China’s recent power market reform likely to boost short-term solar PV demand

A rush of new renewable power installations is anticipated following China's recently announced power pricing mechanism, which could strengthen short-term solar PV demand in China and internationally, according to S&P Commodity Insights analytics and market analysts.

Late Feb. 9, the National Development and Reform Commission in China announced a new renewable power price settlement mechanism to enable new renewable electricity plants to participate in regional power markets.

"The measure is an important nudge to China's renewables industry toward full market trading, which we believe will make the sector more competitive, but also more volatile," S&P Global Ratings said in a report analyzing the impacts of this policy.

Previously, China's renewable power generation was supported by the guaranteed offtake mechanism. This system required grid companies to regularly purchase a fixed volume of renewable electricity from suppliers at a price determined by coal-fired electricity prices.

In contrast, under the newly launched mechanism, although a benchmark renewable price will still apply for each regional power market, the rate will no longer be based on coal-fired electricity prices but will reflect the renewable power market's supply and demand.

A rush of new DG solar projects expected

For projects completed before the new mechanism's formal implementation on June 1, the central government has allowed provincial governments to design bespoke implementation rules and still provide some price support to ensure a smooth transition, according to the report.

"The new mechanism is likely to lead to an uptake in solar installations in the first half of 2025 before the policy enters into force as companies aim to secure a fixed pricing agreement," said Belinda Schaepe, China policy analyst at the Centre for Research on Energy and Clean Air (CREA).

Qi Qin, China analyst at CREA, said: "This urgency to avoid potential revenue uncertainties under the new policy could lead to a short-term surge in solar module demand, pushing up prices."

Jessica Jin, principal research analyst of Clean Energy Technology at Commodity Insights, noted that following large inventory reductions in Q4 2024, heightened demand could provide "strong support" for module price increases.

"[Solar PV module] prices are most likely to get the chance to rebound once demand increases," said Jin.

The size of the solar market in China means that a domestic increase in module prices could lead to prices rising globally.

"[The] global price trend might have a bit of delay, but won't be different from the trend in China, except the US and India, which have different supply/demand situations [due to] high tariffs," Jin added.

Module prices had already begun to strengthen in mid-February. Platts, part of Commodity Insights, assessed Topcon utility-scale solar modules FOB China and DDP Europe at 9.6 cents/W and 10.7 cents/W, respectively, on March 6 for volumes of 5-50 MW – both 7% higher than in early February.

Rising prices could lead to higher demand, as developers may look to secure stock at the current price in anticipation of further increases.

However, some market participants see the current increases as short-term and believe they are unlikely to continue past Q3.

Demand outlook for solar in 2025

According to a recent analysis by Commodity Insights, utility demand is also "very promising this year as the Phase 2 & 3 megabase projects are progressing on track," said Jin.

Commodity Insights' project tracking showed that nearly two-thirds (65.3 GW) of the first wave of renewable megabase projects are expected to commission on time, contributing 148 TWh of renewable power from 2024 onwards.

"We would expect a flip in Q3 for installation but bounce again in Q4 to finish utility projects," added Jin.

"While in terms of shipments, the trend could be a bit different as shipments should go ahead of installation so we would expect shipment in Q3 to be slightly down or even flat compared to Q2."

In the longer term, whether the demand for China's solar PV modules can continue growing depends on a comprehensive improvement of the photovoltaic industry's entire ecosystem.

"The rapid solar capacity expansion over the past two years has further highlighted existing challenges in effectively integrating solar power into the grid and increasing its share in the power mix," said Qin.

"If these challenges—particularly related to grid flexibility and power market reforms—are not adequately addressed, they could constrain future solar installation growth and, in turn, limit domestic solar module demand."

During China's biggest annual political meeting, Two Sessions, Premier Li Qiang called for accelerating the development of utility-scale solar and wind projects in the country's rural areas, expediting the development of cross-provincial power transmission channels to address the supply-demand imbalance in individual provinces, and proactively addressing trade barriers related to clean energy products.

The government's message has been seen as a signal to address the industry's pain points and support long-term demand growth for solar PV modules in both domestic and overseas markets.