June 7, 2018 / 6:08 AM / 14 days ago

China solar firms urge govt to rethink capacity cap, subsidy cut - letter

* Panel makers call for more backing after surprise cut

* "Grace period" should be allowed for some projects

* Sector struggling with overcapacity, falling prices

By David Stanway and Muyu Xu

SHANGHAI/BEIJING, June 7 (Reuters) - Chinese solar panel makers have urged Beijing to delay surprise subsidy cuts and relax a cap on new projects, according to a letter reviewed by Reuters, protesting that the policy will damage a sector already struggling financially.

In a letter first sent to Xinhua news agency this week, executives from 11 Chinese solar firms said the surprise move to withdraw support, announced on June 1, had come far too soon. They said the sector had racked up huge debts to ensure it could compete with traditional power generators, and still needed another three to five years of government backing.

The policy shift by China's state planner, the National Development and Reform Commission (NDRC), sent solar stocks into freefall, prompting analysts to lower forecasts for global installations this year amid expectations that a glut of excess panels would send prices tumbling.

Immediate implementation of the policy would affect plants under construction, according to the letter from executives at firms like Sungrow Power and Canadian Solar , calling for "a certain grace period" for those that need it.

"There are people who believe the Chinese photovoltaic market has grown too quickly," they said. "In fact, photovoltaic power generation occupies just 1.7 percent of the total."

China's National Energy Administration said on Thursday, after the letter was first publicised, that it had met solar industry representatives on Wednesday and promised to speed up the launch of a quota system forcing regions to buy more renewable power.

The NDRC said on June 1 it would add just 30 gigawatts (GW) of capacity this year, down from a record 53 GW in 2017, as it tried to "optimise" the pace of construction. It would not approve new solar plants that required subsidies, and would cap smaller-scale "distributed generation" (DG) on rooftops at 10 GW, half of last year's rate.

Surging solar capacity has left China's power grids creaking, unable to build sufficient transmission infrastructure. The finance ministry has also struggled to find billions of yuan in subsidies owed to new projects.

The cap on DG projects also garnered mixed reactions from developers.

"It will cause a dramatic reduction in DG development in the second half of 2018," said Thomas Lapham, chief executive of Asia Clean Capital, which invests in Chinese DG projects.

But Johnny Pan, head of investor relations at DG developer Renesola, said it could drive down costs, adding projects in provinces where power prices are high were less vulnerable to subsidy cuts. ($1 = 6.3911 yuan) (Reporting by David Stanway and Muyu Xu Additional reporting by Luoyan Liu and Shanghai newsroom Editing by Kenneth Maxwell)

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