The Chinese National Energy Administration (“NEA”) revealed its ambitious goal of installing 17.8 gigawatts (“GW”) of solar capacity in 2015, which is about 18.7% higher than the previous 15 GW proposal announced in February.

The NEA had earlier set a challenge of installing 14 GW of solar capacity in 2014. But the world’s largest carbon emitter fell short of the target and could achieve only 10.6 GW.

The country is determined to increase its renewable energy mix in power generation to 20% by 2030, with a target of achieving 100 GW photovoltaic (“PV”) of power by 2020. It seems that President Xi Jinping has waged a war against pollution following the November pact with President Obama.

With the latest goal, will China be able to escalate solar installations by about 67.9% this year to meet its lofty target?

Bumpy Ride Ahead
 
Industrialization and urbanization in China led to skyrocketing demand for energy, which ultimately had to be met by coal. But simultaneously rising levels of pollution has the Chinese government reconsidering its choice to fuel economic growth. The country has now redirected its emphasis to clean energy and aims to increase the share of solar power. The Chinese government is thus offering attractive subsidies to boost the solar industry. As per the NEA, subsidies accounted for about 19% of new PV installations in 2014.

Despite commendable efforts, the solar industry in China is still struggling to take off because of several obstacles. Inadequate transmission infrastructure in an otherwise sunny country has severely stunted the growth of solar projects. So, China decided to address the issue by emphasizing on distributed solar including rooftop panels. Subsequently, the NEA rolled out a target of 8 GW of distributed solar for 2015.

The novelty of the solution notwithstanding, problems related to financing and obtaining rooftop rights surfaced, leading to lukewarm interest. Moreover, investors and project developers are still keen on investing in large-scale power generation projects, all the while failing to appreciate the long-term benefits of rooftop systems.

Having said that, the government’s renewed zeal to increase installations will give the Chinese solar market a shot in the arm. We discuss below a couple of homegrown solar stocks that are likely to benefit from NEA’s amended goal.
 
Stocks in Focus
 
JA Solar Holdings Co., Ltd. JASO: The company reported a 43.2% surge in total shipments in the fourth quarter of 2014 on account of strong demand from China and the rest of the Asia-Pacific market. The company’s resilient business model as well as its ability to adapt to changing market scenarios, evident from its shift in focus toward solar modules, will ensure solid demand for its products, going forward. The stock currently sports a Zacks Rank #1 (Strong Buy).

Trina Solar Ltd. TSL: Trina Solar continues to expand its pipeline of projects in China with focus on strengthening its distributed generation projects. The company aims for new product innovations and higher product quality in 2015, in order to further consolidate its position in the market.

The company reported strong 2014 results, with module shipments shooting up 41.9% year over year. The company now targets module capacity of about 4.8 GW in 2015. The stock currently has a Zacks Rank #3 (Hold).

In Summation

China is ranked #1 among the top polluting countries. However, the country’s commitment to embrace a cleaner and greener policy is indeed commendable. But as a caveat, let’s not forget the country has failed to fulfill even its 2014 targets.