Innovation in Pv Industry

The bumpy road to low carbon development: Insights from changes in the innovation system of China’s photovoltaic industry

1 Introduction
Environmental scientists, energy experts and relevant enterprises assure us that the technological solutions needed for low carbon development are already available. This is good news as it implies that – at least technically – it is possible to prevent global warming beyond the 2°C threshold. But what does ‗availability‘ of low carbon technologies actually mean in the context of developing countries? The mere fact that relevant technologies, for example renewable energy technologies, have been developed by some enterprises or laboratories does not guarantee their diffusion and application. This is true for industrialized countries and even more so for the large emerging or the developing countries. In order to realize the goal of climate change mitigation within the short time left for doing so, low carbon technologies have to be rolled out much faster than it is currently done.
In the context of the global climate change negotiations this dilemma between availability and application of technologies is regularly discussed with a focus on questions of technology transfer from developed countries to developing countries. While technology transfer may and does play an important role in technology diffusion, another perspective on the dilemma is to address the role of the national innovation systems in enabling the development, adaptation and application of low carbon technologies in developing countries. Three arguments support this perspective: First, technology transfer may occur via different venues (granting access to patent information, foreign direct investment, trade, licensing, joint R&D etc.) implying different costs and risks for the owner of the technological know how. Creating win-win situations for technology transfer, or compensating the owners of technology for their costs if a win-win solution is not found, may prove to be very difficult and time consuming. Second, transfer of low carbon technologies even at zero costs for the developing countries would not ensure widespread application of these technologies in the developing countries. Innovation system research stresses the importance of co-evolution of economic, social, political and technological aspects of innovation. Last but not least, the observable shift in economic and political power from the industrialized countries to developing Asia adds to doubts whether granting technologies to Asian developing countries, especially China is a smart move. While it is acknowledged that climate change mitigation in China is of vital global interest, Chinese enterprises are competitors for ‗western‘ enterprises in many global markets already. Thus, an undercurrent concern exists that technology transfer could add to the economic power shift by helping China to become a technological leader and exporter in low carbon technologies rather than really contributing to climate change mitigation in China.
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Against this background a more promising approach – for the purpose of climate change mitigation – is to understand how to ensure application and diffusion of available technologies. In order to contribute to this understanding, the paper analyzes the development of the photovoltaic industry in China from an innovation system perspective. The innovation system approach is selected for its holistic perspective on innovation capacities and sector developments. The PV sector case is selected as one industry of importance for the energy shift envisaged in the context of climate changes. China is a logical object of analysis due to her importance for climate change mitigation in general, and as a major force behind the ongoing ‗global shift‘ in particular. Also the development of China‘s PV sector highlights the argument of co-evolution developed in the innovation system literature: The global photovoltaic sector has experienced rapid growth and changes in recent years. Growth mainly originated from increasing demand in industrialized countries, supported by related government policies and financial incentives to promote the use of solar energy. A major change in the sector has been China‘s emergence as a producer and exporter of PV cells. Interestingly, mass PV cell production developed in China without a parallel development of PV installations. Thus, at least until 2009, the development of the PV industry in China confirmed the necessity to distinguish between technology availability and application. While the technological know-how to produce PV cells for export had been available in China, a comparitively large local market for PV installation did not emerge; the knowledge available did not contribute much to climate change mitigation within the country.
This paper argues that while the earlier successes of the Chinese PV industry abroad were mainly market driven, regulatory bottlenecks suppressed development of the home market. The situation has changed since 2009 due to the repercussions of the global financial crisis, an increasing emphasis on the importance of climate change mitigation and energy security in China, and also technological developments within the country. Overall, while global demand slowed, local demand increased. These more recent developments actually highlight the impact of regulatory support (or the lack of it) for the development of the national PV sector and hence for the larger scale application of this low carbon technology in China. However, even though the Chinese government today does push PV technology use more than before, conflicting interests resulting from regional rivalry and technological path dependency still strongly influence the development of the sector in China, thus leaving some question marks concerning the future development of the sector.
With reference to the discussion on technology transfer, the paper suggests to put less stress on the question whether technologies and property rights may be infringed in the process of technological transfer. Instead it would be helpful to have a closer look on the national innovation system with respect to low carbon development or, as we call it, the sustainability-oriented innovation system.1 If the national innovation system clearly demonstrates a propensity to support the use of low carbon technologies, cooperation in the development of the necessary regulatory framework and institutions may be at least as
1 See Altenburg et al., paper prepared for Globelics 2010.
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important and promising for ensuring low carbon technology usage as technology transfer in the narrow sense.
