Renewable Energies marketing models China

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 Feed-in-Tariffs

Status Quo

In order to support the development of renewable energies, China has adopted feed-in tariff under the framework of the Renewable Energy Law in 2008. The amounts of feed-in tariffs depend on the region (province) and the type of energy generation (photovoltaic, wind, etc.). The state guarantees the purchase of renewable energies by the national grid operators. Due to China's enormous promotion and its objective of becoming the world leader in renewable energy, especially wind power have developed rapidly. By the end of 2018, China's capacity of renewable energies power generation has reached 729 GW, an increase of 12% compared with the previous year.

 

Current Challenges

In 2010, under the Renewable Energy Law, China established Renewable Energy Development Fund to provide financial support for the development and utilization of renewable energy. However, with the rapid development of renewable energies, feed-in tariff subsidies cannot keep up with the development speed of renewable energy power generation. According to Deputy Director of the Price Department of the National Development and Reform Commission, the subsidy gap for renewable energy is growing dramatically. By the end of 2018, the fund had already accumulated a deficit of over RMB 100 billion (https://www.greentechmedia.com/articles/read/is-china-ready-for-subsidy-free-renewables) Although China has started to collect renewable energy development funds and theoretically China can collect more than 100 billion renewable energy funds every year, for various reasons the actual amount of renewable energy funds in China is far less than the theoretical quota, which has led to a large gap in China's renewable energy funds, and feed-in tariff model needs further adjustment. Furthermore, subsidy-free renewable energy projects are being promoted in order to reduce the burden of payment of subsidies to project developers.

 

Outlook

In 2018, the National Energy Administration announced that renewable energy support policy is about to turn. In particular, a quota system will be introduced at national and provincial level, which stipulates a minimum share of renewable energies in total energy consumption. Feed-in tariff levels will be lowered in 2020 whereby the concrete amount of the feed-in tariff depends on the resource area category. Regarding onshore wind power, beginning from 2021, no state subsidies will be granted and grid-parity shall be achieved.

 Self-consumption

Status Quo

The construction of generating facilities for renewable energy for self-consumption is particularly promoted in rural areas. Further, real estate development enterprises shall take into account the requirements for using solar energy when designing and constructing buildings. When China’s Administration terminated the feed-in tariffs for large-scale power plants in May 2019, this had a positive impact on, e.g., rooftop PV. However, around three quarters of the solar capacity installed in 2018 were still utility scale power plants.1

 

Current challenges

Apart from considerable bureaucratic hurdles due to the involvement of a large number of authorities, a main reason for the preference of large-scale power plants is in particular that installing large quantities of utility-scale PV is much easier than establishing e.g. a distributed PV rooftop market which takes a substantial period of time and a lot of effort to educate consumers, while setting up an effective platform with the right financing mechanisms and technical standards.2 A distributed rooftop segment in China is temporarily not in sight.

 

Outlook

Large-scale power plants will continue to be a market leader under the new policy framework in China, although it is presumed that rooftop PV will gain market shares in the future since it especially avoids any potential conflicts with land use compared to large scale-power plants.3

 PPA

Status Quo

In the 13th Five Year Plan, four key safeguard measures were proposed, especially including the implementation of a full-amount guaranteed purchase mechanism for renewable energy power generation.4 Moreover, in 2019, China started building pilot power projects that won’t receive national government payments as it pushes to improve the competitiveness of renewable energy.5

 

Current Challenges

However, according to the National Energy Administration, such projects will only be in regions where local authorities can ensure that power from these plants will be fully consumed and their construction won’t squeeze demand for existing projects.6 Also, since the price pressure is high and increasing across the whole value chain, on the other hand, e.g., the wind industry is concerned over how to find effective methods to reduce costs as China moves into the subsidy-free era in 2021.7

 

Outlook

China’s solar industry – as an advanced world level industry with industrial competitiveness8 – is expected to transition toward a subsidy-free market as early as 2021 since China’s National Energy Administration announced plans to drive the development of new subsidy-free solar projects through policy support.9 According to the National Energy Administration, subsidy-free pilot projects commissioned by 2020 can enjoy 20-year power purchase agreements with fixed prices and top dispatch priority, guaranteed by grid companies.10 Such policy incentives are also awarded to solar projects that voluntarily convert to subsidy-free status.11

 Leasing

Status Quo

There is no specific legal framework for the operation of leased plants.

 

Current Challenges

Challenges exist regarding the legal arrangement of the contract and tax issues.

 

Outlook

Leasing as an alternative form of financing is dependent on the financial feasibility of the corresponding business model.

 Direct marketing

Status Quo

Already in 2017 the Center for Resource Solutions highlighted the growing demand for renewable energy in China. Therefore, the voluntary renewable energy certificate (REC) program and tracking system by the China Renewable Energy Engineering Institute was launched. However, since only 30,000 MWh of renewable energy credits have been transacted in 2018, the new voluntary system was only poorly accepted indicating that the optimal conditions for corporate procurement have not yet emerged in China. In any way crucial to the development of a voluntary market is a solid policy and regulatory framework, a credible market and transaction infrastructure provided by energy attribute certificates, tracking systems or registries and transaction certification.12

 

Current Challenges

Yet, the relationship between the quota and the voluntary market need to be established and further clarified. Also RECs in China can be obtained only from certain types of procurement methods and technologies: onshore wind and solar PV. Furthermore, full functionality of the tracking system, including for example the ability for market intermediaries and corporate entities to hold accounts, has yet to be realized. Although the China General Certification Center has been established, additional transaction verification programs may be necessary to help reduce risk and encourage greater market participation.13

 

Outlook

Initial steps have been taken to facilitate the voluntary market in China. However, the system of voluntary renewables purchases needs to improve. Once a favorable set of conditions exists, the likelihood of significant voluntary demand will increase.14

 

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1 Global Market Outlook for Solar Power, 2019-2023, SolarPower Europe, p. 24.

2 Global Market Outlook for Solar Power, 2019-2023, SolarPower Europe, p. 24.

3 Global Market Outlook for Solar Power, 2019-2023, SolarPower Europe, p. 24.

4 China Renewable Energy Outlook 2017, China National Renewable Energy Centre, p. 390.

5 China Plans Subsidy-Free Solar and Wind Projects, Bloomberg News, 10.01.2019.

6 China Plans Subsidy-Free Solar and Wind Projects, Bloomberg News, 10.01.2019.

7 Is China Ready for Subsidy-Free Renewables?, Greentech Media, 31.05.2019.

8 National Survey Report of PV Power Applications in CHINA 2016, International Energy Agency.

9 Solar industry expected to become subsidy-free by 2021, Chinadaily, 23.05.2019.

10 Solar industry expected to become subsidy-free by 2021, Chinadaily, 23.05.2019.

11 Is China Ready for Subsidy-Free Renewables?, Greentech Media, 31.05.2019.

12 Cook, Orrin/Weston, Frederick, Voluntary renewable energy markets in China: Key conditions for unlocking demand, 23.08.2018.

13 Cook, Orrin/Weston, Frederick, Voluntary renewable energy markets in China: Key conditions for unlocking demand, 23.08.2018.

14 Cook, Orrin/Weston, Frederick, Voluntary renewable energy markets in China: Key conditions for unlocking demand, 23.08.2018. 

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