Over the past month, a series of new supportive policies for the photovoltaic (PV) industry have been rolled out, with China Development Bank (CDB) taking center stage this time.
On September 12, a senior executive of a PV enterprise told reporters that the Notice was formulated based on research conducted at enterprises such as Yingli Green Energy and Trina Solar. To support the distributed PV sector, the Notice also offers substantial preferential policies on interest rates and loan terms, such as a maximum loan term of 20 years and a 5%-10% discount on the benchmark lending rate for high-quality projects.
The aforementioned Notice is a continuation of a document issued by the State Council on August 30. At that time, the State Council released the Notice on Giving Play to the Role of Price Leverage to Promote the Healthy Development of the Photovoltaic Industry, which instructed banks and other financial institutions to adopt flexible credit policies in light of the characteristics of the PV industry and the capital turnover cycle of enterprises.
Currently, distributed PV accounts for more than 60% of the global PV installed capacity, but the proportion in China is less than 50%. According to the 12th Five-Year Plan for the development of the PV industry, distributed PV will account for more than half of the 35GW of PV installed capacity target. Most existing distributed power generation projects in China are built on the rooftops of central and local government ministries and industrial parks. The development of distributed power stations for residents, schools, hospitals and other entities was liberalized in November 2012, allowing users to generate electricity for their own use and sell the surplus to the grid.
A PV industry insider in Beijing revealed to reporters that China’s new supportive policies for the PV industry will not stop here, and supporting measures from local governments will be intensively introduced in the coming months, such as detailed rules for the per-kilowatt-hour subsidy policy, a 50% immediate refund of value-added tax (VAT) for power stations (reducing the tax rate from 17% to 8.5%), and detailed rules for grid connection.
As the distributed PV sector is still in its infancy, projects are generally small in scale with diversified development entities, making it difficult to obtain financial support—a problem that has become increasingly prominent with the rapid development of distributed PV.
The above-mentioned PV enterprise executive acknowledged that large-scale ground-mounted power stations, mostly invested in by central state-owned enterprises, can apply for loans directly from CDB and are therefore not covered by the support of the Notice. Since the Notice is a guiding document, specific detailed rules on how enterprises and individuals can apply for loans will be issued in the future.
The Notice clearly stipulates that CDB will expand the scope of support for distributed PV power generation, covering the following projects: PV demonstration zones, new energy demonstration cities, green energy demonstration counties, PV power generation projects built to solve power shortages in remote areas and islands, urban lighting and communication base station projects, as well as supporting power grid and microgrid projects constructed to absorb distributed PV power.
The Notice has notably expanded the scope of beneficiaries: PV manufacturing enterprises, power generation enterprises, engineering contracting enterprises, as well as other industrial and commercial enterprises and public institutions that meet CDB’s direct loan application qualifications and have a credit rating of no less than BBB- can apply for CDB’s credit support directly.
CDB has also opened a green preferential channel for eligible distributed PV projects: the loan term for projects shall not exceed 15 years in principle and may be extended by 3 to 5 years according to the actual situation of the project; the loan interest rate will be given a 5%-10% discount on the People’s Bank of China’s benchmark lending rate of the same term and grade for projects recognized by the National Energy Administration; the project acceptance department shall complete the project roadshow and review within a maximum of 20 working days from the date of receiving the submitted evaluation report.
The above-mentioned Beijing PV insider analyzed that although the Notice has expanded the scope of financial support for distributed PV, the pilot focus will be on the 18 distributed PV demonstration zones announced so far. "First, CDB needs to participate in demonstration projects; second, demonstration zones are economic development zones, which are easier to manage than scattered projects."
On August 18, the National Energy Administration announced the first batch of 18 distributed PV demonstration zones, including Zhongguancun Haidian Park in Haidian District of Beijing, Yingli in Baoding of Hebei Province, Qianhai in Shenzhen, and Ningbo Hangzhou Bay New Area, among others.
The projects in the 18 demonstration zones span 2013-2015 with a total capacity of 1.823GW, including 749MW to be constructed in 2013 and the remaining projects to be completed in 2015.
The aforementioned PV enterprise executive calculated that based on the EPC (Engineering, Procurement and Construction) price of 8 yuan per watt, the total investment for the 749MW project is about 5.992 billion yuan. CDB allows enterprises to contribute only 20% of their own capital, which means CDB alone needs to provide approximately 4.8 billion yuan of financial support for this part.
Another positive for the PV industry is that the VAT rate for PV power generation is expected to be reduced from about 17% to 8.5%, the same as that for wind power.
A key highlight of the Notice is that distributed PV power stations developed by small and medium-sized enterprises (SMEs) and natural persons are also included in the scope of CDB’s financial support.
The Notice states that for SMEs and natural persons that do not meet CDB’s direct loan application qualifications and have a credit rating below BBB-, CDB will cooperate with local governments to establish a unified investment and financing entity to handle loan matters.
The specific model is as follows: the National Energy Administration, local governments and energy administrative departments will assist local areas in establishing an enterprise financing entity (i.e., a unified borrower) based on corporate credit, operating in a market-oriented manner, and having borrowing resources and loan-bearing capacity. CDB will provide credit lines to the unified borrower, which will then provide financial support to eligible recipients through legal and effective capital operation methods such as entrusted loans.
Tan Zaixing, Director of the New Energy Review Department of CDB, recently acknowledged that the National Energy Administration and CDB are planning to jointly issue a document to support the financial services for distributed PV power generation, and the relevant document will be released as early as September.
Nevertheless, the above-mentioned Beijing PV enterprise insider believes that the number of applications for individual PV power stations in China has reached nearly 1,000 so far, but since the installation scale of each household is about 10kW with a total investment of 30,000 to 50,000 yuan, providing loans to natural persons has limited practical significance in the initial stage of market development, and its greater significance lies in the future market expansion.
China’s newly added PV installed capacity in the first half of 2013 did not exceed 3GW, and the overseas market once again became a booster for Chinese PV enterprises to break through the bankruptcy bottleneck. The domestic installed capacity is expected to exceed 5GW in the second half of the year, which will become a positive factor for the continuous improvement of the performance of Chinese PV enterprises in the second half of the year.
Another positive for the PV industry is that the VAT rate for PV power generation is expected to be reduced from about 17% to 8.5%, the same as that for wind power. The tax reduction will directly lead to a substantial increase in the investment return rate of PV power stations. At present, the internal rate of return (IRR) of PV power station projects in western China has generally exceeded 10%.
