Unreliable income becomes the biggest concern for photovoltaic power plants

With the declining profits of polysilicon and battery modules, investment in photovoltaic power plants has surged. However, the key challenge remains the stability of revenue, which has become a major concern for many projects. The Tianhua Sunshine 30MW project in Alar City is an example of a successful integration into the local grid. By leveraging the local power network, it bypassed many bureaucratic hurdles. Liu Ming, chairman of the First Division Power Company of the Xinjiang Construction Corps, explained that the city's integrated electricity and grid system allows unified management of generation, transmission, and distribution, saving time and reducing procedural delays. The Corps also plans to connect its grid to the national network through the South Xinjiang branch to manage surplus power effectively. But not all local grids are as favorable. In many regions, conflicts between the State Grid and local grids persist. For instance, the Mengxi Power Grid in Inner Mongolia accounts for over 60% of the region’s more than 70 million kilowatts of generating capacity. Despite having a surplus, only about 4 million kilowatts are currently exported—less than 10% of its total output. Yang Xi, deputy general manager of Mengxi Power Grid, noted that since the 2002 power reform, installed capacity has nearly doubled, but outbound transmission channels have not kept pace. To export surplus power, the grid must rely on the North China Grid, the only large-scale channel available. As a result, the amount of electricity that can be sent out depends largely on the purchasing capacity of the Huabei Network. Experts warn that while integrating with local grids can be beneficial, it also presents risks. Wang Runchuan, a senior PV analyst, emphasized that photovoltaic projects must consider the entire region’s grid absorption capacity. Similarly, Wang Shijiang from the China Photovoltaic Industry Alliance pointed out that local grids are often unstable and less reliable, making their integration a complex issue. Profitability in the PV sector remains uncertain. Many companies, including those from finance and real estate, have entered the market, expecting a 10% profit by simply selling electricity after installation. However, challenges like site selection, design, and construction remain underdeveloped. Moreover, capital requirements are high—investing in a 1GW photovoltaic plant costs around 10 billion yuan, with at least 2–3 billion in own capital needed. Tianhua Sunlight’s chairman, Su Weili, highlighted two critical issues: whether non-self-consumed electricity can be fully purchased, and how long the electricity price policy will last. These uncertainties make it hard for companies to predict returns, creating an unstable business model. Looking at countries like Germany and Italy, they have achieved success through stable feed-in tariffs and fixed purchase prices, which help both grids and investors plan effectively. This approach is seen as more sustainable than administrative mandates. Analysts like Tang Xiaodong from Monita Investment believe that a dedicated PV grid-tied tariff system is unlikely to be introduced soon due to high costs and existing grid challenges similar to those faced by wind energy. Currently, the sale of photovoltaic power plants is still in its early stages. Wang Runchuan noted that buyers are hesitant due to uncertainty around FIT durations and the quality of power stations. Insurance and other potential investors remain cautious. Li Chengbiao from Industrial Bank’s Sustainable Finance Department stressed that ensuring profitability requires clear policies, reliable sales channels, and strong asset protection. While the leasing model has gained traction in Europe, the U.S., Australia, Japan, and Singapore, it remains challenging in China. Wang Shijiang also raised concerns about the long-term nature of PV projects. Domestic private capital prefers faster returns, making the 25-year operational timeline less appealing. Finally, Wu Junjie, chief editor of "Solar Power," warned that the slow cash flow in PV power plant operations compared to manufacturing poses significant financial risks. Without strong capital and accurate planning, companies risk breaking the capital chain. In the current market, two common models for PV projects are BOT (Build-Operate-Transfer) and EPC (Engineering, Procurement, and Construction). BOT involves long-term operation before transfer, requiring substantial financial strength. EPC, on the other hand, is more focused on execution with lower capital demands. Both models highlight the complexity and risks involved in the growing solar industry.

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