China last week kicked off the belated annual political gathering “Two Sessions”–meetings of the country’s top legislature and political advisory board National People’s Congress (NPC) and Chinese People’s Political Consultative Conference (CPPCC).
Energy Iceberg provides here a full-review and commentary of the critical clean-energy policy and advisories proposed this year by the “Two Session” delegates, many of which are the top executives of the nation’s leading energy companies.
The energy-related proposals offer a glimpse into the industry and company, as they:
- often reflect the key issues and strugglesto face the industry
- underlines the energy companies’ interest and strategies
- partially indicates the future direction of policy changes and shakeups
- reflect industry leaders’ points of view. Although, it should be noted that not all proposals will become Beijing’s policy
Wind: All About Subsidy and Offshore Wind
Shu’s policy advisory has a heavy focus on offshore wind, asking Beijing to
- support offshore wind constructions in far-sea and deep-water sites in Jiangsu and Guangdong
- suggest consolidating offshore wind project development efforts (by having one developer to take charge of the development of one larger area)
- strengthen R&Ds in turbine parts incl. IGBT, main bearing, control system, and HVDC subsea cable and increase local content
- “rationally” slow down the pace of national subsidy reduction for offshore wind and solve the subsidy deficit issue.
“Tackle Renewable Subsidy Deferred Payment Issue,” Wen Shugang Chairman of China Huadian (NPC member)
- suggests Beijing implementing new measures to solve the severe deferred subsidy payment issue in the renewable power market, by improving the national subsidy mechanism.
- urges southern province Guangxi–currently the only coastal provinces in China without any offshore wind development plan–to move forward in offshore wind development
- Wu suggests Beijing regulators to extend national subsidy deadlines for wind power projects by at least 6 months for onshore and by 12 months for offshore wind.
- He also urges Beijing to establish mandatory green-certificate trading mechanism
- Wu critized that some regional governments issued policy to cut renewable power sales prices, which would damage investment momentum, he warns
- Zhang asked for a similar subsidy deadline extension for onshore and offshore wind projects, citing negative impacts from COVID-19.
- He also asked Beijing to provide tax exemptions for wind manufacturing companies.
Energy Iceberg Comment: Wind power projects currently under construction are required to complete grid connection before the end of 2020 (for onshore) and the end of 2021 (for offshore), if these projects hope to secure national subsidy, according to a 2019 policy. These “subsidy deadlines” were already challenging for most projects, which now suffer from construction and supply chain delay caused by COVID-19.A majority of the offshore wind investment plans and a part of the onshore plans may be aborted, if Beijing does not “cut some slacks” for the deadline. However, Energy Iceberg’s opinion remains that Beijing is unlikely to change that decision or to provide an extension. This is due to the decision making right of the subsidy matter is not only on energy regulator but also (or more heavily) on the finance regulator, which has a strong incentive to cap spending on renewable subsidy due to the deficit in the subsidy cash pool.More about the subsidy set up please check our previous report
Solar: Also About Subsidy, and Energy Storage
Nan Cuihui’s suggestions include:extending the grid-connection deadline for solar projects (by the end of 2020)adjusting solar subsidy to be based on “reasonable” utilization hoursensure 20-year feed-in tariff pricing mechanism for solar powerdevelop pricing mechanism to promote generation-side storage construction
Energy Iceberg Comment: in a nutshell, the solar sector is asking a similar subsidy deadline extension, like their wind peers. Nan also warned in a recent interview that, without national subsidy support, around 6GW solar PV investment would be stranded. But the potential of project delays would be less severe in the solar sector, compared to the wind. Meanwhile, it is worth of noticing several solar PV leaders advocate for policy incentives for generation-side energy storage investment. This is, in part, because many of the “PV” part makers are also suppliers in the battery cell supply chain. More importantly, China currently requires renewable power projects to ensure power generation quality for grid connection. But the cost for building storage facilities are on the developers. The lack of economic incentives for storage facilities is a bottleneck.
- suggests setting incremental solar and wind power targets at 300GW and 150GW, respectively, for the 14th Five Year Plan (2021-2025)
- calls for the introduction of the carbon tax, of which the rate could be at $50-150/ton
Energy Iceberg Comment: Cao’s proposal for Beijing to introduce the carbon tax, in fact, reflect the severe issue in China of deferred renewable subsidy payment and the worsening deficit of the subsidy cash pool – the Renewable Energy Development Fund (REDF). The industry leaders have voiced different measures for Beijing to increase revenue for the REDF and solve the deficit issue.However, an introduction of carbon tax appears to be unlikely in the near term, as it is at odds with Beijing’s current priority to lower taxes and boost domestic economy post-COVID-19. China is also on the course of developing a nation-wide carbon trading market, which makes carbon tax an unlikely option in the near term.
