China & Global Solar PV Outlook 2017:Changing Market

Trends

GENSOL CONSULTANTS PVT. LTD.

1.China’s Changing Energy Landscape

Source: BP Outlook 2017

Ch

ina

By

20

35

China’s demand for energy is projected to grow by less than 2% p.a. between 2015and 2035, compared with above 6% p.a. over the past 20 years

The slowdown in energy demand reflects dampening industrial output

China’s energy intensity is expected to slide by 3% p.a. till 2035 - significantly quickerthan the projected global average - matching with that of US.

While China’s economy is forecasted to expand by 167% from 2015 to 2035, itsenergy intensity is expected to dip by 45%.

China’s GDP & Primary Demand Growth Energy Intensity

Over past few years, China has overtaken all other countries for installedcapacity of solar, wind and hydro power, although there is an increasingslowdown in the electricity demand. Notwithstanding this, Chinese Govt. ishighly intent on investing in clean energy, primarily, to meet their pertinenttargets.

In 2016-2017, China accounted for more than 40% ofall renewable energy capacity installed outside theU.S., with at least 100 GW added in combined sectors

The main factors that are driving clean energyinvestments in China are mammoth electricity demandand Feed-In Tariff scheme for wind and solar.

2.China’s Renewable Energy Market Scenario

Source: ITA Renewable Energy Market Report 2016http://thediplomat.com/2017/01/chinas-ambitious-new-clean-energy-targets

3. China’s 12th Year Plan Solar PV Development :

2011-2015

Source: Bloomberg New Energy Finance, 2016

5

10

14

20

35

23.5

10.955 10.6

15.13

2.9

6.5

17.45

28.05

43.18

75%

213%

-3%

43%

-50%

0%

50%

100%

150%

200%

250%

0

5

10

15

20

25

30

35

40

45

50

2011 2012 2013 2014 2015

YoY

Ch

ange

%

Cap

acit

y in

GW

12th Year Plan : Targeted Vs Installed

Target (GW) Annual Installations (GW) Cumulative Installations (GW) YoY Installation (%)

China’s Clean energy investment rose by about 17% and recorded about $110 billionin renewable energy investment transactions in 2015, representing well over a thirdof the global total. China installed over 15 GW of new PV in 2015*.

*https://www.bloomberg.com/news/articles/2016-01-19/china-s-slowing-power-consumption-highlights-clean-energy-gains

4. China’s 13th Year Plan RE Target :

2016-20201

3th

Year

Pla

n

(20

16

-20

20

): M

ain

Tar

gets 13th Five Year Year Plan aims at re-tarring road for country’s smooth turn from

coal driven industry to sustainability, diversifying its energy mix, with focuson wind and solar.

China is also very ambitious about Concentrated Solar Power (CSP) and haschalked out a 5 GW target for this period.

China’s National Development and Reform Commission has announced aFeed-in-Tariff rate ( ￥1.15/kWh) for CSP in 2016, which is likely to driveinvestment.

The average annual new PV installed capacity will reach 20 GW for a totalnew installed capacity of 150 GW (Revised 105 GW)

National Energy Administration (NEA) has unveiled its plan to cap gridcurtailment at 5% for the entire year in order to promote SPV.

By 2020, PV industry in China is expected to create 7 millions jobs

Introduction of Domestic Green Certificate Trading Scheme by 2020, so thatuse of renewable energy expands to occupy 5%-13% share in the total energyconsumption basket*.

*https://renewablesnow.com/news/china-to-spur-renewables-use-with-green-certificates-515823http://www.solarpaces.org/press-room/news/item/112-china-released-feed-in-tariff-for-csp-demonstration-projects

5. Summary of PV Market in China 2011-

2020 under 12th and 13th FYP

New energy outlook suggests lower GDP and lower power consumption rates in future

Supply anticipated to exceed demand by 2020

Streamlining of regulatory framework required to improve business environment

No targets defined for distributed generation

Lower power consumption growth rates is creating ripples in the energy market

*https://www.bloomberg.com/news/articles/2016-01-19/china-s-slowing-power-consumption-highlights-clean-energy-gains

https://www.theguardian.com/business/2017/jan/05/china-invest-renewable-fuel-2020-energy

6.China’s Market Development, Forecast Vs

Reductions in Feed-In-Tariffs : 2010-2020 (1/2)

With the increase in global energy demand and competitive market trends, Feed InTariff levels are expected to fall more than 50% by 2020 in China. Alongside, FITSchemes are being increasingly replaced by Green Certificates and tender-basedcompetitive bidding schemes, which represents a major shift in Chinese Solar Market.

