UPDATE 3-China offers big solar subsidy, shares up

Tue Jul 21, 2009 4:17pm EDT

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(Adds analyst comments, background, updates share activity)

By Jim Bai and Leonora Walet

BEIJING, July 21 (Reuters) - China has launched an unprecedented and long-awaited plan to offer subsidies for utility-scale solar power projects, sparking a rally in shares of Chinese solar panel makers on Tuesday.

Shares of top Chinese panel maker Suntech Power Holdings Co Ltd STP.N soared 10 percent, Yingli Green Energy Holding Co Ltd (YGE.N) climbed 14 percent, Trina Solar Ltd (TSL.N) rose 10 percent and JA Solar Holdings Co Ltd (JASO.O) was trading 7 percent higher.

Beijing's bid to boost the solar energy sector could draw more than $10 billion in private funding for projects and put China on track to become a leading market for solar equipment in the next three years. [ID:nHKG193]

As the world's top greenhouse gas polluter, China is trying to catch up in a global race to find alternatives to fossil fuels, blamed for carbon emissions affecting the planet's climate.

Expectations of such a move by China have underpinned a rally in Chinese solar stocks for much of this year.

Several analysts warned on Tuesday, however, that the subsidy program, although positive, would not lead to a near-term pickup in solar panel demand. The solar industry has suffered this year from a lack of available financing for renewable energy projects due to the financial crisis.

"The China news, in our view, is providing good PR for China-based companies," FBR Capital Markets analyst Mehdi Hosseini wrote in a note to clients. "Yet, in our opinion, it may be insufficient to offset the expected shortfall in 2009 earnings expectations. We simply do not believe that the full extent of disappointing results is baked into stock prices."

The Ministry of Finance said the government will subsidize 50 percent of investment for solar power projects as well as relevant power transmission and distribution systems that connect to grid networks.

For independent photovoltaic power generating systems in remote regions that have no power supply, the subsidy will rise to 70 percent, the ministry said in an announcement on its web site (www.mof.gov.cn).

Grid companies are required to buy all surplus electricity output from solar power projects that generate primarily for the developers' own needs, at similar rates to benchmark on-grid tariffs set for coal-fired power generators.

To qualify for the subsidy, in addition to other requirements, each project must have a generating capacity of at least 300 kilowatt peak, while construction will have to be completed in one year and operations will have to last for at least 20 years.

The government plans to install more than 500 megawatts of solar power pilot projects in two to three years -- a program Oppenheimer & Co analyst Sam Dubinsky said in a client note was "not big enough to offset industry oversupply."

The global economic recession and a pullback in subsidies in Spain and Germany have led to an oversupply of solar panels that has driven down prices and hurt panel makers' profits.

The total generating capacity in such pilot projects in each province in principle should not exceed 20 megawatts, the ministry said.

In March, the Finance Ministry said it would provide 20 yuan per watt peak (Wp) of subsidy for projects attached to buildings that have capacity of more than 50 kilowatt peak, which could cut the power generating cost by around half to about 1 yuan per kilowatt-hour.

China is expected to raise its 2020 solar power generation target more than fivefold to at least 10 GW. With incentives, analysts expect over 2 GW in new solar capacity will be installed as early as 2011, up from just over 100 MW in 2008.

JA Solar climbed 29 cents to $4.88 on Nasdaq, Yingli Green Energy rose $1.58 to $12.98 on the New York Stock Exchange, Trina Solar climbed $2.55 to $28.95 and Suntech closed $1.61 higher at $17.80 on the New York Stock Exchange. (Additional reporting by Eadie Chen in Beijing, Nichola Groom in Los Angeles, and Anna Driver in Houston; Editing by Ben Tan, Derek Caney and Bernard Orr)

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