Eric Martinot and Li Junfeng
July 21, 2010 | 3 Comments
As with the rest of the global renewable energy sector, China's renewables policy has evolved considerably over recent years. Here are the latest major developments and market trends.
China’s Latest Leap: An Update on Renewables Policy
Renewable energy in China continues to play an increasingly important and strategic role in the country’s energy development. Total renewable power capacity in China reached 226 GW in 2009, including 197 GW of hydro, 25.8 GW of wind, 3.2 GW of biomass, and 0.4 GW of grid-connected solar PV. This total was more than one quarter of China’s total installed power capacity of 860 GW. And, significantly, during the five-year period 2005–2009, wind power grew thirty-fold, from just 0.8 GW at the end of 2004.
China is now second only to the United States in total wind capacity, and tied with long-time leader Germany. China surpassed both of those countries in new capacity added in 2009, at 13.8 GW. Also added in 2009 were 22 GW of new hydro, 0.4 GW of new biomass power, and 160 MW of additional grid-connected solar PV. Installations of grid-connected solar PV also accelerated in 2009 as the first beginnings of a true domestic market emerged. In addition, there were small capacity amounts existing for both geothermal, at 34 MW, and marine energy with some 4 MW.
China’s wind turbine manufacturing industry became the largest in the world in just four short years, with three Chinese producers now in the top 10 globally, according to the latest BTM report: Sinovel, Goldwind and Dongfang – see page 32 for more details on this. More than 80 domestic manufacturing firms now exist and most Chinese turbines are now in the 1.5–2 MW class, in comparison with earlier years when sub-1 MW models still accounted for a large proportion of turbine production. China is now also the largest manufacturer of solar PV, supplying almost 40% of all solar PV worldwide in 2009. About 4 GW/year of manufacturing capacity existed by the end of 2009 and more than 500 solar PV firms were established. The top-three Chinese producers were Suntech (704 MW in 2009), Baoding Yingli (525 MW), and Jingao (JA) Solar (524 MW).
In other market developments, the solar hot water market continued to boom, increasing from 31 million m2 (22 GWth) added in 2008 to 42 million m2 (29 GWth) added in 2009, partly as a result of a new rural energy subsidy programme for home appliances, for which solar hot water qualifies. The total existing solar hot water capacity increased to 145 million m2, or enough for 60 million households (assuming 2.5 m2 of absorber each). The period 2008–2009 also saw the beginning of offshore wind power development, with bidding underway for at least one 70 MW project and several hundred megawatts planned across a number of other projects.
Looking to the future, the government’s current draft plan calls for 300 GW of hydropower, 150 GW of wind power, 30 GW of biomass power, and 20 GW of solar PV, for a total of 500 GW of renewable power capacity by 2020. This would be almost one-third of China’s expected total power capacity of 1600 GW by 2020.
These targets are not yet official, and lower targets (totalling 362 GW) established as part of the 2007 ‘Medium and Long-Term Development Plan for Renewable Energy in China’ still govern. However, 500 GW of renewable power capacity by 2020 is also implied by existing renewable energy portfolio standards for major utilities, based on calculations by the China Renewable Energy Industries Association. Those portfolio standards require utilities to achieve 8% of capacity and 3% of power generation from non-hydro renewables by 2020.
Many of these market developments can be traced back to the enactment of the landmark 2005 Renewable Energy Law, which took effect in 2006 with the passage of detailed implementing regulations. A provision for renewable portfolio standards (also called ‘mandated market share’) was a key element of that law, along with feed-in tariffs for biomass, ‘government-guided’ prices for wind power, an obligation for utilities to purchase all renewable power generated, new financing mechanisms and guarantees, and other market-enhancing provisions. Complementing the law was a wind-power ‘concession’ programme which was in place during 2003–2007 and which added 3.4 GW through annual competitive project bidding. And other R&D policies have been ongoing.
Above: Turbine nacelles being manufactured in Dalian, China
Recent changes to renewables policy in China, including 2009 amendments to the 2005 Renewable Energy Law and a number of other new policies enacted during 2008–2009, are outlined below.
Update of 2005 Renewable Energy Law
An update to the original 2005 renewable energy law was adopted by the National People’s Congress in December 2009 and took effect 1 April, 2010. This update contained three main provisions:
Other Policy Changes 2008–2009
Many other policy changes have occurred recently. Among them, the target for the share of renewable energy was changed. In 2006, China adopted a target for 15% share of primary energy to come from renewables by 2020, up from 8% in 2006. This target has now been revised in two respects. Firstly, the new target is for a 15% share of final energy consumption. This change puts China’s target on the same accounting footing as the European Union, which adopted a target in 2008 for a 20% share of final energy by 2020. In general, a 15% final energy target implies a larger quantity of renewables than a 15% primary energy target. However, the second revision to the China target changed the scope from ‘renewables’ to ‘non-fossil-fuel sources’, which includes nuclear. Nuclear power currently provides less than a 0.3% share of final energy in China, but will increase by 2020, so the net impact on total renewables by 2020 of the target change is complicated to assess.
Meanwhile, there was also a new carbon intensity target. China announced in December 2009 that it would reduce the carbon intensity of GDP by 40%–45% by 2020, relative to 2005 intensity levels. China historically has targeted energy-intensity in many sectors individually as part of its energy-efficiency improvement plans, and the carbon-intensity target can generally be viewed as a variation and aggregation of these existing energy-intensity targets. For example, the country’s Eleventh Five Year Plan for 2006–2010 aimed to increase energy efficiency by 20% over the five years, including increases in efficiency of pumps, fans, and boilers, and lower energy intensities for materials like steel and cement.
