China prepares transition to subsidy-free solar and wind by 2021

China’s main energy regulator has published a consultation paper that will prepare the country for the arrival of subsidy free wind and solar plants from the start of 2021.

The paper, released this week by China’s National Energy Administration outlines the transition to what it calls “grid-parity” project-driven market development. In short, how the market will operate when wind and solar no longer need subsidies to compete with existing coal and gas.

Direct subsidies in China have already been dramatically reduces, but most projects still rely on a “feed-in-tariff”, even if this is often little different to the market price, it does provide revenue certainty.

According to Frank Haugwitz, a China energy policy expert who heads the consultancy , the new rules give priority to the construction of unsubsidized projects over and above the 40GW of already approved projects that are nominally supported by a FiT but not yet constructed.

“A number of unsubsidized solar PV power generation projects that can start construction in 2019 should be confirmed first,” Haugwitz notes of the new rules.

“The Chinese solar PV market will evolve from a previously solely subsidy-driven to a market home to both “grid-parity” and “FIT supported” projects, and eventually entering a subsidy-free market period beginning 2021.

Haugwitz notes that FITs for both solar PV and wind power shall be fully scaled-back by 2020, and the big question is what happens to many of the projects that were approved, but may now have to convert to an unsubsidised project.

The new rules give the highest priority to projects that can convert from a FiT based scheme to no subsidy, with new unsubsidised projects getting the second level of priority, and projects that require state subsidies will go to the back of the queue.

Haugwitz says the new rules will give clarity to the market that has been “in limbo” for the past 12 months, although last year’s installed capacity of 44.26GW of solar was better than expectations.

He says it is hard to predict the quantity of projects that will go ahead under the new “grid-parity” policy, although the most notable project to achieve this so far is a 500MW project in Qinghai province that begun production in December.

“The success of this “transitional approach” largely depends on the two national grid operators ensuring each and every generated kWh will be off-taken first, for at least 20 years,” he writes in a note.

“Both will be critical to provide comfort to subsidy-blessed Chinese project developers now having to learn how to execute projects without subsidies in a relatively short period of time.”