China steps up solar, wind support

www.environmental-finance.com
30 July

With more policy support for renewable energy still forthcoming, China this month announced a plan to subsidise at least 500MW of solar energy installations as well as a fixed feed-in tariff for wind energy projects.

China's Ministry of Finance (MoF) unveiled details last week of its second policy this year to support development of a domestic solar energy generation industry. The 'Golden Sun' programme will offer 50% of the required investment in solar energy pilot projects, and associated power transmission and distribution systems. The programme will also provide a 70% subsidy for off-grid applications, likely to be developed in China's rural western provinces.

To qualify, projects must be constructed within a 12 month time-frame, have at least 300kW peak generating capacity and have an operating life of at least 20 years. The programme aims to subsidise the development of no less than 500MW over the next two to three years, but caps projects in each province to 20MW, "in principle".

News of the subsidy triggered a jump in China's solar stocks, but the short-term impact of the subsidy on massive oversupply in the photovoltaic (PV) market is unlikely to be significant. "Only 20MW in Jiangsu province [home to industry leader SunTech Power], that's not that much," said Frank Haugwitz, EU renewable energy manager with Beijing-based EU-China Energy and Environment Programme, based in Beijing, "It won't have that profound an impact on getting inventory out. The MoF rooftop subsidy is larger in scale than this one."

In March, MoF introduced a subsidy for rooftop and building-integrated solar energy systems, which has received applications reportedly totaling 1GW. However, many analysts taking a longer view see the MoF moves as the first of more support to come, as the state economic planning body, the National Reform and Development Commission (NDRC), is expected to roll out a package of policies for solar energy and other renewables sometime this year.

These policies are expected to include some version of a feed-in tariff for on-grid utility-scale solar energy stations, as well as new short- and medium-term capacity targets for the sector. Senior NDRC officials have recently stated that targets of 2GW by 2011 and between 10 and 20GW by 2020 are likely to be adopted.

Earlier this month, China's second-largest PV vendor, New York-listed Yingli Green Energy, and state-owned partner Huajing Power won China's first utility-scale solar project, the 10MW Dunhuang solar energy station in Gansu province, with a bid of RMB 1.09 ($0.16)/kWh.

China was widely expected to introduce a national feed-in tariff to foster the wind industry in 2005, but, wary of instituting an over-generous level of support, instead tendered a series of concession projects to guide the tariff price. Although the 'concession system' has facilitated massive capacity growth in the wind sector, poor internal rates of return and tariff uncertainty have largely discouraged domestic and international private sector investment. However, on 24 July, NDRC finally chose a fixed tariff price, announcing four fixed, regional feed-in tariffs ranging from RMB 0.51 to 0.61/Kwh.

The tariffs are only marginally higher than recent winning bids under the concession system, said Sebastian Meyer, director of research and advisory at Beijing-based consultancy and developer Azure International, "but the fixed tariffs do introduce a strong signal to investors and banks. And this should help domestic and international private investors, who are playing a whole other ball-game as compared to the state-owned concerns."

"But I don't think this means that hundreds of international investors are now going to jump into China," he added. "There's been a mass exodus from the sector, but maybe there are a couple of internationals still here who will now look to develop wind projects."