China’s Renewable Power Installations to Maintain Robust Growth in 2023

China will continue increasing the deployment of renewable power in 2023 after the installation of wind and solar power capacity rose 22% in 2022 on strong demand, lower raw-material costs, and a low-base effect for wind power, says Fitch Ratings.

Solar panel installations rose 59% to 87.4GW in 2022, according to the National Energy Bureau (NEB). The surge was largely demand-driven due to elevated coal prices, which made solar power more attractive in terms of cost and availability. Distributed solar power, which is installed directly by electricity users and better reflects demand changes, accounted for most of the installations in 2022 after surpassing utility-scale power, solar farms owned by power generation companies, for the first time in 2021 amid a nationwide power shortage. Most of the distributed solar power was installed in provinces with energy-intensive economies such as Hebei, Shandong, Zhejiang and Jiangsu in 2022 instead of those with more abundant sunlight.

Utility-scale solar power is also catching up. Strong demand from distributed solar power led to rising photovoltaic module prices in most of 2021-2022, raising investment cost and discouraging investment in solar farms. However, module prices have dropped sharply from around CNY2/watt in October 2022 to around CNY1.7/watt currently after an increase in upstream polysilicon capacity, which will raise solar farms’ project returns and attract more investment. The NEB expects China’s solar power capacity to reach 490GW by end-2023, which implies robust new installations of 97GW in 2023.

We believe wind power installations are set to recover after two years of decline to 37.6GW in 2022 and 47.6GW in 2021 from 71.7GW in 2020. The decline was largely due to the phasing out of subsidies. The cancellation of subsidies to onshore wind farms, effective from 2021, caused installation to jump by 189% yoy, or 68.6GW, in 2020, followed by a sharp drop of 55% in 2021. Similarly, offshore wind installations declined to 4.1GW in 2022 after surging 450% yoy to 16.9GW in 2021. In addition, the Covid-19 pandemic halted construction during a severe breakout in 4Q22 after installations grew yoy in 9M22.

We expect a strong rebound in installations as the hangover after the rush of installations diminishes. A decrease in turbine costs and higher electricity prices have also improved the capital return of wind farms. Concord New Energy Group Limited (BB-/Stable) lowered its average levelised cost of energy to CNY0.233/KWh by end-1H22, which is competitive versus the coal power tariff of CNY0.4/KWh or above. The NEB forecasts wind power installations to rebound to 65GW in 2023.

Large state-owned power generation companies remain committed to China’s energy transition and are the largest investors in renewable power. China Huaneng Group Co., Ltd. (A/Stable) and China Huadian Corporation Ltd. (A/Stable) both target an increase in renewables to 50% of total capacity by 2025 from roughly one-third at end-2021, while State Power Investment Corporation Limited (A/Stable) already achieved a 65.8% ratio in 2022.

Their commitment is reflected in the robust equipment bidding market; 446 wind power projects with a total capacity of 87GW completed equipment bidding in 2022, compared with around 60GW in 2021, according to Windmango, with 84% of them owned by central state-owned enterprises (SOEs). According to Solar.IN-EN.com, central SOEs, including contractors, invited equipment bidding for a total of 155GW in solar projects in 2022. The active bidding bodes well for new installations in 2023.
Source: Fitch Ratings