The paper is organized as follows: Chapter 2 presents a short overview over the existent literature relevant to the topic. Chapter 3 explains the production value chain of PV power production as a background for the in-depth analysis of China PV sector innovation system presented in Chapter 4. The paper ends with a discussion on the ‗lessons learned‘ both for the understanding of China‘s PV sector and low carbon development and the framing of ‗technological transfer‘ in climate change policies.
2 Review of the literature
The underlying argument of this paper is that the idea of technology transfer being a forceful instrument to promote low carbon development may be misleading. This is not to deny that the transfer of technology could be helpful. But the argument here is that a more complex set of factors is needed for the successful application and use of technologies.
This argument is first of all based on insights developed in the innovation system literature. The idea of innovation systems was originally developed in order to better understand the differences between nations in terms of innovative capacity and competitiveness (Edquist, C. 1997). Related analysis showed the complex interrelations between enterprises, public and private actors in science, technology development and innovation, and governments as well as the importance of the institutional environment. Technological development and innovation have to be understood as a complex, messy, non-linear process related to and embedded in economic, social and political developments (Saviotti 2005). This embeddedness of innovation and technology does not allow for simplistic ideas of ―technology transfer‖. Rather it is to be expected that technologies developed in one society and institutional environment, once ‗transferred‘, have to be adapted to and embedded into the environment of the receiving country. The existence or creation of a certain knowledge base is as necessary as an enabling business environment (World Bank 2010). For example, the PV power development in Germany has thrived following not only the development of PV cell and grid connection technologies as such, but also due to the ‗feed-in law‘ for renewable energies. Thus, the attempt to copy the success of PV technology in Germany may less rely on the transfer of the technology as such, but more on copying the attempt to develop a supportive regulatory framework. As institutions such as laws and regulations have to be compatible to the institutional environment of the respective country, again, simply copying the German feed-in law would probably not be sufficient (Savin, J.; Flavin, C., 2004)
Another important insight of the innovation systems literature is – amongst others – that innovation is a relative concept. Innovation can mean ‗new to the world‘ inventions, but more often than not an innovation is rather the application and adaptation of knowledge in a different environment. It is new to the environment, but not necessarily new to the world. This
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is especially true in the context of developing countries (ref.). Innovation is rarely radical but often incremental. In addition, as literature on ‗disruptive innovation‘ has shown, the interesting innovations may result from attempts to redefine a technology by looking for ―cheaper, easier-to-use alternatives to existing products or services‖ that target previously ignored customers. (Willis, R. et al. 2007: 4). Hence, in terms of innovation for low carbon development and their fast diffusion and application, the most promising advances may not come from innovations at the technological frontier as such, but from innovations at the ‗cost frontier‘ that allow to apply and use low carbon technologies at a large scale (Tyfield 2010: 11). Literature on sustainability transitions and systems innovation for low carbon development clearly stress the point that a change in production and consumption modes at a large scale is necessary to achieve the turn to low carbon development. This would be accelerated by the availability of cheap alternatives to fossil fuels, more so perhaps than cutting edge innovation in some specific high tech realms (Ref.).
A special line of research in innovation systems is sectoral innovation systems (Malerba 2004) which explore characteristics of innovation systems related to a specific sector. The reference point of such analysis are the specific knowledge, technologies, inputs and demand within a sector. These features may translate into specific actors constellations and institutions. Different sectors within one country thus may develop certain differences in the respective innovation system. Different from national innovation systems, sectoral innovation systems do not necessarily end at the national borders, depending on the characteristics of the sector and the involved production value chain (Sofka et al 2008: 4). While studies in sectoral innovation system generally speaking focus on the interelations and networks between actors, studies on renewable energy and low carbon development related sectors, emphasize the importance of policy and regulation as the ―single most important driver for innovation in the energy area‖ (Borup et al. 2008:73). Foster et al. (2010:249) stress that ―without proper institutional and market frameworks to operate and maintain renewable systems long term, they eventually fail‖ (see also IEA 2008). Kirkegaard et al (2010) integrate this perspective into an analysis of the global integration of the solar PV sector along the production value chain.
