This is an extract from Solar Power Europe’s recent report “Global Market Outlook For Solar Power 2023 – 2027”. This report extract focuses on solar power developments and outlook for China and Japan.
In 2022, China’s new installed PV capacity exceeded 87.4 GW, an increase of 59.3% year-on-year. New solar installations reached a new record high, becoming the largest and fastest growing power source in terms of new installations. From the amount of installed capacity, it is evident that the rate of new PV installations in China continues to accelerate. By the end of 2022, the cumulative PV capacity reached 392.6 GW, close to the 400 GW milestone, becoming the third largest installed power source. In 2022, PV annual power generation reached 425 TWh, exceeding 400 TWh for the first time, and added about 100 TWh of new power generation. This accounted for 30% of all new power generation.
The manufacturing sector also continued to grow in 2022. By the end of the year, China’s polysilicon production stood at about 827,000 tonnes up 63.4% from 2021; wafer production reached 357 GW, an increase of 57.5%; while module production reached 288.7 GW, up 58.8%. Battery production totalled 318 GW, representing an increase of 60.7% from 2021.
National targets for solar PV
In April 2023, the National Energy Administration issued the “Guidance on Energy Work in 2023”, providing guidance on the deployment of energy work in addition to development targets. The document highlights a 160 GW target for the annual installed capacity of solar and wind for 2023, with the share of electricity generated by solar and wind power reaching 15.3% of the country’s total electricity consumption.
2023 will also be a key year in China’s 14th Five-Year Plan. The country will concentrate on consolidating the advantages of the PV industry and expanding the supply of clean, low-carbon energy. There will be an overall push for China to transition to low-carbon energy, both at the local and national level.
Drivers for solar growth
The State Council issued the “Implementation Plan on Promoting the High Quality Development of New Energy in the New Era” to provide policy support for the industry. The construction of large solar and wind capacities in desert areas will bring more opportunities to push the acceleration of solar.
Solar power can integrate seamlessly with various sectors, including construction, transportation, and agriculture. These dual land-use projects allow for the exploration of new PV applications, further broadening solar development. The centralised and distributed solar segments are both becoming key pillars to promote the development of the industry.
Utility-scale vs. distributed and rooftop developments
In 2022, centralised PV installed capacity reached 36.3 GW, accounting for 41.5% of all installations. The distributed PV annual installed capacity hit 51.1 GW, providing the remaining 58.5% share. Distributed PV has, thus, become the main driver behind the country’s newly installed PV capacity. The residential segment installed 25.3 GW, accounting for 49.4% of installations, while the C&I segment added 25.9 GW, accounting for 50.6% of installations. Residential installations grew by 17.3% from 2021.
China’s 2022 PV market was well-balanced, and each market segment – centralised, C&I, and residential – accounted for about one-third of the total market.
Challenges for the market
The participation of new energy sources in electricity spot market trading, has caused fluctuations in electricity prices. Unlike medium and long-term trading, spot power market trading altered the previous business model. Additionally, different provinces have different rules for spot power trading, making it difficult to predict PV revenues, which is becoming a new challenge. In the future, under the spot market system, electricity prices will vary because of time and space. Therefore, PV enterprises need to break away from the fixed-price profit model, and explore ways to participate in spot market trading of PV power generation.
Outlook for the years 2023-3027
New installed capacity numbers will grow rapidly if PV power generation costs continue to fall, and the global green recovery continues. In 2022, China’s PV industry made significant progress both in terms of manufacturing and installations. The Chinese Photovoltaic Industry Association expects China’s installed PV capacity to reach 95-120 GW in 2023. Each individual segment should also hit new records.
Changes can be expected in 2023. With the balancing of supply and demand, supply chain prices will gradually return to a reasonable range. Secondly, with the development of PV technologies, production capacity will expand, and the proportion of high- efficiency cell technologies will increase.
PV companies will have to consider two factors. Firstly, industry competition will intensify as more markets develop their local PV manufacturing supply chains. Secondly, new energy sources will continue to participate in power market transactions, and as a result, companies may question the revenue potential of PV power projects.
Overview of PV developments
Having achieved record capacity addition of 10.8 GW in 2015, the Japanese PV market has been on a downtrend following the reduced FIT support for solar PV. In 2022, Japan installed around 6.5 GW of new solar PV capacity, roughly the same capacity as in 2021. The cumulative installed capacity at the end of 2022 reached 84.9 GW. Even with the reduced FIT support, Japan’s PV market is expected to start trending upward again from 2023, due to the growth in residential and industrial rooftop markets, and new corporate renewable Power Purchasing Agreement (PPA) models. Japan’s emissions reduction target of 46–50% by 2030 will require a large increase in the share of renewable energy, in particular solar PV.
Japanese solar and renewable energy targets
• The government’s PV target: According to the ‘Long-term Energy Supply and Demand Outlook’ (Energy Outlook) published by the Ministry of Economy, Trade and Industry (METI) in 2015, the cumulative installed PV capacity target for 2030 was 80 GW. This ‘old’ target was increased by METI to around 147 GW (118 GWAC) in its most ambitious scenario to meet the new carbon reduction target of up to 50% by 2030.
