China Moves to Phase Out Subsidies as Solar, Wind Prices Become Competitive with Coal

With the end of 2020 as a target date to phase out renewable energy subsidies, China’s National Energy Administration (NEA) has unveiled a package of eight “enticements” for developers that are prepared to consider subsidy-free solar and wind projects over the next two years, Greentech Media reports.

In a recent statement translated by Greentech, the NEA said renewables are already largely competitive with coal-fired electricity generation. “With the large-scale development of wind power and photovoltaic power generation and the rapid advancement of technology, in areas with good resources, low construction costs, and good investment and market conditions, the conditions for the on-grid parity of coal-fired benchmarks (excluding state subsidies) are basically met.”

But the steps to complete that transition are still a challenge. China began its drive to end subsidies “after capacity additions in 2017 left the administration facing a ¥110 billion/US$16.3 billion payment backlog,” Greentech notes. After declaring subsidy caps of up to ¥0.57/US$0.08 per kilowatt-hour, depending on region, last spring, the country’s energy regulators “know it won’t be easy to get developers to move away from subsidies altogether.”

Independent wind analyst Feng Zhao told Greentech the eight “enticements” are meant to ease the transition to grid parity post-2020. They include:

• The security of a 20-year contract;

• An end to grid curtailments that cost wind developers 16% of their generation between 2010 and 2016;

• Rules to prevent local and regional governments from adding unfair costs to renewables projects;

• Guaranteed grid connections for new projects;

• Lower fees for grid transmission;

• Financial support from Chinese development banks and the country’s four state-owned commercial banks;

• Exemptions from provincial energy consumption targets;

• Automatic eligibility for green certification.

Initial reaction from China’s renewables industries has been positive, Greentech reports. “I saw some comment both from the banks and large developers in China,” Zhao said. “They said some projects under this new scheme could be more competitive [than] projects where they still have the feed-in tariff.”

But even so, the “main driver” for new wind projects over the next two years “is likely to be a rush to build projects that were approved by the NEA before the end of 2018,” writes reporter Jason Deign. “Developers must start building these projects this year if they want to benefit from a previous, higher-level FIT that ranged from ¥0.47 to ¥0.6 ($0.07 to $0.09) per kilowatt-hour.”

Wood Mackenzie senior consultant Xiaoyang Li said China may not be able to completely phase out the feed-in tariff by 2020, given the scale of its renewable energy ambitions. She added that offshore wind “will continue to receive subsidy support in the near to mid-term.”