China’s rapid build-out of solar power, driven by low equipment prices and strong policy support, is experiencing a slowdown as grid bottlenecks, market reforms, and a shortage of optimal rooftop space create hurdles.
In 2023, China expanded its solar fleet by an impressive 55%. However, this momentum has started to wane, with new solar installations dropping 32% year-on-year in March 2024 to the lowest level in 16 months, according to official data and Reuters calculations.
The primary factors slowing the expansion of distributed solar – installations built near the point of use, mostly on rooftops – are the lack of sufficient storage or transmission capacity to absorb the excess power generated when the sun is shining. This has led regulators to scale back the price support that previously fueled the rapid growth of distributed solar.
Regions that were heavy adopters of distributed solar, such as Shandong in the north, are particularly affected. State broadcaster CCTV reported that up to 50-70% of distributed solar generation is being curtailed in Shandong, meaning grid managers have had to stop that amount of supply from entering the grid to maintain demand-supply balance.
China has aimed to limit renewable energy curtailment to 5%, in line with rates of 1.5-4% in most major markets, according to the International Energy Agency. However, a survey by China’s energy regulator found that five out of six provinces expected to impose restrictions on new distributed solar projects in 2024 due to grid saturation.
The problem has also hit other provinces that were among the “three big drivers” of distributed solar, such as Hebei and Henan, where installations have seen an “absolute collapse,” according to Cosimo Ries, an analyst at Trivium China.
In addition to grid challenges, changes in electricity pricing and market reforms have also dented the economics of new solar projects, further slowing the country’s solar power expansion.
Forecasts show that China’s solar build this year will be heavily outpaced by the growth in its photovoltaic (PV) module manufacturing capacity, raising the prospect that the country will export more solar panels despite trade tensions with Europe and the U.S.