Caixin
Apr 12, 2021 08:39 PM
BUSINESS & TECH

China Plans to End Some Solar Subsidies While Eyeing Price Parity With Fossil Fuels

A staff member inspects a wind-solar power station in Hami, Northwest China's Xinjiang Uygur autonomous region, on Feb. 12. Photo: IC Photo
A staff member inspects a wind-solar power station in Hami, Northwest China's Xinjiang Uygur autonomous region, on Feb. 12. Photo: IC Photo

China will end subsidies this year for new solar power plants and distributed industrial energy projects and could set prices for wind and solar power sold to the state power grid on a par with fossil fuels to make renewables stand on their own feet, according to the country’s top economic planner.

The cutoff in handouts for the two key solar power sectors in 2021 follows the central government’s move last year to slash subsidies. China is also mulling an end to subsidies for new residential solar power projects in 2022, according to an internal draft plan released by National Development and Reform Commission (NDRC) on Tuesday.

China has phased out subsidies for wind and solar power following several years of strong support to offset the higher costs of producing clean energy compared with traditional sources like gas and coal. Such subsidies had led to the rapid installation of new solar power projects in recent years, marking China as one of the fastest growing renewable markets in the world.

China added 48.2 gigawatts of solar capacity last year, according to statistics published by the country’s National Energy Administration in January. Sixty percent more capacity was added in 2020 than in 2019 with nearly half of that capacity being added in December alone as firms rushed to add capacity before the year end in anticipation of subsidies winding down.

China accounts for one-third of global installed solar capacity according data from the International Energy Agency.

The end of China’s subsidies on wind power last year drove China to install 56% of all new wind power installations in 2020, three times more than the closest competitor, the United States, with 18% of new installations, according to an annual report published by the Brussels-based trade group Global Wind Energy Council last month.

As manufacturing costs have fallen in recent years, the country is placing a priority on making the industry self-reliant while easing demands on the central government’s finances, experts said.

The NDRC suggested buffers to ensure that new wind and solar power projects can survive in a deregulated electricity market.

First, the draft plan called for each province to be allotted a certain amount of electricity hours. Under these quotas local power authority would buy electricity from newly-built renewables power projects by letting generators bid in auctions. It then suggests setting an upper price limit on government auction purchases which is roughly on par or below market prices for coal.

Government-assured purchases means power generators won’t need to pay when they connect their facilities to the state grid, a source working at a state-owned electricity utility told Caixin.

This approach is considered key to China hitting its tentative target to produce 40% of its energy mix from renewables by 2030, said a person familiar with the draft plan. That goal hasn’t been formalized yet, the source said.

Beijing has set ambitious general goals for reaching peak carbon emissions by 2030 and achieving carbon neutrality by 2060, the implications of which continue to ripple through the country’s energy sector.

Contact reporter Lu Yutong (yutonglu@caixin.com) and editor Flynn Murphy (flynnmurphy@caixin.com)

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