0.86 2.90 6.5017.45

28.05

43.00

77.42

105.00

126.00132.00

150.00

105.00

1.15 1.15

1.00 1.000.90 0.90

0.80

0.65 0.650.57 0.58

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

2010 2011 2012 2013 2014 2015 2016 2017P 2018P 2019P 2020P 2020(Target)

FIT

(RM

B/k

Wh

)

Cu

mu

lati

ve C

apac

ity

(GW

)

Cumulative Capacity Installed Vs FIT Reductions

PV Cummulative Installations (GW) Lowest Utility Solar PV FIT (RMB/kwh)

Source: http://pv.energytrend.com/news/China_FIT_Scheme_for_PV_Projects_for_2017_Officially_Revealed.html

7.China’s Market Development, Forecast Vs

Reductions in Feed-In-Tariffs : 2010-2020 (2/2)

An optimistic view says that China’s PV demand will hit 30 GW by the end of 2017

0.562

3.5

10.95 10.6

15.13

34.54

30

25 25 25

30

40

0.562

3.5

10.95 10.6

15.13

34.54

20

13 13 13

20 20

0.562

3.5

10.95 10.6

15.13

34.54

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2022P 2025P

Cap

aciit

y in

GW

Year

China’s Annual Demand Forecast : 2017-2025

Actual Deployement Optimistic (GW) Actual Deployement Pessimistic (GW)

Actual Deployement (GW)

Source: China’s Market Dynamics AECEA 2017

2014: Tenders announced for approximately 11.9 GW

2015 : Tenders announced for approximately 22.0 GW

2016: Tenders announced for approximately 15 GW

2017: Data shown till mid-March only

8. China’s Demand Analysis – Monthly

Tendered Projects (MW)

FIT Schemes are increasinglyreplaced by Tender basedSchemes

1794 1600

1977

50321200

1500

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

2016 2017

DEMAND ANALYSIS IN MW-Q1 2016 VS Q 2017

Januray February March

http://www.cnbc.com/2017/02/13/china-and-us-lead-way-with-wind-power-installations-says-global-energy-report.html

9. Global Renewables Share (2015-2035)-1/2

Source: BP Energy Outlook 2017

Renewable share of Power Share Shares of Renewable Power Growth

Share of renewable energy in the global energy basket currently stands at 40% and itis expected to increase further. Going forward, China will be a major contributor to thisgrowth by 2035.

https://about.bnef.com/clean-energy-investment/

10. Global Renewables Share (2015-2035)-2/2

0.413

0.072 0.087

0.462

0.13 0.058

0.32

0.1350.086

0.395

0.24

0.138

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2011 2016 2017P

RIC

E IN

DEX

(U

SD/W

P)

YEAR

Module Price Breakdown Development

Module Cell Wafer Poly Si

The EU continues to lead the way in terms of thepenetration of renewables, with the share ofrenewables within the EU power sector doubling toalmost 40% by 2035.

However, China is the largest source of growth overthe next 20 years, adding more renewable powerthan the EU and US combined.

Then again, Solar PV capacity additions may haveincreased by as much as 50% in 2016 comparedwith 2015, but asset financing for solar PV wassignificantly lower, largely because of cost declines,policy changes and integration concerns in specificmarkets, such as China and Japan.

The levelized costs of generation per MWh foronshore wind is expected to fall 41% by 2040, and60% for solar photovoltaics, making these twotechnologies the cheapest options of producingelectricity.

