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June, 2008:

Lights Still Dim On Solar Power

Limitless energy held back by capacity shortage, tariff system

Eric Ng -Updated on Jun 09, 2008 – SCMP

If state leaders were to be given a magic wand to eradicate the nation’s pollution and energy shortage problems overnight, they could well go for instant widespread commercialisation of solar energy.

The country is blessed with abundant solar resources that could supply a virtually inexhaustible and free fuel with zero pollution. That is, if they can be made commercially viable.

Two-thirds of the nation’s land mass enjoys over 2,200 hours of sunshine annually, comparable to the United States and much ahead of Japan and Europe. Sunlight is especially abundant in the nation’s northern regions.

According to the China Academy of Sciences, the country’s theoretical annual solar energy resource is equivalent to 1.7 trillion tonnes of standard coal, 630 times the government’s 2010 national energy consumption target of 2.7 billion tonnes.

Analysts have hailed solar power as potentially the biggest fuel source for electricity generation in 50 years, given increasing pressure to develop clean energy. Wind, hydro and biomass power development is subject to resource constraints while nuclear power brings security concerns.

However, other than its global leadership in solar water heating, the country is still at the starting point in harnessing the sun’s energy in electricity generation, by far the bigger way potentially to exploit solar power.

The mainland is the world’s largest consumer and producer of solar water heaters, with 15 million square metres of annual production capacity of heat-collecting surface area at the end of 2006 and 100 million square metres in use, according to industry policy setter National Development and Reform Commission.

Growth has been spurred since last year by mandatory installation of solar heaters on new buildings 12 storeys or higher in places such as Nanjing and Wuxi in Jiangsu province and Huzhou in Zhejiang province. Subsidies have also been granted by the governments of Xiangtai in Hebei province and Hefei in Anhui province.

Each household can expect to save more than 10,000 yuan (HK$11,296) in heating expenses over the 15-year average useful life of a solar heater, based on the 4,500 yuan average equipment and installation cost, according to a Nanjing Morning Post report.

With more than 1,000 solar water heater producers churning out 12 billion yuan of equipment annually, the sector has established a complete industry chain. By contrast, the NDRC noted that the domestic solar electricity industry lagged developed nations in overall level of development, as it is restricted by a bottleneck in polysilicon raw material supply.

Industry watchers also blamed a less favourable electricity tariff mechanism.

“China is already the world leader in the domestic solar water heater industry, but solar power has not been deployed in electricity generation on a large scale because the high [equipment] costs compared with China’s electricity tariff structure has rendered it largely unaffordable,” said Michael Ashburn, chairman of Beijing-based clean energy developer Clearworld Energy.

“We hope that with the government’s drive in renewable energy development, the considerable solar resources of China and some emerging lower-cost solar technologies, we will see some large-scale development in the near future.”

Merrill Lynch head of Asia-Pacific utilities research Joseph Jacobelli concurred. “China has world-class and highly competitive equipment manufacturers like Suntech Power Holdings,” he said. “The problem at the end of the day is the tariff system.”

With crude oil and coal prices soaring steadily in the past six years, alternative energy’s viability should have received a big boost.

The central government since 2006 has required the two state-owned distribution monopolies to buy all renewable energy generated in the nation.

But Beijing’s tight grip on electricity prices has largely mitigated the benefits, as the cost of coal-generated power, including its environmental cost, has been substantially underpriced. This makes competing with alternative energy more difficult.

Besides, unlike developed nations such as Japan, Germany and Spain where favourable tariffs are granted, the mainland lacks a clear tariff system to boost the viability of solar electricity. It is priced solely at the discretion of the NDRC based on the principle of “reasonable cost plus reasonable return”.

Mr Jacobelli said solar electricity needed to be priced on the mainland at 2,500 yuan per megawatt-hour for the producer to make a reasonable return, compared with 500 to 700 yuan for wind power, 400 to 500 yuan for nuclear power, 300 to 400 yuan for coal power, and 200 to 300 yuan for hydro power.

And given solar power panels’ low annual utilisation, at 40 per cent of coal-fired plants’ 5,500 hours, he said they would remain a supplement to mainstream electricity fuel sources for decades to come. Still, analysts see solar power growing exponentially in the next few decades as technology advances and equipment costs fall.

