Tuesday, 19 January 2010

Experts split on significance of China’s new green energy law

08 January 2010

Renewable energy specialists in China have questioned the significance of a recent amendment to the country's 2006 Renewable Energy Law, saying it will have little, if any, effect on renewable energy companies on the ground. However, others contend that the amendment provides an important framework to help address several issues plaguing the fast-growing sector, and sets the stage for a long-awaited stimulus policy and funding package.

A senior official quoted by state news agency Xinhua on 28 December trumpeted the amendment, passed by China's highest legislative body 26 December, as a contribution to the "global fight against climate change". The Xinhua story emphasised that the amendment requires state-owned grid companies to purchase power from renewable energy producers, but failed to mention that the original 2006 law required the same thing. "I think it's an excellent publicity stunt," said Peter Corne, a Shanghai-based managing director at global law firm Eversheds. "It reminds me of some pop icons that get a second hit years later with the same song."

But Corne added that, beyond PR value, the amendment does contain some substantive changes meant to correct imbalances that have emerged in China's rapidly growing renewables sector. These include inadequacies of the power grid, whereas much as a third of China's 20GW of wind turbines spin unconnected to transmission lines, and the failure of some grid companies to purchase renewable power or provide grid connection as required by the original law. "The main message of this new amendment is that the government is more serious in addressing the problems facing the expansion of renewables," he said.

The amendment, first reviewed last August (see Environmental Finance, September 2009, page 12), is intended to bolster central government oversight, regulation and enforcement of the proportion of renewable energy produced and purchased. Ma Lingjuan, deputy general manager of Beijing-based China Renewable Energy Industries Association (CREIA), said the amendment links renewable energy purchasing targets for grid companies, which already exist in disparate regulations, with fines mentioned in the original law. Those fines have been doubled and subsidies offered to further incentivise compliance.

The amendment also requires grid companies to expand the range of power grids to better transmit electricity from solar and wind resource-rich regions in the northwest to the industrial east coast. Xinhua also touted the amendment's mention of the importance of 'smart grids' in facilitating a larger role for renewables in China's energy structure – quoting a researcher at China's foremost research institute as saying smart grids and renewables should be like "twin brothers".

However, Charles Yonts, Hong-Kong based head solar analyst with brokerage, analysis and advisory services firm CLSA, said that, behind the rhetoric, there is little substance: "They talk about the smart grid, but there's little concrete there. I think, if anything, the amendment is a shot across the bow of the grid companies, a little push to remind them that the law [requiring off-take] is there."

But Changhua Wu, Beijing-based head of Greater China for the Climate Group, an NGO, said that Chinese laws at this level are often vague, offering only a framework to be fleshed out with future regulations. Wu added that a long-awaited policy and funding package, known previously as Beijing's Green Stimulus Package, would be released soon.

"This amendment sets the foundation for the New Energy Development Plan – which is focused much more on the size of the market and investments." said Wu. "But if you don't address the barriers to growth – the infrastructure of the sector – as this amendment does, it doesn't matter how much power you make."

Originally expected as early as last May, the New Energy Development Plan, which Wu said would include plans for nuclear energy, is reported to include amended capacity targets for renewable sectors. "The major content of the plan is to review the targets for renewables – wind, solar, hydro. The exact numbers we don't know, but it's clear that the targets will be increased," added CREIA's Ma.