China’s 14th Five-Year Plan for Power Industries (2): No Plans for Wind, Solar & Hydro?

China's hydropower capacity and potential

Beijing will not draft specific plannings for wind, solar and hydropower sectors in the coming five-year plan cycle—between 2021 to 2025, according to a recent statement made by China Renewable Energy Engineering Institute (CREEI). 

CREEI is a state-owned research facility of Beijing’s energy regulators, taking charge of the policy-making research of the hydro and renewable. The statement, thus, drawn industry attention. 

If true, the decision is surprising. Beijing is known for keeping a tight leash of the energy market and other “national-economy-relevant” industries, drafting targets and plans periodically to guild development direction. 

There have been consistent talks regarding deregulation. Scrapping three major industry FYPs would be another significant step in that direction. But what does the decision entail regarding hydro, wind and solar market development?  

Five-Year Plan and 14th FYP for Energy Sectors, Explain

The Five-Year Plan (FYP) is an essential policy mechanism for the Chinese governments (both central and regionals) to regulate industries or areas of national economy significance—such as the energy sectors.

Every five years, Beijing and the local authorities laid down priorities, roadmaps, and the final targets of the energy industry as a whole and for various sub-sectors in the energy FYPs.

Critical features of the FYPs to Understand: 

  • There are national-level and regional-level energy FYPs. The national plan is the basis for the local plans. 
  • There are mandatory and projected targets in the FYPs. The “targets” of the energy sub-sectors are most often projections. The result falling short from the goals happened, and quite often. But still, these “targets” still serve as market signals and is a critical factor influencing investment decisions. 
  • One specific industry could fall into more than FYPs, as one industry is often under multiple regulatory frameworks of different government bodies. For instance, the nuclear industry will see “nuclear power” FYP issued by the energy regulators, next to “nuclear safety” and “nuclear fuel cycle” FYP designed by the safety and defence administrations.
  • The making of the FYP is often a collaborative process with the participation of major industry players. The result is most often inclusive of different interests of the top players.  

In the currently 13th FYP period, between 2015 to 2020, China has nine primary national-level energy sub-sector FYPs, including those of coal, oil & gas, electricity, renewable, wind, solar, hydropower, and technology innovation. [READ MORE on China’s Dilemma in Drafting the Coming 14th FYP for Coal and Coal-fired Power Industries. ]

The next FYPs (14th, 2021-2025) would most likely come to light around 2021-2022. But there will be no more planning for wind, solar, and hydropower from then on, according to a CREEI official. 

But 14th FYP of Renewable Develop will remain, of which the research is lead by CREEI. 

Beijing De-Regulation & Ditching Supply-Side Driven Method

Scrapping specific FYPs does not mean there will be no development of these sectors. 

The decision reflects more of Beijing’s intention to advance deregulation in the energy sector, starting to “let loose” of detailed planning in some industries, many believed.

Such reasoning may be of merit. One of the proofs is that Beijing still plans to deliver an overall renewable five-year plan while scrapping the two more specific plans for wind and solar sectors. 

Moreover, the NEA and NDRC set to deliver an additional plan in the 14th FYP —regarding market reform of the energy industry. The addition plan, in my opinion, is a strong indication of Beijing’s gradually shifting focuses on its energy governance. Establishing and improving market mechanism and instrument could be an emphasis in the future. 

The shift underlines the changing landscape of the Chinese energy industry. Up till now, energy development has been supply-side driven, focused on ramping up installation capacity and ensuring supply security. But that is poised to change, moving (although very slowly) to demand-side and efficiency-oriented. [READ MORE on Beijing’s Policy and Political Priorities]

14th Five-Year Plan Hydro: Struggled to Meet the Targets

Still, there are practical reasons behind Beijing’s choice of hydro, wind, and solar as the first areas to embrace the change. 

For hydro, cancelling the planning may be related to the cooldown of hydro investment, and thus an expected slow down of hydro construction in the coming 14th FYP cycle.

The reason for the lack of investment interest, in part, has to do with the resource constraint. Hydro development has entered its last chapter in China, as accessible water resources have been utilized, some argued. 

China's hydropower capacity and potential
China’s hydropower capacity and potential

For me, that might be an overstatement. More and more recent research suggest that China’s major river is at least with 110GW hydropower potential untapped, which could lead to around 52 major hydropower station to be built by 2035. (Though arguably a majority part of the untapped resources is located at Tibet, which lacks infrastructure and face social/political challenge for building dams.)

A more decisive factor is the power market’s fundamentals, of which the out-of-sync between supply and demand growth has been well documented. As a result, hydropower–just like renewable plants– suffers severe curtailment issues, which eat into developers’ profit margin.

More so than the renewable sectors, hydro development in China is highly centralized—by a handful of companies (CTG, and the five major power utilities such as China Huaneng)and in mainly two provinces (Yunnan, Sichuan). Investment enthusiasm cooled down much quicker when these players’s financial interests are hurt. Notably, during 2016-2018, new build hydro plans approved is only12.5GW; 2018, especially, marks a year of daw-dropping low record of new project approval of just 2.52GW. 

To compare, China currently has 48-50GW offshore wind project approved in the pipeline, eager to finish construction in the coming two years. The stark comparison explains the choice of some hydro powerhouse—China Three Gorges (CTG) as the best example—moving to the sea.  [Who is CTG? REVIEW China’s Major Power Utilities]

This struggle of hydro business has been well exhibited in the current 13th FYP cycle, where Beijing sets to see 60GW new construction of hydropower stations and 60GW of pumped hydro storage between 2016-2020. That target will not be met.

As large-scale hydro projects require some 4-6 years to construct, the lack of investment in the past years points to the potential stagnant development in the 14th FYP cycle.

Moving forward, the nation is likely to carry on the construction of several major hydro plants planned years ago inclding Yeba tan Station in Jinsha River (2.24GW), Lawa Station (2GW), Wudongde Station (10.2GW), Baihe tan Station (16GW), Lianghekou Station in Yapan River (3GW), Shuangjiangkou Station in Dadu River (2GW). 

Other than them, other projects are considered difficult to break ground, analysts tend to believe. 

14th Five-Year Plan Renewable: Another Story

Renewable, however, is another story. One the contrary to hydro, solar and wind’s progress have way exceeded Beijing’s expectation and planning. We will examine the reason for scaring wind and solar FYPs in the next piece.  

[READ MORE about China’s Renewable Asset Sales Wave: Part-1, Part-2 ]