The NDRC aims to raise the country’s solar electricity generation capacity to 300 MW by 2010 and 1,800 MW by 2020 from 70 MW at the end of 2005. Mr Jacobelli has a more aggressive forecast of 3,300 MW for 2020, while Credit Suisse analysts have projected 1,920 MW by 2012.

But even these analysts’ bold forecasts are only a drop in the bucket compared with the mainland’s projected total power generation capacity of 1.33 million MW by 2020.

To support the nascent sector, the NDRC has pledged to extend usage of solar power sourced from rural remote regions in the nation’s far north and west not served by power grids.

In its 2006-2010 renewable energy plan, it aims to build key demonstration projects in Beijing, Shanghai, Jiangsu, Guangdong and Shandong. Large-scale solar panels are also to be erected in the sunbelts in Gansu province and the autonomous regions of Inner Mongolia and Tibet.

Although a lack of favourable incentives was seen as the biggest hurdle to harnessing solar power, UBS analyst Tan Kim Chong said it was a shrewd move on the NDRC’s part.

“The current production cost of a [photovoltaic] module – a component of a solar panel – is still US$3.70 to US$3.80 per watt. At that kind of price, I don’t think China will give financial incentives to boost demand in a big way,” Mr Tan said. “It does not make sense to do so with today’s costs. Strategically, China has very cleverly developed the domestic equipment industry into the world’s biggest, leveraging on demand from the rest of the world [backed by government subsidies] to build up its own production capacity.”

Combined with the huge capacity to make photovoltaic wafer and wafer modules in the pipeline and gradual easing of bottlenecks in the supply of raw material polysilicon, The mainland will become a formidable force to supply not only the world market but also domestic users.

UBS forecasts that the average price of photovoltaic modules will fall to US$3 per watt by 2010 and that, when it falls to US$2 per watt, solar power will be as competitive as coal-fired power in developed nations.

On the mainland, it would need to be less than US$1.50 per watt, which would not happen in at least the next decade, Mr Tan said.

He noted, however, that the top 25 per cent of global module producers were already able to produce at US$1.20 per watt. “The problem is, we don’t have big enough capacity to reduce [overall] production cost as rapidly as we want.”

Although silicon is abundant in oxidised form in sand, rock and quartz, its production into polysilicons has for years been primarily for the semiconductor industry whose demand growth has been steady but moderate.

The production technology is also controlled by only a handful of companies in the US, Germany and Japan.

Since developed nations started three years ago to subsidise solar power generation, which consumes much more silicon than the semiconductor sector, demand had outstripped supply by the end of last year. As it takes two to three years to build a polysilicon plant, a supply bottleneck has emerged and the situation is not expected to ease until 2010 at the earliest.

However, the country had been investing aggressively in polysilicon production capacity, which was projected to grow 40 to 50 per cent annually to as much as 40,000 tonnes, or 20 per cent of global output, by 2010, up from less than 3 per cent last year, Mr Tan said.

He expected the country to amass proven technology in each part of the industry’s value chain by 2010 and that the nation’s power companies would start to invest in solar electricity projects after a few years.

“They will probably invest in the whole industry chain, from polysilicon to modules to solar panel farm,” he said.

Among Hong Kong’s listed mainland power firms, only China Power International Development’s renewable power associate China Power New Energy Development has so far clearly identified solar energy as one of its investment directions.

An official at Datang International Power Generation, which is investing heavily in hydro, nuclear and wind power projects, said: “We intend to invest in solar projects, but high equipment costs, uncertain power tariffs and returns are the biggest hurdles.”

Reality suggests that solar power generation is no panacea for the country’s environmental and energy-related headaches, at least not in the next few years.

We Do Not Need Laser Distraction

Updated on Jun 07, 2008 – SCMP

The laser night show, the Symphony of Lights, which takes place at 8pm every night at the harbourfront, energises the night scene of Hong Kong but ironically blackens the sky.

This is because, behind the emission of these colourful beams of light, a large quantity of pollutants is generated.

Given the twinkling neon lights of skyscrapers and the headlights of moving vehicles along the highway, the Hong Kong night scene is already gorgeous enough.

Do we really need this additional feature?

Yanson Wong, Shek Tong Tsui