China Has A 14 GW Solar Target For 2014

There has been much debate on how big China‘s solar market is going to be this year. As I have mentioned many times in this blog, China is the world’s largest solar market and the wild card.

China’s National Energy Administration released a press release announcing a national target of 14GW for solar capacity this year which will be eligible for incentives. According to a statement on NEA’s website, China has set quotas for individual provinces within the 14GW limit and projects exceeding a
region’s quota won’t get a subsidy. Eastern provinces of Shandong, Jiangsu and Zhejiang received the highest quota of 1.2GW each. If grids are unable to absorb the power and solar panels stay idle, the agency may reduce the quotas. Furthermore, 6GW of capacity are targeted for utility scale, while 8GW
are targeted for distributed generation.

This announcement is consistent with our view that the NEA has been targeting 14GW for this year, despite previous contradictory reports over the last several weeks. While there are specific targets laid out for each province, it is still unclear how well the government is able to track installations given the localized permitting structure. We believe the tier 1 module suppliers are well positioned to capitalize on the domestic market and expand their installation business in the process. Given attractive IRR’s on most projects in the region, we believe the country can likely reach this target, which will put further upward pressure on pricing in the industry. Given several planned poly expansions coming online over the next 1-2 years and rising prices, we believe further long term agreements between poly and module suppliers are likely.

Reiterate Buy on Trina Solar (TSL), Yingli Green Energy (YGE).

This morning, Trina Solar lost 0.3%, Yingli Green Energy gained 0.7%, Canadian Solar(CSIQ) gained 0.4%, Rene Solar (SOL) lost 2.1%, and JA Solar (JASO) gained 0.1%.

I would like to thank David B. Smith at Gabelli & Partners for providing me with information on China’s new solar target.