China is the largest residential PV market in the world, and this trend is only expected to strengthen in the next few years. By July 2021, China''s cumulative installed residential PV capacity had reached more than 30 GW, with a total of 1.864 million residential units hosting solar PV systems. IHS Markit''s Holly Hu looks behind these impressive numbers.
From pv magazine 10/2021
China''s residential PV market has experienced a major boom since 2019, when a specific budget and fixed feed-in tariff incentive was announced, which also facilitated access to grid connection. In the last three years, a clear and strong financial model has triggered the emergence of an increasing number of prosumers who benefit from the program.
Residential demand was weak until 2016, but in 2017 several programs promoting distributed PV were announced, including a lack of quota limitations for residential installations and fixed budgets, awakening this sleeping giant.
In the first seven-months of 2021, China installed 7.66 GW of residential solar, with close to 1.8 GW installed in July alone. The market is taking advantage of the relatively generous and fixed budget of CNY 0.5 billion ($77.5 million) and a subsidy of CNY 0.03/kWh. Indeed, the residential market is the only segment that remains under any type of national-level subsidy program.
In this favorable environment, IHS Markit estimates residential demand will reach another record year, with nearly 17 GW installed in China by the end of this year and close to one-third of the total installations in China in 2021. The market share for residential installations has never been larger, as shown in the chart (bottom left).
Compared to other regions, China''s residential segment has some unique attributes. The average size of residential installations is far greater than in other regions. The increase in the average size of residential installations is a global trend also present in other markets (e.g., the United States) but no other country gets close to the trend in China. The national average for residential installations grew from 10 kW/system in 2018 to 21 kW/system in 2020 to get the most of separated budget assignation and standalone subsidies. Higher module power that moved from an average of 350 W to more than 400 W in the same period has also helped to consolidate this trend and optimize rooftop space.
Installations are not evenly distributed across the country, but highly concentrated within three provinces. According to IHS Markit''s latest report, Shandong, Hebei, and Henan have accounted for nearly 75% of residential installs since 2019. The main drivers for the concentration of installations in these provinces are (i) higher solar resources than other provinces, with average solar irradiation around 1,250 hours/year; (ii) large rooftop space availability in rural areas and high density of rural residences, and (iii) local financial institutions supporting residential PV programs in these provinces, and (iv) relatively higher residential electricity prices.
Finally, there are three major types of financing model in this segment, especially in the largest province, Shandong province. The first includes financial leasing, which is not the main model in Shandong, but quite favorable in Zhejiang and other eastern provinces. The latter includes 100% payment of the installation by the residential owner, which is the easiest and safest source of finance. However, the total capex of the system is the most important factor to consider. The third and preferred option, "mortgage loan," is the most used in Shandong province, where local banks and residential developers will give service, with less (initial) downpayment from residents.
The growth of the residential segment has been exponential since 2012. However, there is increasing uncertainty in the market about the future of residential solar in China once the current program is phased out next year, which means that the residential segment will also be included in the grid-parity umbrella, as is the current status of commercial and utility installations. Despite the elimination of the direct subsidy, IHS Markit forecasts this segment will continue having an important market share throughout the 14th five-year plan (2021-25) period. The main driver will be a new policy program to stimulate rooftop development in pilot counties, that was announced at the end of June.
The program states that at least 50% of party and government buildings in the pilot counties must have rooftop PV installations, as well as a minimum of 40% for other public buildings like hospitals, more than 30% for C&I buildings, and 20% for rural residences. In early September, the applied cities/countries list was announced by the National Energy Administration, with 676 places to develop residential and C&I segment solar systems on their roofs. With this policy scenario, IHS Markit projects residential installations will fall year on year in 2022 to quickly resume growth from 2023, with an increasingly diverse installation base across China.
About the author
Holly Hu, senior analyst at IHS Markit, is responsible for tracking and analyzing solar policies and markets in Asia, particularly China and Japan. She also provides in-depth coverage of the polysilicon-to-photovoltaic-module supply chain, with a focus on Chinese manufacturers. Before joining IHS Markit, Hu was the manager of the business development department at Trina Solar, where she provided market intelligence and analysis of industry rivals.
The views and opinions expressed in this article are the author''s own, and do not necessarily reflect those held by pv magazine.
