After what was a tumultuous year for the renewable energy industry in China, specifically that of the country’s solar sector, Central Government has laid out plans to drive the development of subsidy-free wind and solar projects across the country in an effort to push the technologies to grid parity.
2018 started out with so much fanfare for China’s renewable energy sector, driven by 54GW worth of solar installed during 2017, and expectations for even more in 2018.
All of this was thrown by the wayside in May, however, when China’s National Development and Reform Commission (NDRC), the Ministry of Finance, and National Energy Administration (NEA), announced sweeping changes to the country’s solar sector.
Specifically, the new “2018 Solar PV Power Generation Notice” imposed an effective cap on new solar projects for 2018 and a reduction in the country’s solar Feed-in Tariff (FiT) and stated that there was “no new general solar capacity planned” for 2018.
What was going to be another record-breaking year of solar and renewable energy development collapsed into dust, at least according to most analysts, who as one downgraded their estimates for China’s solar sector and cast doom and gloom across the entire global solar sector (which, in the end, was proved wrong, but that’s another story).
In time, China’s NEA revealed plans to phase out power generation subsidies in an effort to reduce the massive financial burden being placed on the Central Government. This phase-out, however, would be replaced with political support to drive down the costs of renewable energy technologies to grid parity.
And last week, in identical statements from the NDRC and NEA, China’s government directed states, autonomous regions, state-run utilities, and others, to start building pilot wind and solar projects.
The aim is the same as it has been for several months now – drive technology prices down to achieve grid parity and allow wind and solar to begin competing with coal without government intervention.
There will be no quotas for projects which will also not be subject to annual construction scale restrictions, but projects can only be built in regions where local authorities can guarantee the generated electricity will actually be used.
This last restriction is an effort to prevent further curtailment concerns – already a widespread issue across the country – and has resulted in the Government preventing any of these new projects to be built in the autonomous region of Xinjiang or in the province of Gansu – both of which already deal with extreme curtailment levels. The Central Government has also imposed some measure of control on new solar capacity over a further 12 provinces and parts of 7 others.
Beijing is also aiming to optimise the country’s investment environment for affordable grid projects and encourage projects to obtain a reasonable income compensation through green certificate transactions. The Government will also cut “unreasonable” fee charges and reduce land prices and encourage financial institutions to support construction of these subsidy-free projects.
“This signals a permanent policy shift towards zero-subsidy renewables,” explained Jonathan Luan, an analyst with Bloomberg New Energy Finance who spoke to me via email. “Though the industry suspected it coming after the May 2018 announcement applying breaks to the subsidy flow, the new policy clearly steered the market to a new direction.
The two-year policy window should stimulate new build. We are more inclined towards the optimistic scenario of our 34-44GW solar forecast for 2019.”
Unsurprisingly, in the wake of the news, Chinese solar manufacturers and suppliers saw their stock soar in New York and Hong Kong.
Far from a policy move preventing the development of wind and solar projects unless they can be built to compete with coal prices, the entire policy move is an effort to ensure that wind and solar can compete with coal – something we are already seeing play out across the planet.
