Scholarly article on topic 'Solar Industry Development and Policy Support in China'

Solar Industry Development and Policy Support in China Academic research paper on "Earth and related environmental sciences"

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Energy Procedia
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{"Renewable energy" / "solar industry" / "economic incentives"}

Abstract of research paper on Earth and related environmental sciences, author of scientific article — Zhong Shuiying, Liu Chi, Qin Liqiong

Abstract Renewable energy resources have a positive effect on energy supply security as well as environmental protection. By analyzing the situation of the world and China's solar industry, the paper indicates there is of great potential in China's solar industry. However, there are capital, technology, market and policy obstacles in the development of solar industry. So we need not only the regulation of the market, but also the support of government policy, particularly economic incentives to promote solar industry in China.

Academic research paper on topic "Solar Industry Development and Policy Support in China"

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Energy Procedía 5 (2011) 768-773

IACEED2010

Solar Industry Development and Policy Support in China

Zhong Shuiyinga, Liu Chiab*, Qin Liqiong

a School of Economic and Management, Wuhan University, Wuhan 430072, China School of Economics, South-central University for Nationalities, Wuhan 430074, China

Abstract

Renewable energy resources have a positive effect on energy supply security as well as environmental protection. By analyzing the situation of the world and China's solar industry, the paper indicates there is of great potential in China's solar industry. However, there are capital, technology, market and policy obstacles in the development of solar industry. So we need not only the regulation of the market, but also the support of government policy, particularly economic incentives to promote solar industry in China.

© 2011 Published by Elsevier Ltd. Selection and peer-review under responsibility of RIUDS Keywords: Renewable energy; solar industry; economic incentives.

1. Introduction

Energy is an important material guarantee for economic and social development. However, the utilization of traditional fossil energy is faced with scarcity and pollution. Nowadays, nearly 90% of the global primary energy consumption depend on three major fossil energy resources, including oil, natural gas, and coal. Furthermore, about 70% of China's primary energy consumption depends on coal, which produces great environmental pollution [1]. Therefore, the development of renewable energy, especially solar energy has become a significant strategy in many countries [2-3]. With social and economic development, people's demand for energy is increasing and the energy structure are changed (Fig.1). Although, the consumption of un-renewable energy resources is still a major part of total currently, the growth rate of new energy is higher.

* Corresponding author. Tel.:+861-372-033-8978. E-mail address: brandy78@ 163 .com

1876-6102 © 2011 Published by Elsevier Ltd. doi:10.1016/j.egypro.2011.03.135

Fig. 1: 1952 and 2008 Energy Structure Contrast

Coal Oil Natural gas Hydropower, nuclear

power and wind power

Source: China Energy Net, "low-carbon energy strategy of China in transition times"

Solar energy is one of the best alternative energy with its clean, safe, energy-saving features. Solar industry is a new field, which eases current energy crisis, reduces the environmental pollution caused by the fossil fuels as well as improves the environment at the same time. Many scholars have prospected the future development of solar energy industry from a technical point of view [4-7]. In China, solar energy are mainly used in hot water, pumping, heating, refrigeration and air condition, thermal power generation and other fields. It can also save most of the building energy consumption [8-9]. Chen Xinghua, Zhang Danling, Liu Gaoxia have done policy researches of renewable energy development [10-13]. In this paper we will study solar industry development in China, and find effective way to promote rapid and sustained development of solar industry.

2. The Situation of Solar Industry Development

2.1. The situation of solar industry development in the world

First of all, the world put great value on clean energy. Japanese government issued "Action Plan for Universal Solar Power". The United States have expected solar, wind and other renewable energy technology will replace oil and be the human energy system by 2025[1]. In order to promote the development of new energy, the European Union formulated "White Paper on European Strategy and Implementation Plan "(1997), proposed the EU's energy consumption structure in 2010, solar is 12%.

Secondly, the international solar energy market is growing rapidly. Solar buzz, a research and consulting company, recently reported Photovoltaic Market in 2009 (Fig.2). The global production of solar cells was increased from 6.85GW in 2008 to 9.34GW in 2009. The scale of PV market in 2014 will be 2.5 times of now; and the return in 2014 will close to $100 billion.

