Why did March 2024's newly installed PV capacity see a 32% YoY decline?

On April 22, the National Energy Administration reported that newly installed PV capacity in March 2024 totaled 9.04 GW, down 32% YoY and 42.4% MoM. Q1 2024 saw newly installed PV capacity at 45.74 GW, up 35.9% YoY. By the end of March 2024, China's total solar power generation capacity stood at approximately 660 million kilowatts, up 55% YoY.

March 2024 marked the first YoY decrease in newly installed PV capacity in the domestic market in two years, a contrast to the last declines in March and December 2021, which saw reductions of 25.6% and 51.3%, respectively. Although the first quarter typically experiences slower PV installation activity, the substantial 80.3% increase in January and February 2024 over the same period in the previous year set expectations high, making the March downturn unexpected and contrary to predictions. What factors contributed to this unexpected decrease in PV installations?

SMM attributes the decline in newly installed PV capacity in March partly to the pacing of grid connections for centralized PV projects. Typically, Q1 installations are boosted by the carryover and grid connections from the previous year's projects. Projects initiated early in the year, especially large-scale ground-mounted stations, often take about half a year to connect to the grid. Many such projects were expedited in January and February, just before the Spring Festival, contributing to early year installation growth. Post-Spring Festival, work on these projects resumed gradually, including major solar and wind base projects, but grid connections for these are not expected until late April to May. This delay in grid connections has significantly impacted March installation figures for centralized projects.

In March, household PV installations showed strong performance within the distributed sector. However, the introduction of policies such as time-of-use electricity pricing and marketized transactions has begun to affect the investment returns for end users. Provinces traditionally active in distributed installations are now experiencing the impacts of consumption "red lines," which reflect challenges in new energy absorption and underscore power restriction issues. Post-Spring Festival, several provinces implemented policies to address local consumption challenges. For instance, in some areas, low-voltage distributed PV users were integrated into peak shaving schedules, and the varying duration of power restrictions influenced user profits, dampening their enthusiasm for further installations. Additionally, adjustments in time-of-use electricity pricing have altered the profitability during peak PV generation times.

Looking forward, the volatility in PV electricity prices is expected to increase, with a noticeable trend towards lower prices. As PV power increasingly enters market transactions, the fluctuating returns could make potential users hesitant to invest in distributed PV projects.

Another key factor contributing to the decline in newly installed PV capacity in March is the ongoing volatility in the industry chain prices. After a downward trend throughout the previous year, prices initially stabilized at a low level early this year. However, early March saw a renewed decrease in the prices of upstream components such as polysilicon, silicon wafers, and solar cells. This continuing price drop has prompted downstream end-users to adopt a wait-and-see approach. With the prices of upstream components still not having bottomed out in March, price-sensitive and risk-averse users are anticipating further reductions in PV module prices and are delaying their purchases until the pricing trends for Q2 become clearer. This hesitancy has significantly slowed down the purchasing and installed PV capacity in March.

In summary, the decline in newly installed PV capacity in March was primarily due to the pacing of centralized grid connections and a downward trend in industry chain prices. Although distributed installations maintain positive momentum, emerging challenges with energy absorption and adjustments in electricity prices are beginning to have a long-term impact, gradually slowing the growth of installations. SMM notes that while there was a decline in March, this month typically represents the low season for demand and installations, rendering the decrease somewhat expected. Looking ahead Q2, with anticipated grid connections of centralized projects in May and June, a recovery in installation rates month-over-month is expected.