Solar power companies, led by Wuhan Linuo Solar Energy Group Ltd, rose in both mainland and Hong Kong trading on July 22 after the government announced subsidies for solar power projects on late Tuesday.

 

Wuhan Linuo surged by 10 percent, the daily limit, to 12.13 yuan on July 22. China Singyes Solar Technologies Holdings Ltd rose as much as 9.5 percent to HK$4.26 and closed at 4.37 percent higher in Hong Kong and Solargiga Energy Holdings Ltd climbed 5.17 percent.

 

Others such as top Chinese panel maker Suntech Power Holdings Co Ltd soared 10 percent, while Yingli Green Energy Holding Co Ltd climbed 14 percent and Trina Solar Ltd by 10 percent.

 

China'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.

 

The nation 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, 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 news, in our view, is good 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 would 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 website.

 

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 kW 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 mW 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 mW, 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 kW peak, which could cut the power generating cost by around half to about 1 yuan per kWh.

 

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