Fig.2: Photovoltaic Market in 2009 Total: 6.34GW

Source: China Solar Energy Information Network, "2009, solar PV market grew by 6%"

2.2. The situation of solar industry development in China

First, China's solar thermal industry has developed rapidly with a good future. In 2007, the sales of solar water heaters reached 12 million square meters in China. The industrial output was more than ¥13 billion. In 2008, the total collector area of solar water heaters was about 1.3 million square meters and the annual product capacity was 3,000 million square meters, increase rate was 20 % to 30% each year. However, solar water heater market has not been fully developed. The solar thermal utilization of other industries, such as solar cookers, solar drying, solar houses, solar air conditioners, were failed to be commercial, moreover, certain areas are relatively in low level of technology.

The second, China's PV industry has grown fast although started late. Production of photovoltaic cells in 2001 was only 3 megawatts, while by 2008, China's solar cell production reached 2,000 megawatts, ranking first in the world, accounting for 36.7% of global production. In early 2008, China's 10 enterprises of PV industry were listed overseas, with IPO financing totally more than $20 billion. Dun Huang, Gansu Province completed the 1 million kilowatts-level large-scale grid-connected PV power station desert bidding in early 2009, the mark of the grid-connected photovoltaic power generation of large-scale development have been officially started. Because of the global financial crisis in 2008, the PV industry has been affected. With the pulling power of international and domestic market, also the expanding policy, the solar photovoltaic industry maintained a rapid growth. China has been the world's largest solar photovoltaic manufacturing base.

The third, China has been the world's largest producer of solar cells. An average annual growth rate of solar cells in China was 40% since 2000. In 2008, China overtook Japan to be the world's largest producer. Growth rate of China's solar cell is more than the "three digits" after 2001 (Fig.3). The quality and competitiveness of China's product has reached the international standards.

Fig. 3: 2000 -2009 Comparison of Solar Cell Industry Growing in countries

loo __

In 2009 China's output was more than 4GW, the global production was about 10GW, China's share was about more than 40%

in 2008. China surpassed Japan, and production reached first in the wofld Production more than 2GW Capacity about 3 3GW In 2008. global production was of about 7GW, China's share was more than 309fe.

Source: China Energy Net, "detailed charts of solar cell industry in China"

3. The Obstacles of China's Solar Industry Development

3.1. Lack of capital investment

Solar is scattered. In order to gather enough solar, large collection and transformation equipments are needed, which makes the cost of solar energy too high. And it is relatively of poor profitability in short

term. In China, the funds of solar industry mainly came from government, far less than the investment in developed countries. Insufficient capital is the enormous resistance of solar industry development.

3.2. Lag of technology innovation

At present, solar energy businesses tend to focus on profits, neglecting technological innovation. Compared with developed countries, domestic solar industry is in a lower level of industrialization, technology backwardness, and relying heavily on foreign imports. These will not only weaken the competitiveness of solar products, but also restrict the further development of solar energy industry. In order to develop the solar energy industry, stimulating technological innovation is necessary.

3.3. Faulty of the market system

Due to lack of public information and effective market, the solar energy market in China is lack of specifications although many solar projects have a good future. Whole market is disordered without certification standards and the corresponding regulations as well as quality supervision system. This greatly reduces the enthusiasm of the enterprises.

3.4. Designated policies haven't been put into practice

Solar industry development is inseparable from the relevant policy supporting. Suitable policies will promote the development of solar industry. The current policies made out from different departments are less authoritative. And relevant departments are lack the coordination of policies and regulations. These cause the policies instability. Without systematic policy, it failed to create a favorite external environment to develop our renewable energy industry.

