China subsides production, Europe subsidizes consumption. Who will be smarter? China gains markets and economies of scale and learning selling expensive panels elsewhere (helped by foreign subsidies) before plunging themselves when efficiency improvements make it cheap enough..
Still small (2010 new installation was just 0.4GW of a world wide 16GW), but you wanna be in Chinese producers when their market starts to take off..

China Profits From Solar Policy as Europe Backpedals
By Bloomberg News –

China, the world’s biggest electricity consumer, is figuring out how to capture a larger share of the solar-energy market without losing money.

The government will spend at least a year studying Europe’s system of paying above-market prices for solar power before deciding if there’s a better way to spur clean-energy plants across China, said Wu Dacheng, an adviser to national power regulators. The delay has stalled projects planned on Chinese soil by developers such as First Solar Inc. of the U.S.

“We need to learn from European countries like Germany” that pay subsidized rates to spark solar-panel installations, Wu, vice chairman of the Solar Photovoltaic Committee of China’s Renewable Energy Society, said in an interview.

Europe, which attracted more than $65 billion in solar plant investment in 2010, is providing lessons for China. Germany, the largest panel market, together with Spain and France carried out four unscheduled subsidy cuts in 2010, trying to slow a torrent of projects by developers and speculators.

China’s wait-and-see strategy on projects is part of a broader industrial plan to take a leading global role in harnessing energy from the sun. China is first focusing state support on its own equipment manufacturers. That helps them gain market share and cut prices, lowering the eventual cost of a nationwide solar construction program China plans for itself.

“China is definitely playing a longer game in solar,” Daniel Guttmann, head of renewable energy strategy at the consulting firm PricewaterhouseCoopers LLP in London, said by telephone. “It has done a lot to subsidize its manufacturers.”

Polysilicon to Panels

The government’s China Development Bank alone approved more than 126 billion yuan ($19 billion) in credit facilities in the second half of last year for makers of everything from the raw material of polysilicon to the finished solar panel, including Baoding-based Yingli Green Energy Holding Co., according to Bloomberg New Energy Finance.

China this year will increase its share of the global solar photovoltaic panel market by about 10 percentage points and for the first time supply a majority of the devices that turn sunlight into power, according to London-based Bloomberg New Energy Finance. In contrast, China bought less than 3 percent of the 18.5 gigawatts in estimated worldwide panel sales last year for its domestic projects.

Chinese manufacturers outperformed most U.S. and European competitors in stock markets in the 12 months through Feb. 11. The top three, led by LDK Solar Co., gained about 65 percent on average in the period, compared with 58 percent for the top three based in the U.S. and 8.8 percent for the Europeans.

U.S. Incentives

In the U.S., solar project developers have relied on a different incentive system. They may earn a federal investment tax credit that pays for as much as a third of the initial cost, as well as renewable energy mandates in 29 states that require utilities to buy an increasing portion of their power supplies from solar and wind plants.

The incentives are less than in many European countries, where U.S. manufacturers make most of their sales.

As panel prices drop, China plans to boost its own solar power installations by more than 60-fold to 20 gigawatts, or the equivalent of about 18 new nuclear plants, by 2020 from 2009. A nationwide subsidy or auction program is needed, though not a direct copy of the European or U.S. model, which is based on tax breaks, Wu said.

China is concerned that Europe’s subsidized rates, or feed- in tariffs, were so large that governments had to slash them earlier than planned to not strain government finances, Wu said. Spain alone spent 5.3 billion euros ($7.3 billion) subsidizing renewable power generation last year.

‘Bubbles, Super-profits’

“China has seen that many European countries did not quite get the right feed-in tariff levels, with bubbles and super- profits for investors in some cases, and might want to give careful thought to set the right levels,” Guttman said.

European nations are trimming subsidies and studying limits on permits. The moves respond to a plunge in solar panel prices and are aimed at keeping plant operators from earning too much at the expense of consumers who must pay the above-market rates.

Germany has reduced incentives four times since January 2009 and France lowered rates twice last year and imposed a three-month freeze on projects in December after receiving as many as 3,000 applications a day from developers.

In China, several demonstration projects weren’t developed because companies were deterred by the absence of a subsidized power purchase price, Wu said in the interview last month.

Arizona’s First Solar

Arizona-based First Solar, the largest maker of thin-film solar modules, agreed in 2009 to set up a 2,000-megawatt plant in China, billed as the world’s biggest. On Jan. 5, it settled instead for a 30-megawatt plant in Ordos and to take state-owned China Guangdong Nuclear Solar Energy Development Co. as a partner. First Solar said it may expand the project in stages until it reaches the original size proposed.

China began offering subsidies in 2009 to a limited number of solar power projects using bidding rounds. However, in November the government canceled 39 solar projects under the program, known as Golden Sun, citing “inability to implement.” State-owned Huanghe Hydropower Development Co. also canceled a 5-megawatt project in Geermu, Qinghai province.

A second round of bids for 280 megawatts in solar concessions was held on Aug. 10 and a third one for 500 megawatts is due this year.

China’s regulator, the National Energy Administration, hasn’t started studying the solar premium prices yet, said Ren Dongming, deputy director of the Centre for Renewable Energy Development. The Centre, which is administered by the National Development and Reform Commission, had previously participated in drafting wind-energy prices.

China is currently applying the model used to determine wind tariffs for solar projects. The country has issued six national tenders for wind projects to set different levels of tariffs depending on wind resource levels.

“China may follow a pricing model for solar projects that is similar to how wind projects are paid,” said Na An, a New Energy Finance analyst.