNEF, available at: https://www.pv-tech.org/news/solar-module-prices-set-to-fall-35-in-2018-bnef?utm_source=SolarWakeup&utm_campaign=76d524f789-SolarWakeup_2_182_16_2013_COPY_73&utm_medium=email&utm_term=0_5eaa0aab62-76d524f789-44257421&mc_cid=76d524f789&mc_eid=52062c9dfa (last visited June 7, 2018).