China’s renewable roadmap toward 2025 is on the spotlight again. More sources signal now that Beijing plans to deliver ambitious capacity targets for wind and solar industries, despite a previous intention to not focus on capacity expansion.
Renewable 14th Five Year Plan: Gear-up
Beijing has kicked off the 14th Five-year plan renewable policy drafting process earlier this year. As a routine, it will take 6-12 months before the energy regulator to conclude the final decision. Right now, the critical RE Development 14th FYP Research Report has been formulated and presented to the regulator.
The next steps for the energy planner are:
- firstly, to establish the “feedback-inviting” draft which will send to different interest groups and state-owned entities for review [est. 2020/11]
- then, to formulate the “final-review” draft which will send to the top authority (the Council) for final approval [est. 2021/03]
Before the final launch of the plan [est., 2020/06-2020/09], changes in the targets are still likely to happen.
A Change of Direction
Just six months ago, several energy policymaking entities involved in the FYP drafting expressed a very different message. Then, various advisors believe, Beijing should consider NOT drafting specific 2021-2025 industry targets for wind and solar. Instead, the policy should focus on improving the RE market structure and solving issues. [Read More: Beijing’s Signals of Scrapping 2025 Wind, Solar, and Hydro Targets ]
The benefits of NOT having specific renewable targets are, arguably:
- emphasizing renewable “high quality” development instead of capacity size expansion
- encouraging competition and cost reduction
- taking some time to solve the “subsidy fund deficit” issue
But, evidently, that rhetoric has shifted. And ambitious targets appear to be on the way.
We believe that several political factors lead to the change:
- Beijing’s economy priority to boost “internal circulation” by expanding domestic energy investment [Read More: Beijing’s 2020 national strategy that emphasis on domestic investment on “new infrastructure”]
- limited growth space for the other power sectors including coal, hydro, and nuclear power
- Central government’s financial liability for the renewable subsidy will be heavily alleviated after 2020, as wind and solar stepped into “zero-subsidy” zone.
New Logic to Determine the Renewable Targets
The financial burden of renewable subsidy used to be a decisive factor in the decision making of renewable five-year plan targets. But that factor is unlikely to impact on the 14th Five Year Plan renewable targets.
It used to be critical for Beijing to set targets that could ensure clean development without jacking up the cost for electricity consumers (and central government finance). In reality, it was a difficult balance.
Moreover, as the renewable subsidy is soon to sunset, subsidy size will no longer serve as the decisive factor for the wind and solar targets. [Read More: China’s renewable subsidy set up and sunset plan 2018-2022]
Instead, we believe, the 14th Five-Year Plan renewable targets would be determined by Beijing’s plan of the fossil fuel percentage in the energy and power mix.
The coal capping ambition would become the core factor determining the capacity see of wind and solar power.
Renewable and Coal’s Shares in 2019
Where are the wind and solar markets now?
- By the end of 2019, the cumulative wind and solar capacity is at 414GW, which is likely to rise to 470-480GW by the end of 2020.
- Renewable’s portion in China’s total power capacity mix is 20.6% by the end of 2019.
- Renewable’s portion in the total power generation mix is 8.6% by the end of 2020.
- Coal percentage in the total energy consumption mix is 57.7%, while the share of non-fossil-fuel is 15.3%.
All of these metrics show that China has achieved the key 13th Five Year Plan (2015-2020) targets for coal capping and clean energy development.
The market now expects, however, these metrics would be much more aggressive in the coming five years.
2025: Wind and Solar Five-Year Plan Targets
Right now, there are different expectation on Beijing’s likely decision for the 2025 renewable targets.
China Electric Power Planning & Engineering Institute (EPPEI) recently suggested the following metrics as Beijing’s consideration for the 14th Five Year Plan renewable targets:
- Beijing is likely to set coal’s percentage target at below 50%.
- The portion of renewable in China’s total power capacity should be over 29%; its portion in the power generation mix should be over 16%.
- Meanwhile, annual power demand growth is expected at 4%-5%.
The calculations would boil down to a renewable (cumulative installed) capacity target of 800GW by the end of 2025.
That means incremental capacity during 2021-2025 would be over 300GW.
Get Smart on the different five-year plan target predictions :
The EPPEI figure is a more modest prediction, while others have a more bullish view.
- State Grid: the research team of State Grid, for instance, expect that the cumulative renewable installed capacity will exceed 1100GW, of which wind power is 540GW and solar 560GW. That means renewable capacity would double in five years and the additional capacity is around 600GW.
- Brokerages: stock market brokerages are even more bullish—for obvious reasons. Industrial Bank, for instance, believes that the five-year incremental renewable capacity would be as high as 700GW (between 385-765GW), leading to 860-1200GW cumulative renewable capacity.
However, it should be noted that EPPEI–despite a company administrated by China Energy Engineering Corp (CEEC)–indeed serves as the policymaking research institute/think-tank for the key energy planner.
Meanwhile, State Grid has a strong influence over the policymaking for the electricity sector. However, against the current electricity market reform backdrops, the interest of State Grid is changing; its influence over the energy regulators has been reduced, too. [Read more: State Grid is recently under fire as Beijing pushes for asset unbundling. ]
Conclusions for now:
- The common expectation is that the renewable market would see exponential growth between 2021-2025.
- The solar market is likely to outperform wind due to steeper cost reduction.
- However, a renewable capacity growth dip is likely the case in 2021-2022, due to the sunset of subsidy. But after that, the market will revamp massive capacity expansion.
- However, due to the rapid capacity expansion, lack of grid access is likely to haunt the two industries again. The struggle will provide significant growth momentum for the battery storage industry after 2022.