The government also changed wind power feed-in tariffs. The 2005 Renewable Energy Law authorized feed-in tariffs for wind power based on ‘government guided’ prices, which evolved year-by-year as competitive bidding for wind power capacity resulted in standardized or ‘approved’ prices, generally on a province-by-province basis. However, in August 2009, a new feed-in tariff regime was established for wind power. Four specific tariffs were established nationwide, to be applied on a regional basis based on geographic wind resources.
The lowest tariff is RMB0.51/kWh (7.5 US cents/kWh), for the best resource regions of Inner Mongolia and parts of Xinjiang. The second and third levels are RMB0.54/kWh (7.9 US cents/kWh), and RMB0.58/kWh (8.5 US cents/kWh) for more average regions throughout large sections of the country such as parts of western, central and north-eastern China. Finally, the fourth level is RMB0.61/kWh (9.0 US cents/kWh) for the least-favourable resource regions. The tariffs were established to be consistent with prices from previously approved projects in these provinces/regions over the past three years. However, the tariffs apply to onshore wind projects only as the tariffs for offshore wind projects have not yet been established.
The biomass feed-in tariff has also been amended. The previous feed-in tariff for biomass, established under the 2005 law, was a RMB0.25/kWh (3.7 US cents/kWh) premium added to a province-specific coal power generation price. The new premium was increased to RMB0.35/kWh (5.2 US cents/kWh).
Another significant change has been the elimination of the wind turbine domestic content requirement. China previously required wind turbines installed in China to have at least 70% ‘domestic content’ in terms of the value of incorporated materials and components. This requirement was dropped in 2010 as no longer necessary, as virtually all turbine installations were Chinese-produced products.
Another recent change exempts renewable energy projects from local (provincial) income taxation. However, this may have the effect, perhaps unintended, of reducing the incentives for provincial governments to support renewable energy projects, unless local manufacturing enterprises also benefit.
Turning to the solar sector, new solar PV subsidies have been introduced. The so-called ‘Golden Sun’ programme was initiated in 2009, providing capital subsidies for solar PV installations through 2011 on a project-by-project basis. Off-grid (stand-alone) installations receive 70% capital subsidies while grid-connected installations receive 50% subsidies. Qualifying grid-connected installations must have a peak capacity of 300 kW or larger. There are also programme caps, which limit the overall quantity of systems installed – under the terms of the programme installations in any given province are limited to 20 MW total.
Almost 300 projects have been proposed under the Golden Sun programme totalling 640 MW and entailing about RMB20 billion ($2.9 billion) of investment. As a separate part of the programme, the Ministries of Finance and Construction are providing subsidies of RMB15/watt ($2.20/watt) for grid-connected solar PV and RMB20/watt ($2.90/watt) for building-integrated PV. Eligible installations must be 50 kW or larger, and must utilize solar PV modules of minimum efficiency levels (16% for mono-crystalline, 14% for poly-crystalline, and 6% for amorphous). In 2010, the subsidy levels were reduced to RMB13/watt ($1.90/watt) for grid-connected and RMB17/watt ($2.50/watt) for building-integrated.
There is also a new solar PV bidding programme. Similar to the early development of the wind power industry, the government initiated a competitive bidding programme for solar PV projects. This programme is creating new benchmark tariffs for solar PV (so-called ‘approved price levels’) on the basis of competitive bidding. One example was a bidding process in Dunhuang, in Gansu Province in 2009 for two 10 MW projects. Bid prices ranged as low as RMB0.69/kWh (10.1 US cents/kWh), and resulted in an approved price of RMB1.09/kWh. Another approved price was RMB1.15/kWh (16.9 US cents/kWh) in April 2010 for four projects in Ningxia totalling 40 MW.
Finally, there are new provincial-level solar PV preferential tariffs. The provinces of Zhejiang and Jiangsu have established province-wide preferential tariffs for solar PV. In Zhejiang, the tariff was set as a premium of RMB0.70/kWh (10.3 US cents/kWh) added to the province-average coal power generation price which was RMB0.46/kWh in 2009 (6.8 US cents/kWh), thus producing a total tariff of RMB1.16/kWh (17 US cents/kWh). Jiangsu set preferential tariffs significantly higher than Zhejiang, and also established a range of tariffs depending on technology type: RMB2.1/kWh (31 US cents/kWh) for ground-based systems, RMB3.7/kWh (54 US cents/kWh) for roof-top, and RMB4.3/kWh (63 US cents/kWh) for building-integrated (all 2009 levels). Jiangsu also slated tariffs to decrease progressively, to 1.7/3.0/3.5 in 2010 and to 1.4/2.4/2.9 in 2011, respectively. However, the Zhejiang and Jiangsu preferential tariffs were not considered ‘approved’ prices at the national level in principle, which means the money to cover the tariffs comes from provincial budgets rather than national funds.
China still faces many challenges in expanding renewable energy, including training of skilled engineers, expanding research and development institutions, improving the operational experience and performance of wind turbines, reducing transmission bottlenecks for wind power, addressing time lags in testing and certifying new wind turbine installations, conducting more detailed resource assessments, aggregating biomass resource collection, integrating renewables into overall power sector planning and design at both macro and distributed levels, and continued policy development and adjustment. Also, grid-based electricity storage and smart-grid operation will become important. Nonetheless, China’s renewables industries have hardly suffered from the recent global economic problems, and the period 2010–2020 looks promising.
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