China‘s growing importance in global markets and increasing influence in issues of global concern has also increased the interest in China‘s economy and the factors defining the country‘s competitiveness and its potential to become a ‗technological superpower‘ (Sigurdson 2005). The promulgation of a ‘National medium and long-term development program for science and technology, 2006-2020‘ in 2005 only additionally nurtured related research interest in China and abroad (MOST 2005, Cao et al. 2006 ). In 2008, the OECD has published a large study on China‘s innovation policies, attesting China impressive progress on the road to a ‗knowledge economy‘ (OECD 2008). The main weaknesses of China‘s innovation system identified were the legacy of the planned economy still reflected by the relative importance of state-owned enterprises, rather weak linkages between the private business sector on the one hand and public research institutions/ universities on the other (Liu 2009: 138, Lundvall/Gu 2006). Also the propensity of Chinese enterprises to invest in R&D tends to be rather weak which has been associated with the still weak protection of intellectual
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property rights and strong competition within an environment of weak competition rules, i.e. a lack of an antitrust law (OECD 2008, Li 2008).2
With regards to the development of China‘s renewable energy innovation system in general and the photovoltaic sector in specific, there has been an increase in studies published outside China in recent years. These have been induced by legislation and industrial policies as well as the sudden rise of Chinese enterprises as competitors in the global wind and solar power markets (see for example The Climate Group 2010). The majority of these studies are trying to assess either the potential of the Chinese market or the thrust of Chinese competition in terms of technological development and energy mix targets (i.e. Liu et al. 2010, Marigo 2006). An exception is an OECD study of 2009 which analyzes policies for eco-innovation, including to a certain extent solar energy. Also Marigo/ Foxon/ Pearson (2007)) look into the role and technological know how of Chinese manufacturers in PV cell production from an innovation system research perspective.
Naturally there is a vast body of Chinese language literature on China‘s innovation system, renewable energy sector development as well as PV sector developments. Again the majority of this literature is not theoretic, but either business oriented market research or shorter reports in popular media reporting on sector developments. This latter type of sources is actually of great value for this paper, as these reports reflect rather well the internal discussions in China on policy options and sector problems, sometimes being more open than academic articles on the subject. The number of Chinese academic books and articles reflecting more recent sector developments is actually not that large and often rather descriptive. A weakness shared by all publication on the PV sector related publications is the scarcity of reliable data. This is naturally true for data of 2009 and 2010 for which no official statistics are yet available, but also for earlier data, as renewable energies have for a long time not been part of the official energy statistics. The standards for assessing the PV sector statistically do not seem well elaborated, yet, just as the delineation of different types of use of solar energy (solar water heating, solar thermal, on-grid and off-grid PV power, building integrated solar power production, stand alone PV power stations etc.) are sometimes mixed and sometimes separated in statistical accounts.
Given the developments in recent years, some of the studies (and prognoses) on China‘s PV sector have already been outdated by factual developments. But apart from this, most studies on China‘s PV power sector - both published in Chinese or in English – fail to highlight the embeddedness of the sector‘s development into the overall economic policy framework and industrial policy logics of China more general. The interesting questions (and presumably answers) related to the PV power sector innovation system arise from a more closer look into major regulatory shifts and their impact on sector development, from a comparison with other sectors (for example wind) and from a look at the different administrative levels and how national policies are translated in local policies and strategies. This paper concentrates on the
2 After a preparatory phase of about 20 years, the State Council finally adopted an Antitrust Law 2007 which took effect in August 2008 (OECD 2009a).
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first question that is the insight drawn from major policy shifts, especially the interesting consequences for the more general debates on technology transfer. Some analysis into the role of the regions will be included as the different regional strategies in reaction to central level policies may serv as a proxy to assess the impact of central level policies at a time when statistics are not yet available. An in-depths comparison with the wind sector will not be undertaken though in principal the wind sector is an important reference point to highlight the modest approach to PV sector development taken by the Chinese government until 2009.3
3 Technologies and PVC of PV power generation4
In order to better understand the developments of the Chinese PV sector, it is helpful to look at the sector from a production value chain perspective. The production value chain of the PV industry differs slightly depending on the raw materials used.
The core of the PV energy production value chain is the solar cell. Solar cells are composed of various semiconducting materials, but over 95% of all the solar cells produced worldwide are composed of the semiconductor material Silicon (Si). Three cell types are distinguished according to the type of silicon used: monocrystalline, polycrystalline and amorphous silicon cells. To produce a monocrystalline silicon cell, absolutely pure semiconducting material is necessary. Monocrystalline rods are extracted from melted silicon and then sawed into thin plates. This production process guarantees a relatively high level of efficiency in solar energy transformation. In contrast, the production of polycrystalline cells is more cost-efficient. In this process, liquid silicon is poured into blocks that are subsequently sawed into plates. During solidification of the material, crystal structures of varying sizes are formed, at whose borders defects emerge. As a result of this crystal defect, the polychristalline solar cell is less efficient in transforming solar radiation into energy. If a silicon film is deposited on glass or another substrate material, this is a so-called amorphous (a-Si) or thin film cell.
Silicon is a raw material that is not scarce as such, but has to be purified for PV cell use. In the early times of solar cell production, purified silicon for PV cell use was taken from scrap that came out of silicon production for chips/integrated circuits in the electronics industry. With growing global demand for polycrystalline silicon for PV use, special production facilities became necessary as the amount of scrap left over from the electronics industry was no more sufficient. Purified silicon is first formed into wafers which are used for producing the solar cells. Finally, solar cells are integrated into modules.
