What China’s solar policy shift means for Nigeria and other developing countries

What China’s solar policy shift means for Nigeria and other developing countries

China, the world largest PV market is forcing a major global trend in the solar industry.  

In June, China slashed its subsidies on utility-scale solar installation reducing feed-in tariff by RMB 0.05 per kilowatt-hour and discontinuing feed-in tariffs for new projects connected to the grid. According to analysts, this is expected to reduce local demand for solar panel in China as the development of new large-scale solar generation bases slows down.

Consequently, Chinese solar panel manufacturers who currently generate about 40% of sales in China now have two choices – scale down production or scale up international sales. With Gigawatts of production input and inventory already in stock, the latter is more likely to happen and at a lower cost.

For these manufacturers, the race to capture international markets has already begun, leading to steep fall in the price per watt of solar panels.

US, European Union have already imposed heavy duties (as high as 30%) on Chinese solar panels. India, the largest importer of Chinese solar panels, slammed a 25% safeguard duty on Chinese and Malaysian solar panels in July in a bid to protect local manufacturers. These countermeasures are expected to reduce the demand for Chinese panels in these countries owing to the “artificial” price increment. In light of these developments by these leading importers of Chinese panels, there seems to be one major market segment left for these OEMs – developing countries.

This is a big win for developing countries who currently do not have local PV manufacturing capacity and already rely on imports to meet local PV demands. Essentially, a rock-bottom price of solar panel means a reduced capital expenditure for solar projects considering that panels represent about 20 – 30% of CapEx.

Lower CapEx will accelerate the rate of solar technology adoption in emerging economies like Nigeria especially as developers in this county rally to build large-scale solar generation assets to meet the energy demands of the country.

As a mini-grid developer working actively to alleviate energy poverty in Nigeria, we expect this to further increase energy access in Nigeria as we and other developers benefit from reduced CapEx and eventually reduced payback period and higher IRR on projects.

How developing countries respond to this move is critical in shaping the industry globally. Whatever happens, two things are almost certain – lower prices and increased demand in the short term. The long-term effects of this are left to be seen.