Caixin
May 24, 2021 08:11 PM
BUSINESS & TECH

China Allows More Wind, Solar Power This Year Even as Subsidies Fade

A combined wind and solar power station in Yancheng, East China's Jiangsu province, on Oct. 5, 2020. Photo: VCG
A combined wind and solar power station in Yancheng, East China's Jiangsu province, on Oct. 5, 2020. Photo: VCG

Chinese policymakers have set no upper limit on how much new wind and solar power capacity can be added to the grid this year, while also reserving a set amount of subsidies for residential solar installations, underscoring the government’s support for increasing renewable energy use.

Shrugging off concerns about the swelling upstream costs of photovoltaic inputs, the world’s top solar producer aims to install at least 90 gigawatts (GW) of guaranteed new wind and solar capacity by the end of 2021, according to a notice (link in Chinese) published last week by the National Energy Administration (NEA).

Experts told Caixin the policy may result in China adding between 100 GW and 140 GW of new capacity by the end of the year, around two-thirds of which would come from solar installations and one-third of which would come from wind. The country added about 120 GW of such capacity last year.

The policy marks the first time that the world’s largest greenhouse gas emitter has issued a minimum new capacity target instead of announcing new wind and solar subsidies, a strategy that effectively capped the amount of new capacity that could be added.

It comes as Beijing looks to give market forces a more prominent role in fostering the growth of its renewables industry while winding down the years-long subsidy program that has helped make wind and solar increasingly competitive with fossil fuel-derived sources like coal.

But it also comes as concerns grow over increasing solar module prices which have been driven in part by the spiraling cost of polysilicon, an ultra-refined form of silicon, which have touched $25.88 a kilogram, up from $6.19 less than a year ago, according to PVInsights.

Although new power plants and distributed industrial energy projects are no longer eligible for subsidies, the NEA plan makes a provision of 500 million yuan ($77.8 million) in handouts for residential solar projects, which are not included in the 90 GW target, the plan says.

The notice “really provides strong assurances to renewable energy developers on the revenues from their projects,” said Yan Qin, a carbon analyst at data provider Refinitiv. “It ensures that at least 90 GW is guaranteed (to be sold into the grid), and if developers use market mechanisms successfully, they may be able to build more projects.”

Others said the policy highlighted Beijing’s willingness to act boldly on its climate pledges. “The notice is in line with the new midterm goal of (peak) carbon dioxide emissions by 2030, which requires China to double its installed (renewables) capacity in the next five years,” said Patrick Dai, an expert on China’s renewables sector and a former research analyst for several investment banks.

An energy analyst at a major investment bank, who requested anonymity as he is not authorized to speak to the media, said both the minimum capacity targets and the subsidies for residential solar projects exceeded market expectations.

But he added that the modest surge in renewables stocks indicated that investors were concerned that sustained high solar prices might render the target unachievable. “The next one to two months of project bidding will be crucial,” he said.

High costs for photovoltaic modules are causing uncertainty about whether the 90 GW target is feasible, said another analyst at a different investment bank who requested anonymity for the same reason. “The installation target is considerable, but price rises across the photovoltaic industry chain may impact its realization.”

China said last month it would end certain subsidy programs for renewables and was mulling setting prices on wind and solar power at a similar level to fossil-fuel energy sources. The move was widely seen as an effort by Beijing to push renewables toward grid parity, the tipping point at which they cost the same or less than conventional power sources.

Grid parity is seen as a crucial step toward reducing reliance on burning fossil fuels, a process that releases large amounts of carbon dioxide and drives global climate change. Beyond establishing peak targets for carbon emissions by the end of the decade, China plans to reduce them to net zero by 2060.

The policy, officially the Notice on the Development and Construction of Wind Power and Photovoltaic Power Generation in 2021, was released by the NEA on May 20.

Contact reporters Matthew Walsh (matthewwalsh@caixin.com) and editor Flynn Murphy (flynnmurphy@caixin.com) 

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