Thin film cells are mostly based on silicon, but other semiconductor materials (for example copper indium diselenide (CIS, CIGSS) and cadmium telluride CdTe) are used or tried as
3 Policy support for wind energy development became substantial already in 2003 (Zhang 2010).
4 See Kirkegaard 2010, Foster et al. 2009, PV Group 2009, El-Beyrouty et al. 2009, Yang 2003)
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well. Thin film modules are constructed by depositing extremely thin layers of photosensitive materials onto a low-cost backing such as stainless steel, glass or plastic. Crystalline silicon and thin film technologies to produce modules for PV systems differ in the complexity and energy intensity of the production process, the environmental impact of the production process (or costs to limit these impacts), and in their efficiency of translating sunlight into energy. For example, the production costs of thin film cells are - generally speaking - lower due to the lower material costs. However, the efficiency of amorphous cells is much lower than that of the crystalline silicon cell types. Because of this, amorphous cells are primarily used in low power equipment (watches, pocket calculators) or as facade elements. The technological frontier, as reflected by patenting rates, is concentrated in material sciences to improve thin film efficiency. In addition, advances in material science have opened new avenues for PV technology development such as nanotech and dye-sensitized approaches (which can be painted on to surfaces) (Kirkegaard et al. 2010; see also Menna et al. 2009).
At the upstream end of the production value chain, in the case of crystalline-based technology, the production and processing of silicon and its conversion into wafers requires substantial investment and technical knowledge. As a result, the number of enterprises engaged at this level of the production value chain is rather small. Cell and module production on the other hand is less knowledge and investment intensive, hence the number of producers is much larger. Further down the production value chain, crystalline silicon modules and thin film modules do not differ much. The additional PV systems components (Balance of System components, BoS) such as inverters and battery materials are important components in the PVC of either technology for PV power production. Service and installation of PV systems are usually in the hand of smaller local businesses.
Solar energy produced by PV modules can be used in stand-alone technologies, i.e. cells integrated in electric or electronic products in order to produce the energy needed for this specific product. Small grid applications are also stand alone solutions as the solar energy is fed into a small local electricity network, but not connected to a larger grid which also relies on input from other energy sources. Current discussions on the use and potential of solar energy often refer to PV power fed into a larger electricity grid. On-grid PV power can be produced in specific (larger) PV power plants or by PV power installation connected to existing buildings (on roof tops etc.). Grid connection of PV power production implies considerable technological know how in grid management as PV power input is not produced on demand but depending on solar radiation. Hence this may imply technological upgrading of existing grid infrastructure. This paper ultimately is interested in grid connected production of PV power in China but refers to other aspects of solar energy use were necessary for putting PV power development into perspective.
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4 China’ PV sector development
4.1 Early development of the Chinese PV sector
The roots of the photovoltaic industry in China date back to the 1950s when the first attempts in research were undertaken. Until the end of the 1970s, interest in photovoltaic research was mainly nourished by the potential use of photovoltaic power production in space. The 6th Five-Year Plan (FYP) (1980-1985) was the first to include photovoltaic science and technology projects. A ‗ground solar collaborative group‘ was established in 1983, as was the China Optoelectronics Technology Center, the first specialized research center. Research in crystalline silicon cells and related technologies was then encouraged during the 7th FYP (1986-1990) and the first regional Renewable Energy Association was established in Anhui in 1992. Still, the take-off of China‘s photovoltaic industry only started during the 9th FYP (1996-2000). This was backed by a development strategy for renewable energies in the period from 1996 to 2010 (ref.), the China Light Project (1997) and support by the World Bank and the GEF for the commercialization of renewable energies in China, a project that started in 1999. It was also reflected, amongst others, in the founding of associations for renewable (and new) energies in all major provinces in the years after 1998. During the 1990s and early in the 21st century, the industry‘s focus was on solar consumer goods production (like garden lamps etc.) and electrification of remote rural areas. The 2002 state policy ―Send electricity to the village‖ (送电到乡) spurred progress in photovoltaic power generation to a certain extent, though at a still low level. At the end of 2003, total PV power generation in China was 50 MW5, 36 per cent of which was used by telecommunication and industry, 51 per cent was used as electricity in rural and remote areas, 9 per cent for solar powered consumer goods and only 4 per cent was fed into the power grid.
