China Plans to Prioritize Non-Subsidized Wind and Solar Projects

According to the NEA, if projects agree to convert to an unsubsidized project voluntarily, grid companies will earmark such power consumption at the highest priority level.

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China is prioritizing unsubsidized wind and solar photovoltaic (PV) projects. China’s National Energy Administration (NEA), has organized and drafted a project report on promoting non-subsidized affordable projects for wind and solar power generation.

The construction work plan is up for comments and suggestions up to April 23, 2019. The effective date of the consultation paper (construction work plan) is until December 31, 2020. It is valid until the end of China’s ongoing 13th Five-Year-Plan (2016-2020). The consultation paper provides greater clarity on how the NEA intends to move forward during the remaining period of the ongoing plan.

In the construction work plan circulated by the NEA, priority has been categorically given to the construction of unsubsidized projects. Unsubsidized solar power generation projects that can start construction in 2019 will be confirmed first, before the confirmation of any project applying for subsidies.

In June of 2018, China shocked the global solar markets by imposing installation caps and reduced feed-in tariff (FiT) for solar projects in the country affecting solar demand in the country after which installations declined from 53 GW in 2017 to 44 GW in 2018. The change in policy is a result of a massive subsidy backlog of 120 billion yuan ($17.4 billion).

In an emailed statement, Frank Haugwitz, the director of Asia Europe Clean Energy (Solar) Advisory Co. Ltd (AECEA), commented saying, “This is not a new development. In January 2019, the NEA had circulated a policy announcement to strictly implement both power transmission and consumption for such unsubsidized projects. The NEA in January 2019 had circulated the policy to encourage solar PV power generation projects approved in 2018 or prior years to be converted into unsubsidized projects”.

According to the NEA, if projects voluntarily convert to an unsubsidized project, grid companies (electric utilities) will earmark such power consumption at the highest priority level. Moreover, new unsubsidized projects constructed in 2019 will be considered at a second priority level. After the consumption of the unsubsidized project is guaranteed, projects requiring state subsidies will be considered.

Moreover, the project approval will be annulled for solar PV power projects that have been approved for two years but have not started construction or have not applied for an extension, or have applied for an extension but have not started construction within the extended period, regardless of whether the company assures to continue construction.

If the company involved in such a project wishes to continue the construction, it should participate in the bidding process in 2019 as a new construction project after the project approval management authority approves of the same. Currently, solar PV projects that are approved, but not constructed (with quota) amounts to more than 7.8 GW and solar PV projects which are approved, but not constructed (without quota) totals to more than 32 GW.

The NEA has stated that the projects requiring state subsidies have been put on hold. Provinces and regions will not conduct bidding for solar PV projects requiring state subsidies until national authorities have determined the first batch of grid-parity projects for 2019.

In this context, in regions that can construct grid-parity solar PV projects, relevant provincial development and reform commissions should submit the first batch of 2019 PV project list to the national authorities by April 25, 2019. Projects approved in 2018 and willing to convert into a grid-parity project will be included in such a list, upon review.

Provinces and regions in which none or limited capability grid- parity projects can be constructed, corresponding authorities will submit the respective national subsidy project competition plan to the NEA before May 31, 2019. Against this background, NEA is considering the introduction of a nationwide centralized bidding process for projects seeking subsidies in the months to come.

State Grid Corporation, China Southern Power Grid Corporation, and local power grid enterprises should guarantee the transmission and consumption of electricity generated by such grid- parity projects and also sign long-term fixed tariff purchase and sale contracts with a duration of no less than 20 years.

By the end of June 2019, authorities aim to have finalized a kind of template or standardized text to be used for settling fixed tariff purchase and sale contracts between the involved stakeholders. Furthermore, NEA intends to have finalized their intended policy for green electricity certificates by June 30, 2019.

According to Haugwitz, “AECEA is of the opinion that the above-mentioned “consultation paper” is in line with the overall policy direction pursued by the NEA, i.e., to give preference to so-called grid-parity projects, which was already announced early January 2019. Given, that since May 31, 2018, the Chinese solar PV market was somewhat in limbo, although with 44.26 GW installed capacity last year the market performed better than expected, the announcement and set of rather short deadlines outlined above demonstrates NEA’s commitment to providing visibility to the market.”

Haugwitz  added that AECEA considers this period (up to the end of 13th five-year-plan) to be “transitional,” i.e., the Chinese solar PV market will evolve from a previously solely subsidy-driven to a market home to both “grid-parity” and “FIT supported” projects and eventually enter a subsidy-free market period beginning 2021. The fact that FITs for both solar PV and wind power will be fully scaled-back by 2020, was already indicated in a “3-year Clean Energy Consumption Action Plan 2018-2020” released on November 30, 2018, added Frank.

“The success of this “transitional approach” largely depends on the two national grid operators ensuring each and every generated kWh will be off-taken first, for at least 20 years. Both will be critical to providing comfort to subsidy-blessed Chinese project developers now having to learn how to execute projects without subsidies in a relatively short period,” he further added.

Mercom recently reported that the Chinese NEA is looking at One Belt One Road (OBOR) initiative to expand renewable energy along the economic belt. As of now, China is the largest solar PV market in the world. Prioritization of unsubsidized projects with off-take guarantee will further help the country in consolidating its pole position.

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Saumy Prateek

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