China’s renewable market has entered a new stage.
The renewable power sector in China had completed the transition from fully subsidy to subsidy-free in the past three years. [READ MORE: a recap of China’s arrangement for “partial subsidizing” renewable projects between 2018-2022.]
Renewable pricing has moved from the premium feed-in tariff (FIT) to the “grid parity” model, where renewable and coal-fired power plants sell electricity at the same price. [READ MORE: Meanwhile, there is another critical pricing policy that caps the total guarantee purchase generation amount for renewable. ]
Just when the market reached the zero-subsidy finishing line last year, renewable developers are pushed to cut down prices further again, as a new policy call for RE participating in the electricity trading.
That essentially means renewable will begins full-frontal competition—among each other and with other generation sectors.
The new phrase will be challenging, especially in the near term. However, it is inevitable as renewable becomes the dominant electricity sector in China.
The “833” Policy: Reinstated Subsidy Ends
A new policy from Beijing’s energy regulator defines the “post-subsidy” roadmap for the wind and solar power market. ［Policy from NDRC No.833, 2021/06］
To recap, a general decision to sunset renewable subsidy has been made by the Beijing authority back in May 2018.
The policy then determined that onshore wind and mounted solar projects will first reach “grid-parity”—by the end of 2020. And the zero-subsidy timeline for offshore wind, distributed solar, as well as other higher-cost solar projects would be later—by the end of 2021.
The industry is, nevertheless, trying to push back and seek extra time before entering full subsidy-free.
The offshore wind sector hopes to see regional government provide financial supports between 2021 to 2025. The industry expects the cost of offshore wind will only reach grid-parity by 2025.
Beijing’s new policy last week (No.833 Document) answers those push-backs and define the post-subsidy roadmap for the higher-cost renewable sectors.
- Confirming the full stop of national subsidy: the policy reinstates that all new projects of mounted solar, industrial distributed solar and onshore wind will have zero-subsidy starting from Jan 2021. These projects will sell electricity to the grid at the standard local coal-fired power price.
- Regional Finance will be responsible for offshore wind premium: the local government could determine the tariff for new offshore wind projects from Jan 2021. However, the grid company will only pay for the local coal-fired power price part for the electricity sold by these projects. That means the extra cost [offshore wind price – coal-fired power price] needs to be handled by regional government finance.
- Subsidy for CSP: the measures for CSP is the same as those for offshore wind.
- Power trading and market competition the next step: new renewable projects are encouraged to join power trading.
Competitive Pricing: Lower than Coal-fired Prices
Renewable joining electricity market competition has been on the agenda for a while, but perhaps few expected that it would come so soon.
So far, the policy only suggests projects to voluntarily take part in market competition instead of making it a mandatory requirement.
Nevertheless, in practice, many projects will turn to competitive pricing and market competition.
This is because local government and regional market can choose from different generation sources. Generators taking part in electricity market trading–thus, often with lower prices—would be prioritized.
The policy, therefore, heralds the arrival of fully competitive pricing of renewable energy.
Soon, the majority of the renewable power is likely to sell at an even lower price than the benchmark coal-fired power prices.
How About the Promised Local Renewable Subsidy?
Indeed the central government policy leaves the space for local rulers to subsidize offshore wind and CSP from a regional level.
Guangdong province becomes the first province to provide a local subsidy. This month (2021/June), the province finally release the long-expected plan for subsidizing local offshore wind projects.
Nevertheless, we do not expect many other provinces to follow the footstep of Guangdong. Previously, Jiangsu province is the only province (other than Guangdong) that hinted at providing local subsidy.
CSP projects might be in a weaker position. Most of these projects are located in the northwestern provinces, where the local government budget is much tighter compared to their coastal provincial peers.
Also, the local subsidy might not be enough to cover the cost for the high-cost projects.
Even in Guangdong, the subsidy amount will be ¥0.15/KW, ¥0.1/KW, and ¥0.05/KW for projects connecting the grid in 2022, 2023, and 2024. These are much lower numbers compared to the previous central government subsidy of around ¥0.4-0.5/KW.
Renewable Cost Under Pressure
The end of subsidy has been challenging. Price competition in the electricity market is even more so.
The near-term pain is evident. The renewable investment needs to seek new revenue streams, higher production yields, or they will need to cut cost fast.
Recently, turbine price in China has been tumbling, from over ¥4000/KW at its peak to just over ¥2000/KW–half of its price point a year ago. The shocking plummet is a reflection of the challenge moving forward.
Solar so far appears to have put on a better performance than wind in that sense. In the past six months, solar installation has outcompeted wind. The growth of solar is driven by the increase of PV panel energy efficacy.
The near-term pain might be necessary for renewable, as the industry is poised to become the “main power generation sector” in China and to replace coal.