China slashes solar subsidy

A cut in the subsidy for demonstration sun-power projects threatens the viability of future solar projects in China.

China reduced the subsidy for demonstration sun-power projects approved this year by 21% as the prices of components continues to fall. This means the current incentive of US$1.11 per watt set in February is now down to US$0.87 per watt.

The cut, however, applies only to projects whose developers will consume the power for their own use under the Golden Sun program. China began offering financial assistance for projects under the program in 2009 to boost the use of renewable energy and cut reliance on fossil fuels.

Some 100 developers will be affected by the lower subsidy.

A supply glut in all parts of the solar manufacturing chain is forcing China and other countries to cut back on subsidies. The average spot price of polysilicon has fallen by a third since September.

Wafers are 35% lower and silicon-based solar panels are 25% cheaper, Bloomberg New Energy Finance data shows.

“The reduction in the subsidy is significant and is likely to discourage developers that applied when it was higher,” said Lian Rui, a senior analyst for the research company Solarbuzz.

“Developers will only get about a 10% of internal rate of return with the new rate.”