A new power pricing mechanism in China could strengthen short-term solar module demand both domestically and internationally, according to analysis by S&P Global.

In February, China’s National Development and Reform Commission announced plans to replace its feed-in-tariff system with a fully market-driven renewable energy pricing model that will see all electricity from renewables sold through market transactions.

An S&P Global report analyzing the impacts of the policy says the measure will make China’s renewables industry more competitive, but also more volatile.

Experts from the Centre for Research on Energy and Clean Air (CREA) have said they are expecting an uptick in solar installations ahead of the mechanism’s formal implementation on June 1, before which developers can still secure a fixed price agreement.

“This urgency to avoid potential revenue uncertainties under the new policy could lead to a short-term surge in solar module demand, pushing up prices,” added Qi Qin, CREA China analyst.

S&P Global’s analysis suggests that due to the size of China’s solar market, a domestic increase in module prices could also lead to a global rise.

“Solar module prices are most likely to get the chance to rebound once demand increases,” explained Jessica Jin, principal research analyst of Clean Energy Technology at Commodity Insights. “The global price trend might have a bit of delay, but won't be different from the trend in China, except the US and India, which have different supply/demand situations due to high tariffs,” Jin added.

Rising prices could also lead to higher demand, S&P Global’s analysis continues, if developers look to secure stock at the current price in anticipation of further increases. But it adds that some market participants view the current increases as temporary and do not expect the trend to continue past the third quarter of this year.

S&P Global’s analysis also says that continued demand growth for China’s solar modules depends on “a comprehensive improvement of the photovoltaic industry’s entire ecosystem.”

Qin explained that rapid solar capacity expansion over the past two years has highlighted existing challenges in effectively integrating solar power into the grid. “If these challenges – particularly related to grid flexibility and power market reforms – are not adequately addressed, they could constrain future solar installation growth and, in turn, limit domestic solar module demand,” Qin added.