Fraud Plagues Major Solar Subsidy Program in China, Investigation Suggests

"Golden Sun" is a Chinese solar subsidy scheme, set up with the primary objective of preventing the closure of 10,000 domestic solar PV businesses during the early days of the financial crisis. But the system has lacked rigorous oversight. Moreover, small and medium-sized firms that have rushed to take advantage of the subsidies risk being burned by the project that promised to save them. In this report, Yuan Ying — winner of the "biggest impact" category at the 2011 China Environmental Press Awards — investigates.

At the end of March 2010, the second round of bidding for China's Golden Sun scheme came to a close. Since then, close to 10 billion yuan worth of subsidies has been paid by the Chinese government to the domestic solar photovoltaics (PV) industry. Almost all the money in the scheme has now been allocated.

In July 2009, the Ministry of Finance, Ministry of Science and the National Energy Board launched the Golden Sun Demonstration Project. Under the scheme, the government said it would pay 50 percent of the investment for qualifying solar-power plants and transmission and distribution projects. For projects in remote regions not connected to the grid, the subsidy would rise to 70 percent. Today, subsidized schemes in planning have reached around 642 megawatts.

This round of subsidies can be seen as the Chinese state's strongest ever show of support for the solar PV industry.

When Golden Sun first started, an application round was launched in each province, stirring a frenzy of activity. According to the terms of the policy, each province was allowed to apply for financial support for a maximum of 20 megawatts of solar power, but this was not strictly adhered to. Shandong, for example, applied for finance for more than 100 megawatts, while large solar companies such as the Yingli Group put forward projects of up to 50 megawatts.

In the midst of the "first-come, first-serve" boom, businesses engaged in false bidding and used low-quality products.

According to an industry insider, a relatively high proportion of businesses — in order to boost the subsidies they received from government — declared their material costs to be higher than they actually were, a fraud that pushed up the cost of the whole system.

Moreover, the use of low-quality products (even including discarded returns from abroad) meant subsidy requirements were not being met. It is understood that some factories supplying crystalline silicone components declared costs of just 9.5 yuan per watt, and, for thin-membrane batteries, just 6.5 yuan — 20 percent lower than the current lowest production cost.

There are two key reasons for this. First, in order to generate maximum business, the enterprises contracted under the Golden Sun project have done their utmost to keep prices down, and suppliers have not hesitated to take a loss in order to obtain orders. Second, some suppliers have allowed second-class components and defective stock to be absorbed within Golden Sun projects.

Wu Haijun, director of the energy department at the Ministry of Finance's economic planning division, said: "Anyone found perpetrating fraud, will be prosecuted."

By the end of this year, a spate of Golden Sun construction projects is likely to be completed, and all participating businesses will face a thorough inspection of their schemes.

Struggling to Pay

Large-scale solar firms and small to medium-sized enterprises had different reasons for rushing to take part in Golden Sun.

"We mostly made use of Golden Sun as a demonstration project for the purposes of reporting," said Yao Feng, director of public relations at Chinese solar giant LDK. "It is an exercise where the significance of the demonstration is greater than the impact of the actual project."