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China explores revamp of renewable energy subsidies

The Circular on the Budget of the Central Government Fund for 2019 released by Ministry of Finance of China reveals that the budget for additional income from electricity prices for renewable energy in 2019 was 83.5 billion yuan (approx. US$11.8 billion), an increase of 4.89 billion yuan (approx. US$690 million), or 6.2 percent from the actual figure in 2018, while the budget for additional expenditure stood at 86.6 billion yuan (approx. US$12.2 billion), an increase of 2.72 billion yuan (approx. US$384 million), or 3.2 percent from the actual figure in 2018.

In addition, the renewable energy subsidy catalogue, which has been used for the last seven years, may be a thing of the past. Recently, the Ministry of Finance, the National Development and Reform Commission, and the State Energy Administration are reported to have sought “opinions on promoting the healthy development of non-water renewable energy power generation” and “management measures of the additional subsidy funds for renewable energy electricity prices.” The ministry also issued new provisions with regard to the payment of renewable energy subsidies.

According to the draft for comments, China will no longer publish the renewable energy subsidies catalogue and, going forward, all renewable energy projects must apply for a feed-in tariff on the national renewable energy information management platform. Based on the new rules put in place by the Ministry of Finance and other oversight agencies, power grid operators will determine the list of projects that meet the criteria for being assigned a feed-in tariff and the order of allocation of subsidy funds according to the project type, grid-connected time, technical level and other factors.

At the same time, the Ministry of Finance shall, according to the annual renewable energy additional income budget, determine the application of subsidies, allocate the subsidies to the State Grid, China Southern Power Grid and the provincial financial departments annually, and then power grid operators shall pay the subsidies in accordance with the catalogue priority order.

Tao Ye, deputy director at the Renewable Energy Center of Energy Research Institute (ERI) of China’s National Development and Reform Commission, said in an interview with China Business Journal on October 11 that if the above policy is rolled out, it would directly benefit projects that had not been included in the first seven batches of subsidy catalogues, and would be of certain significance to the improvement of profitability of many projects and the cash flow of the project’s owners. Furthermore, judging from the distribution of limited funds in the future, getting the same proportion of subsidies will have certain advantages for subsequent projects.

At the same time, the green certificate is expected to also play an important role in resolving the subsidy gap in the future. In order be able to issue enough green certificates so that, in the aggregate, they can be effective, it will become necessary to lower the threshold whereby a project becomes qualified to transact in the certificates, suggests Tao. The transaction price should have flexibility and fluctuate along with market demand, while the scope of transactions should be expanded from users of electricity only to users of all forms of energy.