Some insight into the work for renewables in China.

The Chinese Renewable Energy Law

The breathtaking growth of the Chinese wind energy industry has been driven primarily by national renewable energy policies. The start of the government’s active engagement in renewable energy development dates back to 2004, when the nation was drafting its first “Renewable Energy Law”. The law was adopted in 2005 and entered into force in 2006.

It gave huge momentum to the development of renewable energy and the wind industry has grown at a frantic pace since then. The Renewable Energy law marks a major shift in energy policy towards market supportive policies for renewables. It stipulates, for the first time, that grid companies have the obligation to purchase the full amount of the electricity produced from renewable sources.

Already in 2005, when the law was passed, the annual growth of the Chinese wind market reached 60%, followed by four consecutive years of over 100% growth. In 2007, the first implementation rules for the Renewable Energy Law emerged, giving further impetus to wind energy development. In addition, the “Medium and Long-term Development Plan for Renewable Energy in China”, released in September 2007, set out the government’s long term commitment to renewable energy up to 2020, putting forward national renewable energy targets, priority sectors, and policies and measures for implementation.

For the first time, the Plan set a target for a mandatory market share (MMS) of electricity from renewable sources. By 2010 and 2020, electricity production from non-hydro sources should account for 1% and 3% of total electricity in the grid. It also requires larger power producers to source 3% of their electricity from non-hydro RES by 2010, and 8% by 2020. The MMS indicates a target of about 18-20GW by 2010 and 80-100GW by 2020 for all non-hydro renewable sources. It is worth noting the 2010 target has been exceeded by wind power alone by a considerable margin.

Renewable Energy Law 2009

Amendments
An amendment to China’s Renewable Energy Law was introduced in 2009, reiterating priority grid access for wind farms, a stipulation which had previously not been enforced. In addition, the new amendment requires grid operators to purchase a certain fixed amount of renewable energy, and penalties for non-compliance are foreseen.

The State Council energy department together with the state power regulatory agency and the State Council finance departments will be responsible for determining the proportion of renewable energy in the overall generating capacity, and draw up a detailed implementation plan for requiring grid companies to purchase the full amount of renewable electricity produced.

The amendment also requires grid companies to enhance the power grid’s capability to absorb the full amount of renewable power produced. Grid companies can apply for subsidies from a newly established ‘Renewable Energy Fund’ to cover the extra cost for integrating renewables if necessary.

The Renewable Energy Fund was also introduced by the amendment, and it is designed to serve as the central fund to combine the Renewable Energy Premium and the government funding for renewables. It is not yet clear how this fund will be managed.

The Renewable Energy Premium

The Renewable Energy Law stipulates that the price difference between the electricity from renewable energy and that from coal fired power plants should be shared across the whole electricity system.

To fulfill this objective and to finance the electricity from renewable energy sources, in the implementation regulations of the Renewable Energy Law published in 2006, there is a 0.001RMB/kWh (€0.01 cent) Renewable Energy Premium added to the cost of each kWh of electricity sold, aiming to cover the difference between electricity from coal-fired power plants and electricity from renewable energy.

In 2008, the premium was raised to 0.002RMB/kWh (€0.02 cent) and again in November 2009 to 0.004RMB/kWh (€0.04 cent), to keep up with soaring renewable energy (mainly wind) development.

Feed-in-tariff regulation

Also in 2009, the Chinese government introduced a feed-in tariff for wind power, which applies for the entire operational period of a wind farm (20 years). There are four different categories of tariff depending on a region’s wind resources, ranging from 0.51RMB/kWh (€5.4 cents) to 0.61RMB/kWh (€6.5 cents).

This is considerably higher than the tariff paid for coal-fired electricity. Prior to the introduction of the feed-it tariff, a dual track system existed in China, with a concession tendering process on the one hand, the project-by-project “government approval” process on the other. The new feed-in tariff now replaces both these processes.

The level of the new feed-in tariff is comparable to that of the government approved tariffs over the past several years in most regions and is substantially higher than the concession tariff. It gives investors a much clear idea of the long-term framework for the sector.