Also in 2003, China became the largest producer of solar consumer goods globally. By 2010, eleven PV consumer goods producers were listed at foreign stock exchanges, reflecting China‘s growing importance in the global market for PV cells and modules. It has been the fast rise of China‘s solar cell producers that recurrently resulted in media headlines of China becoming the world‘s leading solar cell producer, a ‗threat‘ for other countries‘ PV industry, a ‗global green tech leader‘, and that – as a result – green tech trade wars may be around the corner (Stokes 2010).
This short summary seemingly describes an easy to grasp success story of China‘s photovoltaic sector. But, hidden in the account is an important paradox of solar energy development in China: While the production of PV cells and modules thrived, PV energy generation did lag behind. As can be seen from table 1, annual output of PV cells grew rapidly since 2002, while PV power annual installation only managed to surpass the one time high threshold of 2002 (resulting from the rural electrification policy) again in 2008. In terms of global PV cell production China had a 32,7 per cent share of the global market, whereas
5 China‘s total energy consumption in 2003 was about 19000 GW (Pu, Zhong 2008: 214.).
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annual PV power installation only accounts for 0,7 per cent (2008) of global installed PV power (PV Group 2009, Eurobser‘er 2010).
Table 1: Annual output of PV cells and annual PV power installation in China 2002-2009
2002
2004
2005
2006
2007
2008
2009
Annual output of PV cells (MWp)
10
50
200
370
1087
2589
4676
Annual PV power installation (MW)
20,3
10
5
10
20
45
160
Source: China‘s PV Industry Report 2006-2007; European Photovoltaic Industry Association 2010, Eurobser‘er 2010.
Until recently, even though China‘s demand for energy is large and the potential for using solar energy huge, the prognoses for future PV power installation in the mainland remained low: As lately as 2007, the National Development and Reform Commission (NDRC) still envisaged a cumulative PV power installation for 2020 of only 1800MW. This target roughly equaled the PV power producing capacity of the PV cells produced in China in the year 2008 alone. It could hardly pass as an ambitious target.
Figure 1: Annual and cumulative installed PV power in China
Source: Yan (2009), NDRC 2007
110100100010000100000Annual PV power installedCumulative PV Power installedPrognoses2010 predicted target for 20202008 predicted target for 2010 2007 predicted target for 2020
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Since 2009, the official target for cumulative power installation for the year 2020 has been corrected upward by a dramatic degree. Currently the less ambitious target discussed is 20 GW installed power, while a more daring target of 30 GW is also mentioned sometimes (21st Century Economic Herald (chin.), 4.8.2010). This shift does already and will further influence the development of the PV sector in China. As it is not only a numerical target, but supported by a sudden spur in PV power installation related policy-making at all administrative levels, it underlines the hypothesis that certain incentives and regulations are necessary in order to ensure deployment and use of low carbon technologies (ref.).
4.2 Upgrading along the PVC
Chinese enterprises entered the PV power industry at that level in the global PVC where they possessed the greatest competitive advantage, i.e. the comparatively low cost production of solar cells and module assembly. This cell and module industry experienced a rapid take-off in the early 2000s when two major enterprises, Suntech Power and Tianwei Yingli New Energy Resources, began production. Between 1997 and 2005, while global production in PV cells grew at an average annual rate of 36 per cent, the annual growth of production capacity in China nearly doubled this, growing 70 per cent (Marigo 2006). In more recent years (2005-2008), global production growth outside China was about 33 per cent annually, while China‘s PV cell production still grew about 58 per cent. As a result, China‘s market share in global PV cell production reached 33 per cent in 2008 and 38 per cent in 2009 (Eurobserv‘er 2010).
Until the mid 1990s PV cell production in China was mainly for domestic use, but this changed completely afterwards. By 2009 around 95 per cent of PV cells were produced for exports (Li 2010: 38). In terms of production capacity, four of the ten largest PV cell production companies globally today are of Chinese origin (Suntech, Yingli Green Energy, JA Solar and Trina Solar) (Eurobserv‘er 2010). Most Chinese PV enterprises today are vertically integrated along the core part of the production value chain, i.e. they produce wafers as well as cells and modules.
Until very recently, though, China did not have any substantial or competitive production of silicon feedstock (Li, D. 2009). Globally the market for mono- and polycrystalline silicon used to be dominated by seven large firms located mainly in Japan, the US and Europe. Chinese producers had to import about 95 per cent of the purified silicon used in their PV cell production (Li 2010: 38). Given the importance of imports of raw materials and the large share of production for exports, China‘s role in the global PV industry value chain was basically that of an export-processing PV cell and module producer. As such the PV industry fitted into the popular image of China as ‗factory of the world‘. From the Chinese perspective the PV sector thus is another example of an industry that developed without ownership over the core technological know (He 2010).
