The announcement of a potentially lucrative solar program in China has played out like imperial edicts often do: It caused people to snap to attention and confused them at the same time.
The announcement from the Ministry of Finance and the Ministry of Housing and Urban-Rural Development outlined some general rules and goals for the program, including some technology specifications on how efficient the solar panels need to be (you can read the Google translation here, but note that it didn't translate "monocrystalline silicon" correctly).
What got many investors and analysts excited was the proposed offering of 20 RMB ($2.93) per watt for solar-panel installations that are 50-kilowatt or larger on buildings. That amount could pay for 50 percent to 60 percent of a system's installation costs, analysts said.
The proclamation had no mention of the amount of funding for the program or a cap for overall installation capacity among other key details that would help investors and businesses to gauge the proposal's impact.
But that didn't stop some financial analysts from filling in the blanks with guesswork and speculation.
China is a large country, and many of its solar energy equipment companies are not doing so well in this economic downturn. So a solar incentive program could inspire a lot of hopes and fantasies about what it could do to help the Chinese manufacturers (as well as other companies around the world). Chinese companies' stocks shot up after the announcement.
"We believe the recent run-up in the solar stocks has been based on exaggerated, unfounded, assumptions on demand for PV modules in China this year; we expect Chinese solar companies to take advantage of this run-up with equity offerings over the coming weeks given the distressed state of their balance sheets (STP, YGE, and TSL)," wrote Gordon Johnson of Hapoalim Securities in a research note yesterday.
There also was some confusion on whether the incentives would only apply to the so-called building-integrated photovoltaic installations or would it also work for systems placed on rooftops. There is no clear definition for "building-integrated" solar energy anyway. Would the solar energy products have to be integrated into building materials or can they be anchored on building walls or windows in some fashion?
It's been a week since the government announcement, and more tidbits have emerged about the program. The incentive program would apply to rooftop and other types of solar-panel installations, but more complex installations would get as much as 20 RMB per watt while simpler installation could get a lower rate, according to a document posted by the finance ministry this week. The government plans to adjust the subsidies annually. The post sought to explain and clarify some of the points made in the original announcement.
The ministry said in the update that rapid technology advancements have lowered the product costs of solar panels to less than 20 RMB per watt already. The cost of engineering and installing a solar energy system also average 20 RMB per watt. So the subsidy would help with nearly half of the total project cost.
In a research note yesterday, Jesse Pichel of Piper Jaffray wrote that the Chinese government had started discussing the solar program with Chinese manufacturers. The program would be funded by the $30 billion greentech stimulus plan announced by the government last month, Pichel said.
Meanwhile, a political spat has emerged on the timing of the original solar incentive announcement. An official from the National Development and Reform Commission told Dow Jones that the finance and housing development ministries should've spent more time talking to the NDRC on issues such as grid connections before publicizing the program. NDRC is responsible for setting power prices.
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