Source: International Technology Roadmap for Photovoltaics, March 2017

Source: *BNEF, June 2016

11. Global Weighted Average Utility scaleSolar PV Levelized Cost of Energy (LCOE)

Source: IRENA : Rethinking Energy March 2017

During 2010-2015, the LCOE plummeted by 60% due to increasing competition in thesolar PV market. Keeping in mind the current trends of cost reductions, it isestimated that supply will overshoot demand in the upcoming years*.

http://www.scmp.com/business/companies/article/2000909/solar-prospects-dim-subsidies-peter-out-and-overcapacity-builds

12. Global PV Demand Prospects : 2017 (1/2)

Source: GTM Research Global Demand Monitor Q4 2016

During 2017, approximately 70-80 GW of solar PV projects are expected to be installed, whose footprints have been mapped below

13. Global PV Demand Prospects : 2017 (2/2)

Source: GTM Research Global Demand Monitor Q4 2016https://www.greentechmedia.com/articles/read/global-solar-demand-still-shrinking-

but-at-a-lower-rate

14. Global PV Market Evolution : 2015-2020

Current estimates show that global PV market will take a dip in year 2017 before takinga leap forward from 2018 onwards to reach 180 GW by 2020.

0

20

40

60

80

100

120

140

160

180

200

2015 (Installed) 2016 2017 2018P 2019P 2020P

Cap

acit

y in

GW

Year

Global PV Market Evoluiton 2015-2020

Optimistic Most Likely Pessimistic

Source: PV Market Alliance –Global PV Market Report 2016-2020

15. Global PV Market Potential 2017 & 2018

Statistics reveal that the Solar PV market has been swelling two-fold on YoY basis indifferent region, including South East Asia like China.

0.0

20000.0

40000.0

60000.0

80000.0

100000.0

Optimistic 2018 Most Likely 2018 Pessimistic 2018

PV Market Potential Forecast in 2018 MW (Demand Basis)

Eastern Europe Middle East Northern Africa

Oceania Sub-Sahara Africa Western Europe

South Asia South East Asia North East and Central Asia

North America Latin America & Carribean

Source: PV Market Alliance –Global PV Market Report 2016-2020

0.0

20000.0

40000.0

60000.0

80000.0

100000.0

Optimistic 2017 Most Likely 2017 Pessimistic 2017

PV Market Potential Forecast in 2017 MW (Demand Basis)

Eastern Europe Middle East Northern Africa

Oceania Sub-Sahara Africa Western Europe

South Asia South East Asia North East and Central Asia

North America Latin America & Carribean

China is expected to be the largest growth market for energy,although it is likely to be overtaken by India by 2020-2035*.

The global announcements made in 2016 for the Cell/ModuleProduction capacity exceeds 50 GW.

16. Global Supply Prospects-2017

Source: PV –Tech Mark Osborne 2017Source: Renewable Energy Top Markets Report 2015

Projected Solar Energy Export Market

https://www.bloomberg.com/news/articles/2016-12-15/world-energy-hits-a-turning-point-solar-that-s-cheaper-than-wind

17. Key Highlights

China’s Energy Intensity has declined by an average 3% p.a during the period 2010-2016, whichhints towards a gradually fading demand.

Despite of dampening outlook for demand during 2016-2020, interestingly, the Chinese Govt. isintent on scaling up investments in clean energy program to achieve its 13th year plan targets.

Due to burgeoning competition in the China’s solar PV supply market, the module prices havebeen declining steeply on YoY basis, which, in turn, is forcing Levelized cost of Energy (LCOE) tomove southwards. Intriguingly, the LCOE has got reduced by 60% during the period 2010-2015 .

It is predicted that falling LCOE will further hammer down FIT by 50% till 2020, thus, making astrong case for replacing FIT schemes by competitive bidding route of allocation. Based on thisprognosis, it is estimated that annual demand for PV projects further go down to 25GW incomparison to previous years’ demand of 34.54 GW.

Cell/Module manufacturers from the world over have announced their plans to ramp up theirproduction capacity in China by 13 GW in the coming years.

This antithesis between demand and supply in China will open avenues of exports shift into India(2nd biggest consumer after China), which will directly drive down module prices and,consequently, project economics here.

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