“Tax Exemptions Required for Zero-Subsidy Projects, ” Liu Hanyuan President of Tongwei (NPC member)
- suggests lowering the VAT tax rate for solar PV projects to 3%
- asks for tax exemption for zero-subsidy PV projects
Energy Iceberg Comment: Liu’s proposal on VAT tax rate reflects the common point of view of the solar sector, which is under around 8% VAT tax while small hydro projects are under 3%. Note that similar proposals have been delivered in the previous “Two Sessions,” but so far the regulator has yet to signal a potential change of the tax rate.
Hydrogen: National Legislation & Planning Required
Shi’s proposals emphasized on policy supports for the nascent hydrogen sector:
- suggests building a national-level legal framework regarding hydrogen energy’s utilization and defining its role in the energy mix
- calls for Beijing to include hydrogen targets in the coming 14th Five Year energy industry plans
- urges Beijing to coordinate hydrogen supply chain constructions in the national and avoid inefficient investments
Energy Iceberg Comment: Other industry leaders appear to share Shi’s view regarding national planning, as the following proposals suggest. Currently, local governments indeed show stronger momentum in promoting H2 development, while the national plan/strategy/target or legislation is not in place. A clear risk of the situation is the potential over-investment and overcapacity building of hydrogen supply chain.
- suggest to include hydrogen in China’s energy strategy and set up national hydrogen and fuel cell development roadmap
- asks to develop nation-wide hydrogen and fuel cell vehicle development plan
- urges new industry regulation/protocols for hydrogen in H2 storage, utilization and management
- mentioned the lack of H2 refueling station project development protocol and government approval protocol
- urges for supporting policies “in key areas” and suggests to first embark FCVs in public vehicles (public transportation, logistics, groundskeeping)
- urges the nation to establish a nation-wide hydrogen development roadmap quickly
- calls for to petrochemical industry to push forward the transition from grey hydrogen to blue and green hydrogen, despite that “petrochemical companies in China has a clear advantage in grey hydrogen production.”
Energy Iceberg Comment: this proposal–from China’s largest petrochemical producers–heralds an apparent policy shift in the future. China is rich in grey hydrogen and, up till now, there is no national policy set-up to differentiate green and grey hydrogen production in the value chain. But recently, more voices emerge in the industry calling for green hydrogen development and a cap on grey gas. The proposal from Sinopec top executive shows the potential of policy shakeup. New signs of green hydrogen debate
Battery & EV: Energy Storage the New Emphasis
Zeng calls for more efforts in battery energy storage construction, which could be a facilitator for China’s 5G network construction, renewable consumption and EV charging development. Specifically, he believes that Beijing should
- include energy storage in the national energy planning (e.g. the 14th FYP)
- legally, establish the role of energy storage in the overall energy system
- introduce pricing mechanism (incentives) and allow grid operators to include energy storage construction in their investment plans and the transmission pricing
- set up GW-size stationary battery storage plant demos
Energy Iceberg Comment: as the leader of China’s battery manufacturing, CATL’s proposal reflects an ongoing industry shift–more battery producers now eye on the new market potentials of battery in stationary power source and energy storage system. CATL this year has inked several deals with mega power utility State Grid to kick off storage system business cooperation. As China sets off the “New Infrastructure” investment plan, energy storage is a new blue ocean market for the battery producers. More on the battery energy storage opportunities:
14th Five-Year Plans
- suggests pushing forward four nuclear power projects in Guangdong and Guangxi (Huizhou-1,2, Shanwei-1,2, Fangchenggang-5,6, and Bailong-1,2)
- proposes to strengthen renewable generation technology, energy storage technology and smart grid applications
- calls for development in VSC-HVDC transmission technology for offshore wind
Energy Iceberg Comment: Cao’s proposal reflects the energy/power preference of China’s southern provinces, especially Guangdong province. Nuclear and offshore wind appear to be top on the list.
Cao, former leader of China Huaneng, believes that energy security should be the central elements, which is facing challenges with the speedy progress made by renewable power, EV charging, distributed systems.
- suggest the power industry to seize market opportunities in the “new infrastructure” development
- calls for “high quality” development of renewable power
- ensure development space for the efficient coal-fired power technology, pushing forward coal-fired power plants’ technology upgrade (to ultra-critical, to CHP units)
Energy Iceberg Comment: it is worth to note that coal remains a central topic of China’s 14th Five-Year Power Plan discussion. Currently, there are different points of view regarding “how much” fossil fuel should China allow in the next decade. Chen’s viewpoint is in line with China Datang’s business strategy (clean-coal-focused).More about the coal debate in 14th FYP