4. Policy Suggestions to Promote the Development of Solar Industry In China

4.1. Establish development goals and formulate laws

Many countries have clear objectives and corresponding laws to protect solar industry. China has promulgated and implemented "Renewable Energy Law" and "Eleventh Five-Year Plan". In August 2007, the National Development and Reform Commission planned that till 2010 the renewable energy consumption will reach 2.7 million tons of coal. By 2020, China's renewable energy proportion of primary energy consumption will increase from 8% to 15% [14]. (Table 1)

Table 1: China's strategic goals for renewable energy development

Renewable energy category Actual in 2006 Target in 2010 Target in 2020

Hydro power 130GW 190GW 300GW

Wind power 2.6GW 5GW 30GW

Biomass power 2.0GW 5.5GW 30GW

Solar photovoltaic 0.08GW 0.3GW 1.8GW

Solar water heaters 100 million m3 150 million m3 300 million m3

The proportion of primary energy consumption 8% 10% 15%

Source: Development and Reform Commission in China, "Eleventh Five-Year Plan of Renewable Energy"

4.2. Put Forward Various Economic Incentive Policies

• 4.2.1. Financial subsidies

First is subsidy policy. Government may carry through investment subsidies, product subsidies and consumer subsidies for the solar industry because of its high cost and relative low return. Government can also buy solar products, which is called consumer subsidies. By stimulating consumption, it stimulates demand and expands the market. However, the enterprise might depend on Government subsidies too much, rather than technical innovation. And consumer subsidies are effective only if the consumer market large enough.

The second is tax policy. This approach brings little pressure on government, and also easy to implement. Tax preference generates sufficient impetus to the enterprises. However, reducing the cost of the enterprises and improving the technical innovation can not bring substantial help. In addition to tax preference, the government can also impose heavy and mandatory taxation on conventional and pollution enterprise, which is said to be polluter-pays system. It is proved that high strength, high standards of pricing policy, encourage enterprises not only to save costs, but also to adopt advanced technology.

The third is monetary policy. Government plays a very important role in providing low-interest loans and credit guarantees for enterprises. Manufacturing enterprises export credit can relieve burden of debt, greatly improve competitiveness of the enterprises in the international market. Venture Capital Fund is a significant fund source for high-tech projects, and its fund-raising capacity is strong. This is helpful for the subject that the solar industry investment relying on to change from the government to the market. The burden of monetary policies on the Government and the Bank is heavy, so the size of the implementation is relatively small. For the characteristic of short-term loan is profit-driven, so there is limited space in the solar industry.

• 4.2.2. Price Policies

One is fixed price. The price policy combines the government and the market together. The enforcement of fixed price policy can rapidly expand the market of solar energy industry, which directly improve the development of solar industry and technological progress, so that the cost of solar energy industry declines .The fixed price effectively eliminate the uncertainty risk of solar energy industry. In addition, the investors with a fixed price are in accordance with investment projects, reducing the approval procedures, and the time of signing contract negotiations and disputes, thereby reducing the cost of solar industry. However, the fixed price policy also has its shortcomings. It can not guarantee the solar energy industry to minimize the cost of production and sales and can not orderly make market competition as well as encouraging efficiency and innovation. Moreover, in order to encourage competition and reduce costs, the government should regularly make changes in the cost of price, according to the changes in technology and installed capacity, identifying new fixed price, which makes this policy less stable.

The other is floating price, which regulates the proper floating ratio for the price of solar energy products in reference to the price of conventional energy. This price mechanism is more targeted for the development of different products. With market prices under the quota system, government can distribute solar energy system products, according to the proportion allocated to different places, then place the retail or wholesale, which helps the rapid development of industry. Green energy price mechanism can improve the end-user's initiative, exert enthusiasm, expands the market for solar energy products.

5. Conclusion

In recent years, solar industry in China has made great progress, met with financial, technology, market and policy barriers. It is the time for the Government to formulate sound policies and regulations,

implement appropriate economic incentives. The above incentives for the solar energy industry have proven that the way based on law and long-term incentive legislation is more effective than short-term. Government incentives will be helpful for the market growth, but when the market matures, the role of government gradually decreases. Subsidies are effective in the early development of the market. With the market gradually expanding, tax incentives and legislation are the best choices. Finally, the government should give priority to regulating the market when it is mature.

Acknowledgements

We are thankful and acknowledge the support under the Special Fund for Basic Scientific Research of Central Colleges, South-Central University for Nationalities programme (No:ZSQ10016) in China.

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