The lack of core technologies for the production of crystalline silicon usable for PV production as well as the lack of know-how to produce high quality balance of systems
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components such as power inverters was still mentioned as the major concern of the industry by Chinese industry and research representatives interviewed by the author in early 2009 (see also Mu, Liu 2009:178). The industry feared that PV cells produced in China would not be competitive in the long term due to the dependence on imported silicon feedstock.
However, a change of this situation was already under way. In reaction to the import dependence for silicon feedstock as well as the fast rising prices for purified silicon during the first decade of the new century, and in anticipation of a PV market expansion related to legislation in many industrialised countries supporting renewable energies, numerous Chinese enterprises started to invest in production lines for crystalline silicon. Statistical data on China‘s polycrystalline silicon production differ in detail, but they all reflect the same development. In 2005, while national production only amounted to 60 or 80 tons, the demand for the PV cell production was above 1600 tons. In 2008, the national production had expanded to 4000 to 5000 tons but was lower than the national demand of that year. However production capacity was already said to be around 20000 tons (Zhongguo Dianzi Bao (ZDB), 21.05.2010), indicating a huge growth in production capacity (but also problems in producing high quality polycrystalline silicon) (Li, D. 2009). At the same time, according to official estimations, production lines were in the pipeline that could add another 100000 tons of production capacity. By mid 2009, with these capacities gradually entering the market, discussions about overcapacity in crystalline silicon production dominated the local market discourse (ZDB, 21.05.2010).
The boost in crystalline silicon production was a move to lessen the dependence on imports and to thereby secure and enhance the competitiveness of the crystalline silicon Chinese PV cell and module production in the booming global market. This was supported by related industrial policies formulated in the course of the 10th FYP (NDRC 2007/4, ) that encouraged the development of expertise on PV power technologies not yet available in China, including silicon purification processes and Balance of System components, via research and development as well as cooperation with foreign enterprises. At that time the policy support for the industry was hardly driven by energy and climate change related policies or by local consumer demand. Actually, skepticism concerning the potential and advantages of expanding PV power use prevailed in China. However, supporting silicon purification and BoS components technologies still fitted well into the main policy agenda. At least since 2006, one overall target of economic as well as STI policies was the development of ‗indigenous innovation‘ in order to increase Chinese ownership in core technologies (ZDB, 8.12.2009).
Global market prices for polycrystalline silicon plunged in the first half of 2009 due to the expansion of capacities within and outside China. This development contributed to price declines for crystalline silicon PV cells as well. Price declines also resulted from an increase in capacities and economies of scale in PV cell production. The global financial crisis additionally dampened perspectives for the market in 2009, though with hindsight the impact of the crisis may have turned out to be less dramatic than expected. More recently, changes in the German policy to support PV power installations led to new speculations about global
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market developments in the nearer future. This growing volatility of the market following the silicon production boom on the hand and the global financial crisis on the other hand highlighted the vulnerability of China‘s export-oriented PV sector to the Chinese government. As a result, developing PV power demand within China became part of larger strategy packages of the Chinese government to stimulate domestic demand, change the Chinese growth model and to meet the challenge of energy security.
4.3 Promoting PV power installation in China: The role of regulation
The Chinese ―socialist market economy‖ has evolved from the former planned economy in a process of economic reforms and gradual opening up to global markets. During the 1990s the system of rigid socialist planning was substituted by long-term development programs, guidance plans and industrial policies. The guidance plans are still Five-Year-Plans (FYP). They roughly indicate the targeted development and as such they define in a general way the economic policies for the planning period. Hence the preparation of each FYP is a complex process of information collection and development of prognoses as well as balancing political and economic, sectoral and regional interests. The FYPs provide the basis for important economic legislation and for strategy formulation in different government departments at the national and provincial level, including, for example, guidelines for investment and trade (see figure 2). The implementation is generally in the hand of regional and local governments. A major exception from this rule are those large state-owned enterprises that are under direct supervision of the central government and whose state assets are managed by the State Assets Supervision and Administration Commission (SASAC).
Figure 2: China‘s economic policy framework
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Source: Author‘s compilation
SDRC: State Development and Reform Commission
Due to this general framework of economic policy making, it would be misleading to argue that the PV sector development only entered government strategies in 2009. Actually the development of the sector has been supported by government policies even before 2009 (see also 4.1.) The crucial policy shift in 2009 has been the decision to increase the role of PV energy in the Chinese grid connected electricity mix as a move towards low carbon development and to support the sector that had been hit by the repercussions of the financial crisis more actively. Different from before, the PV power sector development was supported by rather attractive incentive and subsidy schemes at the central government level that helped to gear support for the implementation of the policy at the regional level.
