Incentives add shine to China solar drive

By Leonora Walet and Rujun Shen - Analysis

HONG KONG (Reuters) - 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.

Shares of U.S.-listed Chinese solar firms such as Suntech Power Holdings, the world's biggest crystalline solar panel-maker, have risen strongly on expectations China will soon unveil more cash incentives to develop solar energy.

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

Any cash perks for the sector will help drive demand for solar energy systems and create bigger businesses for companies involved in the entire solar supply chain, says Julia Wu, an analyst with research firm New Energy Finance.

Top panel-makers including Trina Solar, Yingli Green Energy Holding Co and JA Solar are expected to benefit, while solar wafer-makers such as LDK Solar could gain from related business opportunities.

"China could potentially be the top market for solar. Companies up and down the supply chain should benefit," said Wu.

Beijing is considering enhancing cash incentives at a time when European states including Germany, one of the largest solar markets, are pulling back on spending to slow industry growth.

Nearly 10 years of subsidized prices have made Germany among the largest markets for photovoltaic panels, which transform sunlight into electricity, producing solar giants including Q-Cells AG and Conergy.

"The photovoltaic industry has very good opportunities in the medium and long term now that a lot of countries have decided to develop new energy as an important measure to combat the economic crisis," Shawn Qu, president and chief executive officer of Canadian Solar Inc, told Reuters.

INCENTIVES

Although China supplies half the world's solar panels, it contributes very little to demand as the cost of tapping solar energy to generate electricity remains steep and investors find little economic sense in pursuing solar projects in China where incentives are few.

But that's about to change.

China's government said in March it will offer to pay 20 yuan ($2.90) per watt of solar systems fixed to roofs and which have a capacity of more than 50 kilowatt peak (kwp).

The subsidy, which could cover half the cost of installing the system, was popular among developers, attracting applications equivalent to the building of 1 gigawatt of solar power.

One GW, or 1 billion watts, is enough electricity to power a million homes.