• Renewable Energy Target: In July 2021, METI announced new plans to significantly increase the renewable part of its energy generation mix to 36- 38% by 2030, from 20-22% before.
• Japan Photovoltaic Energy Association’s (JPEA) vision (PV OUTLOOK 2050): In JPEA’s PV OUTLOOK 2050, released in May 2020, the cumulative installed PV capacity was expected to be around 120 GW (100 GWAC) in 2030. However, in accordance with the new national GHG reduction target, JPEA has revised this 120 GW target upwards to 154 GW (125 GWAC) by 2030. This new, ambitious target – which is 7 GW higher than METI’s projection – means, on average, that around 8.6 GW solar PV will have to be installed every year from 2023 until 2030.
Drivers for solar growth in Japan
The FIT scheme has been the strongest driver of solar growth in Japan since its introduction in July 2012. However, the relevance of this FIT scheme has decreased, and a more market-oriented Feed in Premium (FIP) has been introduced in April 2022. Instead of setting a fixed feed-in tariff rate, the FIP scheme allocates a certain amount of premium in addition to the wholesale electricity price. This way, the remuneration level is connected to the current electricity prices. The new FIT/FIP scheme is expected to be a new driver for solar demand. Under the new framework, larger projects will be subject to the FIP remuneration, while the FIT is maintained for smaller systems.
The ‘self-consumption business model’ for commercial and industrial users is growing rapidly in Japan. On-site, self-consumption PV systems are becoming more attractive to business users, as the LCOE of PV power generation is already competitive with the retail electricity prices of commercial and industrial users.
An additional driver to solar growth stems from policies setting PV mandates for new buildings. The Tokyo Metropolitan Government, and Kawasaki City, will make it mandatory to install PV systems on new buildings, including detached houses, starting in 2025. If similar installation mandates spread to municipalities across the country, the PV market, especially residential rooftop, will expand significantly.
In addition to the needs of renewable energy users, the PPA model is beginning to gain traction in the Japanese PV market, driven by government subsidies and rising electricity prices.
Utility-scale vs. distributed and rooftop solar developments
In 2022, new residential PV (below 10 kW) capacity additions totalled 1.0 GW, up from 0.8 GW in 2021. We expect this segment to grow further, supported by the FIT and various subsidies for net-zero energy houses (ZEH), battery systems, etc. Beyond 2025, municipal PV installation mandates for new buildings, including those from the Tokyo Metropolitan Government and Kawasaki City, could be a strong driver of residential rooftop market growth.
Distributed solar PV under 1 MW, mostly ground- mounted, is on a downward trend since 2016, mainly due to reduced FIT support. This segment requires a business transformation, for example, from a simple ground-mounted system, to a self-consumption system integrated with renewable energy users’ and/or local community’s energy demand. The segment is also expected to grow again with the growth of corporate PPAs outside the FIT scheme.
Large solar PV systems of 1 MW and above, including utility-scale systems, are also trending downwards. In addition to the FIT termination, power grid constraints and land availability have also contributed to reduced demand. This segment is likely to start growing again in the medium term, as soon as these constraints are overcome, and with improved cost competitiveness. Following the introduction of the FIP regime, many investors and developers are preferring to wait due to the significant uncertainties about future electricity prices. At the same time, they are turning more and more towards on-site PPAs.
• Smooth transition from FIT to FIP: FIPs were introduced in 2022 as a mandatory incentive mechanism for large-scale solar PV (500 kW and above from 2023), and optional for distributed solar PV (50 kW – 500 kW from 2023). One of the biggest challenges for the industry and for policymakers is the smooth transition from FITs to more market- oriented FIPs.
• Business model transformation: The role of FIT/FIP will gradually shrink in the coming years. With the emergence of PPA type business models, this decade will see the transition towards a market growth with little reliance on the FIT/FIP regime.
• Grid constraints: Limited grid capacity and curtailment risks are the primary causes for the downward market trend in Japan. METI has taken several mitigation measures to maximise grid capacity with existing assets, such as the ‘Connect and Manage’ programme for transmission and distribution grid levels. Moreover, METI has developed the long-term grid expansion programme to accommodate large amounts of renewable energy.
• Land availability: New business models without dedicated land space (e.g., on-site self- consumption models), and utilisation of unused/abandoned farmland are a solution to the limited land availability problem. To date, conversion of unused/abandoned farmland to solar farms is very limited as it requires strict legal procedures, and the local authorities’ permission. The government is now tackling those constraints by reforming existing laws and regulations.
• Cost competitiveness: The cost of solar PV in Japan is still significantly higher compared to average international levels, mainly due to expensive construction and soft costs. Reduced CAPEX (mostly construction costs) and a longer PV lifespan (e.g., from 20-year life to over 30 years) are key goals for the industry. The FIT for a ground mounted PV system between 10 and 50 kW was set at 10 JPY/kWh (0.068 EUR) and 9.2 JPY/kWh (0.062 EUR), for systems from 50 kW to 250 kW. The government targets a solar PV LCOE of 7 JPY/kWh (0.047 EUR) by 2028.
The complete report can be accessed here