In theory, the promotion of PV power as grid connected energy supply in China started in 2006 when the Renewable Energy Law (REL 2006) that had been promulgated in 2005 came into force. It was accompanied by ―Provisional Administrative Measures on Pricing and Cost sharing for Renewable Energy Power Generation‖. These two regulations established three major principles for PV power installations (Li, D. 2009; Li, L. 2010):
— Grid operators shall enter into grid connection agreements with legally licensed renewable power generation enterprises, buy the grid-connected power produced from renewable energy within the coverage of their power grid, and provide grid connection services for the generation of power from renewable energies.
— The compensation paid to power generators for solar energy fed into the grid should be decided by the government, with the price level following standards defined by the price authorities of the State Council according to the principle of ―reasonable costs plus reasonable profits‖.
— The additional costs occurring from the production and connection of renewable energies shall not be born by the energy producers or grid operators but by all electricity users.
In mid 2007 the SDRC published a ―Long- and medium-term development plan for renewable energies‖ (SDRC 2007) which was followed by an ―11th FYP for Renewable Energies‖ published in 2008 (SDRC 2008). The latter was actually meant as a revision of those parts on the original FYP (2006-2010) relevant to renewable energies based on the policy changes already initiated with the REL and the long and medium term development plan. In detail, though, these plans focused much more on wind energy while solar PV power related targets were moderate at best. Also the above listed principles for PV power purchase by grid operators did not work well. This has been highlighted by a revision of the REL at the end of 2009 which strengthened the duty of grid operators to actually purchase all PV power produced (see Table). As He (2010) complains, the support for the industry by the central government has not been strong, not well coordinated and lacked comprehensive, systemic administrative rules and fine-tuned policies.
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The reluctance by the central government and also some experts to fully support (on grid) PV power installation has several reasons. First, the progress in PV technologies notwithstanding, PV power was still expensive compared to fossil-fuel generated power, but also compared to wind power. Second, until 2009 the dependence on imports of major input factors was seen as a weakness of the industry. Also, third, PV power production did not enjoy a reputation of being environmental friendly or energy efficient. Quite the opposite, some scandals showed demonstrated weak environmental rules and supervision. Last but not least, the PV power production is less concentrated than wind production in China. Arguably this lessened the enthusiasm of the big five traditional power companies to push for PV power.
However, when the impact of the financial crisis on consumer demand in the US and Europe hit the Chinese PV sector, it suddenly became obvious how many enterprise were already involved in the PV production chain. While some sector experts saw the crisis as a welcome wave to wash away some of the smaller, more pollutant and less competitive enterprises in the sector, the central government obviously felt obliged to push the local market for PV power installations (Song 2010). Two major programs were published in the first and third quarter of 2009, the BIPV and rooftop subsidy as well as the Golden Sun project (see table).
Table: Major PV power installation related regulations, 2009 and 2010
Date
Name
Focus
March 2009
National subsidy program for building integrated PV (BIPV) applications and rooftop systems (太阳能光电建筑应用财政补助资金管理办法)
Fixed upfront subsidy of 15-20 yuan per watt of installation
July 2009
Rules for model cities in building integrated renewable energy 可再生能源建筑应用城市示范实施方案）
Model cities at district level can receive 50 to 80 million Yuan financial support for large scale installations of building integrated renewable energy
On average no more than three cities per province should be supported
July 2009
Golden Sun program (金太阳示范工程财政补助资金管理暂行办法)
Main target areas:
- ‗user side‘ grid connected PV power production demonstration projects of large industrial enterprises (BIPV and rooftop)
- (Enhanced) electrification of remote and rural areas (off grid)
- Integration of wind and PV systems
- Large scale on grid PV power plant projects
- Minimum 300 KWp; minimum 20 year use
Subsidies of 50 per cent of total investment for on grid projects; 70 per cent of total investment for rural off grid systems; the program was originally limited to support a total of 500 MW in PV installations but later extended to more than 642 MW.
Dec. 2009
REL Revision (in force since April 2010)
Integration of revenues from electricity surcharge and special government funds into the ‗renewable energy development fund‘
Change of ‗full purchase (of RE power)‘ into ‗guaranteed full purchase of RE power‘
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At the end of 2009, the Ministry of Finance, the Ministry of Science and Technology and the National Energy Bureau published a list of the projects supported by the Golden Sun Program. According to statistics reported in the news, a total of 232 user side grid connected demonstration projects had been accepted, as well as 18 electrification projects for remote areas and 35 large PV power stations (Dongfang Morning Post, 17.12.2010). A list of the projects published on the website of the Shanghai New Energy Industry Association only adds up to 222, 18 and 35 projects respectively (http://www.sneia.org/images/ml.pdf). While ‗user side projects‘ were accepted from 27 provinces and autonomous regions, the large scale PV power plants are concentrated in 14 northern, north eastern and western provinces. In total the projects alone are supposed to about 642 MW in installed PV power over the next two to three years, thus roughly doubling the annual PV installation volume of 2009 (see above table 1).