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Recently, the National Energy Administration released data on photovoltaic (PV) power construction for the first half of 2024. As of June 30, 2024, China added 102.48 million kilowatts of new PV installations, an increase of 24.057 million kilowatts compared to the 78.423 million kilowatts added in the first half of 2023, representing a year-on-year growth rate of 30.67%.
The breakdown shows that 49.6 million kilowatts of new centralized PV installations and 52.88 million kilowatts of new distributed PV installations were added in the first half of the year, with distributed PV capacity again surpassing centralized PV. Excluding the 15.85 million kilowatts of new residential PV, the new commercial and industrial distributed PV capacity was 37.03 million kilowatts. Compared to the same period last year, when the residential share was 52.54% and the commercial and industrial share was 47.46%, this year saw explosive growth in commercial and industrial distributed installations.
The slowdown in residential PV growth in the first half of the year was mainly due to the "stall" in major residential PV provinces. Jiangsu, Anhui, and Shandong were the top three provinces for new residential installations in the first half of the year, adding 5.052 million kilowatts, 1.923 million kilowatts, and 1.382 million kilowatts, respectively.
Compared to the same period last year, we noticed that in nine provinces—Anhui, Shandong, Hebei, Shanxi, Henan, Fujian, Jiangxi, Hubei, and Hunan—residential PV installations declined significantly, except for Jiangsu, Shaanxi, Liaoning, Zhejiang, Guangdong, and Inner Mongolia. Henan saw the fastest and largest reduction in new residential installations.
The deeper reasons for the decline in new residential PV installations in the first half of 2024 lie in the imbalance of regional development in residential PV. In areas like Shandong, Hebei, and Henan, the grid capacity for residential PV is overloaded, limiting grid connectivity. Another reason could be the depletion of high-quality customer resources in these areas.
The cooling of the residential PV market is not related to the market itself. With the backdrop of price reductions across the entire industry chain, the bidding price of PV modules by central and state-owned enterprises has dropped to 0.80 yuan per watt, and the comprehensive investment cost of residential PV power stations is about 1.9 yuan per watt, improving the economic viability of investing in PV power stations. The enthusiasm for installations in the market remains high.
However, since the first half of 2023, grid connection difficulties have affected more than ten provinces nationwide, with nearly 400 counties experiencing red zones of low-voltage capacity. Many regions have temporarily halted the filing of distributed PV projects. The issues of filing and grid connection for residential PV have become roadblocks inhibiting terminal installation demand.
According to public information, 37 counties in Guangdong face absorption difficulties, 73 counties in Shanxi have no distributed absorption capacity, more than 70 county-level administrative regions in Henan are in the red zone, more than 20 counties in Liaoning are in the red zone, 81 county-level units in Heilongjiang are in the red zone and have suspended distributed access, 37 counties in Shandong have no absorption capacity, 4 pilot counties in Fujian have no available capacity, and 53 counties in the Southern Grid of Hebei have no absorption capacity.
From the above information, it is evident that grid connection issues have affected residential PV installation in major provinces like Shandong, Hebei, Henan, and Fujian, directly leading to a sharp decline in installation volume in these provinces, regions, and cities in the first half of the year.
Currently, with unresolved issues such as difficulties in filing and grid connection, it is challenging for the residential PV market to improve in the second half of the year. Given the current industry situation, it is expected that the 43.483 million kilowatts installation volume will become a phased high point for the residential market, unlikely to be surpassed within the year. Theoretically, after three consecutive years of rapid growth, the residential PV market needs a short-term adjustment period as a necessary step in its spiral upward process. During this adjustment period, we need to take time to buffer and resolve the problems accumulated during rapid development.
For example, residential PV manufacturers, distributors, and agents can innovate business models and explore more application scenarios. Functional departments can delve deeper into solving issues related to absorption, filing, and grid connection, accelerate the implementation of rural grid renovation projects, comprehensively improve the carrying capacity of rural power grids, and explore more solutions to promote absorption.
As of the first half of 2024, China''s cumulative residential PV installation capacity was 131.84 million kilowatts, or 131.84 GW. With the potential residential PV market installation capacity estimated to reach 1000 GW, equivalent to the installed capacity of 46 Three Gorges Dams, there is a potential incremental space of 868 GW, indicating enormous growth potential with a growth space of 7.5 times.
Source：Grassroots PV,abridged
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