China is ready to scrap subsidies for renewable energy after years of technological advances and cost reductions, as government policies aim to both reduce the subsidy burden while maintaining a fairly stable market, analysts said. China will remove subsidies for new solar energy projects and onshore wind power projects from the central government budget in 2021 and work toward grid parity, the National Development and Reform Commission (NDRC) announced in mid-June. Effective August 1, the policies aim to promote the efficient use of resources and high-quality development of new energy industries and ensure that wind and solar projects receive relatively good returns. Luan Dong, China Renewables Analyst at Bloomberg New Energy Finance, said the government’s scrapping of subsidies for wind and solar projects this year is within expectations, as costs for onshore wind and solar projects have been rapidly decreasing in recent years, paving the way for electricity derived from solar and wind to be sold to the grid at the same price as coal-fired power.
“Beginning with the turn of the decade, government subsidies resulted in significant cost reductions for wind and solar plays, and we estimate generating costs for those technologies declined by 60% and 80%, respectively, since 2014 in China,” Luan said. “Now they are close, if not below, the cost of new coal-fired power in most regions. By and large, we believe new wind and solar projects can be viable without subsidies and state-owned developers will play a major role in driving market growth,” Luan said. But he added that two questions remain. Will policymakers keep mandating price cuts in regulated tariffs for new projects? And will the volume of discounted liberalized power sales increase?
The NDRC's new policy also follows a drastic fall in manufacturing costs for solar and wind facilities amid booming renewable capacity in China. The Commission also encourages local governments to roll out policies to support the sustainable and healthy development of renewable energy industries, and electricity prices for the newly approved offshore wind and solar power projects will be decided by the pricing authorities of provincial-level regions where said facilities are located, starting this year, it said. Under current benchmark prices for coal-fired power generation, onshore wind and solar projects are estimated to be able to achieve internal return rates of 8% to 9%. Leon Chuang, Global Marketing Director at solar module manufacturer Risen Energy, said the advance of solar technology and cost reductions have further facilitated grid parity of clean energy and pushed forward rapid development of the sector.
Qian Jing, Vice President of module maker JinkoSolar, said the policies mark the era wherein wind and solar power finally enter the subsidy-free age. Grid parity can also allow solar companies to compete on a level playing field and let the market select winners and weed out inefficient players, she added. Qian said she believes that a subsidy-free era will bring about policy innovation, improved business models and enhanced financial products, thus resulting in a new power system with renewable energy as a principal player. Yang Liyou, General Manager of Jinergy, said grid parity within solar power generation means the country’s solar industry has entered a market-oriented era from a policy-oriented one, while renewable energy can also play a vital role in the country’s pledge to achieve carbon neutrality by 2060. Shu Yinbiao, Chairman of China Huaneng Group Co, said the photovoltaic industry, which is expected to play a key role in the rapid development of renewable energy during the 14th Five Year Plan period (2021-25), is ready to embrace the era of grid parity.
Subsidies for onshore wind and solar power projects date back to 2009, when subsidy incentives drove rapid development of the country’s installed new energy capacity. However, the generous subsidies allocated over the past few years weighed on central government finances and led to an increasing subsidy gap. Starting in 2016, China began withdrawing subsidies for solar and onshore wind projects, thus preparing the renewable energy sector for a subsidy-free era. In 2019, China’s National Energy Administration (NEA), determined to achieve grid parity and released its final guidance on wind power prices for existing and new projects in which new onshore projects permitted after January 1 must be subsidy-free. Before that, developers needed to bid in provincial-level auctions to receive wind power tariffs above the regulated coal-fired tariff level. Considering the impact of the coronavirus outbreak on business operations, the authority had extended the application period for the auction to mid-June. By the end of 2020, total installed capacity of wind and solar power reached 530 million kilowatts, ranking top worldwide, the China Daily reports.