The provincial (and some city level) governments played an extremely active role in this context. Following the policy change at the national level, within a rather short period of time, several provinces and large municipalities published PV sector development policies or industrial policies. Table 2 highlights the examples of four provinces, but other provinces such as Shandong, Hubei, Hunan, Shanghai, Anhui, etc. also developed similar policy documents (Li, L. 2010). This obviously occurred in reaction to the national policy shift, with, for example, the policies of Jiangxi, Zhejiang and Shaanxi explicitly stating that the provincial government intends to support local enterprises with applications for subsidies/ support from the central government programs. Still the documents vary considerably in the way targets are formulated (volumes, price, efficiency targets), in the instruments envisaged for ‗guiding‘ local enterprises and in the role/ position within the global production chain they strive for. Jiangsu Province, as the most developed location for cell production and module assembly, clearly wants to strengthen its global competitiveness, while the approach of Jiangxi Province follows more traditional lines and vocabulary of industrial policy (‗pillar industry‘) while formulating targets for the industry‘s structure within the province. Zhejiang, as the province that has in the past thrived by private sector development, takes a very market oriented stance, while Shaanxi Province which has traditionally relied on its strong coal industry, intends to translate this legacy and its strong science & technology base into in asset for also developing competitiveness in the PV power sector. Interestingly, Shaanxi‘s policies most explicitly favor cooperation with foreign firms and research institutions.
This difference in attitudes and strategies towards the national programs is also visible from the number of projects these provinces have attracted within the national program: While Zhejiang gained most (32 user side projects), Jiangxi fared rather well with 14. Jiangsu, traditionally the strongest PV sector base was allocated 10 projects. According to some reports, the larger PV enterprises of Jiangsu were not too interested in the programs, submitted proposals only for prestige reasons. Shaanxi only attracted five user-side projects, but was especially successful in gaining 4 large scale PV power plant projects with the largest amount of planned overall of power production.
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Table 2: Examples of provincial industrial policies in reaction to 2009 policy shift at national level
Province
Date
Policy document
Specific targets for PV industry
Remarks
Jiangsu
15.05.2009
Guidance plan for the restructoring and promotion of the new energy industry in Jiangsu
Jiangsu becomes important and competitive national and international model base for R&D, production and usage of RE regional clusters planned:
Xuzhou, Yangzhou, Lianyungang: Silicon production;
Wuxi, Changzhou, Suzhou, Nanjing, Zhejiang:Vertical integrated PV production;
Suzhou, Nantong: thin film cells; Suzhou, Wuxi, Changzhou: PV power production and balance of systems equipment;
Zhenjiang, Taizhou: additional materials and integrated systems
Develop a number of enterprises/groups which own intellectual property rights, famous brands, have strong core competitiveness
2011: 1 kwh < 2Yuan RMB;
2012: 1 kwh< 1Yuan
Jiangxi
21.05.2010
Development Plan for the PV industry of Jiangxi Province
Pillar industry by 2012
Total sales income 350 billion Yuan
Three industrial parks as PV cluster locations
Electricity used for 1 ton silicon production 1%
1 million roof plan (= 1 Millon square meter PV installations)
Shaanxi
31.01.2010
Abstract of the development plan for the PV industry of Shaanxi
Use the opportunity of global rush into RE and development of PV
Develop Shaanxi into an important national base of PV industry
Develop six local PV industry clusters
2012: 1 kwh PV power =1 yuan
2012: PV power installation = 500 MW focus on specific enterprises with different background and nationality, attract investment by major other players/ Joint ventures focus on PV/new energy related equipment focus on economies of scale strategic partnership with US firm 'Applied Materials ' focus on STI
3.12.2009
Some views of the Shaanxi government on further accelerating the development of new energies
Source: Author‘s compilation
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 gold rush feeling
Major policies pending/delayed: RE restructuring and promotion guidance plan announced in spring 2009, expected in early 2010, again postponed. Will be published as part of ‗newly arising industries plan‘.
Crucial issues: Feed-in tariff, PV technologies supported, cooperation with foreign investors, private and public enterprises‘ competition
Role of innovation/STI policies
5 Challenges of PV sector development in China: Lessons learnt for low carbon development?
Regulatory environment/ incentive structures/ capacity building important
China‘s specific risk: old reflexes in policy making (good for RE development, not necessarily so in economic terms)
General RE risk: Gold rush danger: is low carbon = sustainable?
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