Rooftop projects shine a spotlight on solar power benefits

Guaranteed tariffs and subsidies support distributed generation projects, which can help reduce pollution and excess inventories

Jason Inch, a Canadian scholar living in Shanghai, just installed a "personal power station" on the roof of a 1930s-era building in the city center.

The 1.5-kilowatt, six-panel solar system can offset the building's own energy use significantly and sell its excess electricity to the grid at a preferential rate of 0.42 yuan (6.77 cents) per kilowatt-hour under what's known as a feed-in tariff.

These arrangements offer guaranteed unit payments for electricity supplied to a grid.

There's also a clean energy subsidy for solar power of 0.3 yuan per kWh.

The solar panel system will cut the building's consumption of conventionally generated power by one-third and reduce its power bill by about 2,000 yuan annually.

"When I was traveling in Japan and Germany, I saw many solar panels on the roofs. But here in China, where every condition for developing solar energy exists, rooftop solar stations are not so common," Inch said.

But he believes household use of solar energy is set to take off, supported by government policies and increasing public concern about pollution.

A 1.5-kW solar project produces 1 to 1.2 megawatt hours of electricity a year, avoiding the use of 400 kg of coal in thermal power stations and cutting 100 kg of carbon dioxide emissions.

These advantages can be multiplied many times if solar panels are widely installed on China's residential and commercial roofs. Broader use of distributed solar generation would also help cut the huge inventory of solar products in China, no small matter for the many panel makers that need to adjust capacity and stabilize prices.

In January, the National Energy Administration raised the 2014 target for new solar photovoltaic capacity to 14 gigawatts from 12gW previously. It said 67 percent of the new installations would be distributed solar facilities, up from 30 percent in 2013.

Ren Haoning, a senior energy analyst at research company CI Consulting, said the target for distributed solar installation is "very high" at 10 times the actual installations in 2013. But if the goal is achieved, it could cut panel inventories in China by 5 percent, based on national production capacity in March. The installation on Inch's building is one of more than 20 solar facilities on residential or commercial rooftops inspected by the southern branch of State Grid Shanghai Municipal Electric Power Co since late last year.

"More rooftop solar plant owners are calling us to connect to the state grid. Our policies and procedures are quite clear. Project owners can connect to the grid and after passing an inspection, they'll get the feed-in tariff and subsidy every three months," a client manager at the company surnamed Chen said.

The National Development and Reform Commission set the FIT at 0.42 yuan last August with a 20-year term. Local governments are also offering incentives for alternative-energy generation. In Shanghai, an announcement on April 4 said that local solar project owners are eligible for subsidies for five years. Individual users will receive 0.4 yuan per kWh, while industrial and commercial customers will get 0.25 yuan per kWh. Industry sources said that the industry is recovering from the impact of a supply glut and trade restrictions in overseas markets.

In China, 24 of the 32 listed solar companies reported a profit for 2013. Eight even doubled their net profit. Yingli Green Energy Holding Co Ltd, the biggest solar panel manufacturer in the world by shipment volume, said it expects to return to a profit for the first time in three years during the second quarter.

The gross profit margin is estimated at 20 to 30 percent for solar panel manufacturers in China and 50 to 60 percent for downstream companies focused on solar plants, said Han Qiming, an analyst with Solarbuzz, a division of United States-based market research company The NPD Group Inc.

But while the government expects a lot from distributed solar projects, industry insiders still have their concerns.

The China Renewable Energy Engineering Institute on Monday said that the number of new distributed solar plants grew very slowly in the first quarter. Compared with large-scale solar power stations, the economic returns of distributed solar plants are "less attractive". Moreover, in some regions, it's still hard for distributed solar plant developers to get financing, locate appropriate roofs and connect to the state grid, the report said.

For example, installations in Zhejiang province during the first quarter accounted for less than 5 percent of the annual target. In Shandong province, first-quarter installations of distributed solar facilities were just 0.42 percent of its annual target.

"We seek out appropriate clients mainly in east China, including Jiangsu province, Zhejiang province and Shanghai. In those areas, government policy is clearer and subsidies are paid on time. In some other regions, connections to the grid and subsidy payments don't go smoothly," said Wang Hongbo, project business development director of Hong Kong-listed Boer Power Holdings Ltd. It's often difficult to identify appropriate roofs, Wang said. Residential use isn't yet that common and "we have to educate people. On the other hand, the property ownership of commercial and industrial buildings is usually complicated," he added.