China has discovered its huge solar subsidies not only don’t make sense but lead to ever higher electricity prices, so they’re now changing direction.

On June 1, 2018, China, the world’s largest solar market, announced changes to its solar subsidies, causing estimates of its future solar construction to be slashed. China will terminate approvals for new subsidized utility-scale photovoltaic power stations in 2018. The country will also reduce its feed-in tariff for projects by RMB 0.05 per kilowatt-hour ($0.0078—less than one U.S. cent), limit the size of distributed projects to 10 gigawatts (from 19 gigawatts), and mandate that utility-scale projects go through auctions to set power prices. Projects connected to the grid after June 1 will not receive feed-in tariffs.

The changes to China’s solar subsidies are expected to lower its future solar capacity additions by about 20 gigawatts or up to 40 percent. These changes are expected to reduce China’s solar capacity forecast to between 28.8 gigawatts and 35 gigawatts, depending on the forecaster.

China became the world’s leader in solar capacity three years ago. In 2017, it accounted for nearly 54 percent of global photovoltaic installations with subsidy costs totaling RMB 100 billion (about $16 billion). China is in arrears regarding those subsidies, which is the reason for the need to cut them along with its desire to reduce electricity prices by 10 percent. One forecaster (Wood Mackenzie) estimated that the subsidies could reach RMB 250 billion (about $40 billion) by 2020 if China took no action.

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