Solar so far plays a secondary role in tier-1 power companies’ energy transition activities. But recent market phenomena herald a change.
Power utilties’ renewable path may be shifting focus. While wind used to be the main option for renewable investment. Solar could be the main battlefield soon.
The sharp decrease of solar’s LCOE since 2018 has been the key driver behind the quiet change.
Wind and Solar: Equal Players in China’s Transition
The power market in China has seen some fundamental changes in its electricity portfolio, amid the country’s rapid energy transition in the past decade.
From 2010-2019, the share of coal-fired units in the total power mix decreased by 14% (from 73% to 59%). And that of renewable jumped by 17% (from just 4% to 21%).
By the end of last year, the installed renewable capacity has exceeded 410 GW. And China has been the world’s largest wind and solar markets for some time.
In that success story of renewable, wind and solar have played equally important roles. Both saw their share increase: wind p from 3% to 10%, and solar from less than 1% to 10%.
Of that over 410 GW renewable capacity, wind contributed 210GW and solar offered some 204 GW.
Wind Was the Focus in Major Power Utilities’ Transition
Amid the nation-wide transition, major power generation utilities in China–the so-called “Big Five”–have changed their renewable game, too. Traditionally heavy on coal, have become avid renewable developers and show a growing commitment to clean power investment.
However, their investment preferences between wind and solar are not equal. As of now, wind power and the mounted renewable were undoubtedly the preferred options.
The following figures show a clear preference over wind than solar among the big fellas:
- Collectively, wind installation of the “Big-five” is 54% of the total wind capacity in China, while their solar capacity only took up 14%.
- For four of the five tier-1 utilities, more than 80% of their renewable capacity are wind installations. [More data regarding the Big-5’s 2019 performance]
- For CEIC—the world’s largest power developer and largest wind developer, almost 97% of its renewable asset are wind units.
- Of the big five, the only exception was State Power Investment Corp (SPIC), whose renewable capacity is half wind and half solar.
Factors Define a Better Investment
The following factors have contributed to the wind-heavy renewable investment style of the major powerhouses.
Chinese wind market is featured with centralized and mounted projects of a much larger investment scale. Solar projects, on the other hand, are mostly smaller in size. And the solar sector has seen a rapid development of distributed PV plants. Since 2018, distributed solar has overtaken the position of mounted solar and become the key growth area.
The large-scale energy projects require developers to have solid financing capacity. And, in the Chinese setting, developers with stronger market positions who can manoeuvre central and local politics would be better fits.
Meanwhile, wind projects are considered of higher technical barriers. China’s large power companies, which are often vertically integrated with in-house manufacturing, engineering, and technology capacity, could be an advantage.
As a result, the “traditional” power players were just more accustomed to the investment scale of mounted wind projects over solar.
Although both sectors face a similar challenge of curtailment (generation waste). Wind units in China still enjoy a much higher load factor. As of 2019, the average utilization time of operating wind turbines is 2082 hr, much higher compared to the 1169 hrs of solar units.
Higher the time, the higher the return.
LCOE, Electricity Prices & Subsidy
Fundamental, the LCOE differences between wind and solar is a key driver. The wind had been sharply reduced its LCOE to just ¥430/MWh (2017) and was getting closer to grid-parity.
At that time, the cost solar remains high at ¥500-700/MWh.
Major developers, thus, have been much more focused on wind development over solar in the past decade.
As a result, the positions of the Big-five in wind and solar have been different.
While the five are the top-5 wind developers in China. Three of them are out of the top-10 position in solar, while SPIC has been the global No.1 for three years and Huaneng took 5th place in 2019.
Moving in Favor of Solar
But the heavy wind focus may be subject to some changes.
The four majors (other than SPIC) have shown growing interest in developing solar PV.
Huaneng acquiring solar assets of GCL Poly—currently the 2nd largest solar developer in China— was a high note of the sector last year. Initially, the state-owned power giant planned to purchase a majority stake in GCL Policy’s solar power company (of over 7GW capacity). First batches of solar asset purchases have been completed in 2020.
The firm is developing series new PV plants, of which the capacity are four-times of its current installed figure.
China Datang and CEIC are also trying to speed up their game. The former has invested in over 2GW new projects since 2020; the latter announced a solar strategy for the first time.
More and more acquisition and new build plans are initiated by the state-owned, signalling changes in two fronts:
- Larger utilities have placed heavier focus on solar power in their renewable strategy.
- As more state-owned players set in, the market is subject to rapid consolidation, where private players like GCL would gradually leave the battlefield.
Renewable LCOE Dynamics Shifting
The change was due mostly to the speedy cost reduction of solar since 2018.
In 2018, LCOE of mounted solar plants dropped to ¥0.377/KWh and begun to approach to the cost of onshore wind power. Last year, mounted solar’s LCOE has become lower than that of wind power—for the first time.
As solar manufacturers set off a drastic price competition this year, the cost of solar is expected to continue to sink.
In the recent solar project bidding, PV projects have reached an all-time low price, just ¥0.033/KWh higher than the coal-fired power benchmark prices in China. The subsidy amount is 50% lower than that of the previous year, recent research show.
That mean solar PV is just one small step away from grid parity in China.
Wind, on the other hand, has slowed down its cost reduction. As due to the collective project dashes since 2019, current construction cost has been slightly moved up.
That fundamental shift may have pushed larger electricity players to adjust their solar strategy.
Conclusion: State-owned Players Would Reshape the Market
The participation of these traditional power players would reshape China’s solar market.
- Further cost reduction of solar plants: A shifting focus of the tier-1 power utilities means larger players to become more active in the solar game. In return, the consistent demand of these companies in grabbing new projects could lead to the next round of cost-reduction of solar power.
- Higher cost reduction pressure on the manufacturers: while many private PV manufacturers were active in project development. Their role may be replaced by the state-owned powerhouses who have a stronger market and policy leverage. As a result, PV materials and products would still face further price reduction pressure.
- A new game of project development: the tier-one players generally have a better appetite for large scale investment plans. And they are more eager to respond to Beijing’s policy request. Such preference could reshape solar investment in China. One of the new trend driven by these players is to combine solar plants with storage (and other new technology) investment to forge centralized bases.
- However, private players may continue to drive the development of distributed solar.