China

China

Renewables mandate in five year plan -- But a long way from approval to legislation say China officials

The latest Five-Year Plan from the Chinese govenment gives the sagging Chinese wind market distant hope. The plan includes the concept of a Mandatory Market Share (MMS) of renewables in the national supply mix. But industry players are doubtful the MMS will have any affect over the next five years. It is a long way from becoming active policy and the country's present shift to a market economy is seen as a challenge. For the time being, observers say short term government measures such as a carbon tax on coal would be more effective.

The Chinese government has included the concept of a Mandatory Market Share (MMS) of renewables in the national supply mix in its Tenth Five-Year Plan (2001-2005), announced at the annual session of the Chinese People's Political Consultative Conference in March. If realised, the MMS could give a huge lift to the sagging Chinese wind market, but government officials have little hope of legislation any time soon.

The MMS arises from a proposal to place an obligation on provinces to meet a renewable energy quota of 5.5% of total electricity production from own generation or through the trade of green certificates. Regions or grid operators unable to meet the quota through their own generation will be required to buy it from those with excess supplies. The MMS system is based on the same concept as the American Renewables Portfolio Standard.

Eastern coastal provinces like Shandong have high potential and are well positioned to develop wind power. They are relatively rich and have generally higher electricity prices, compared with their counterparts in the central and western regions. These areas, on the other hand, have ample wind resources. But the eastern provinces have been reluctant to tap wind power due to profit concerns and a lack of legal obligations. With the MMS, they may think twice, and cross-province sales of renewable energy will benefit the westerners.

Uncertain

"The MMS is clearly positive in the long run, but it is unlikely to have immediate effects," says Liu Wenqiang, in charge of wind in the renewable energy division of the State Economic & Trade Commission (SETC). China's present shift toward a market economy will offer a challenge in itself. "The anticipated chaotic period that may come with the reform makes the fate of MMS uncertain," says Liu.

In addition, the MMS is a long way from becoming active policy, and much work will need to be done, says Zhang Yuan, director of the renewable energy division of the State Power Corporation. Zhang is doubtful that MMS could have any real effect on the industry in the next five years. One of the policy's main proponents, Li Jingjing, director of the Centre for Renewable Energy development, says at least three years is needed to adopt and implement the plan on a trial basis before officially launching the system on all fronts.

For the time being, short term government measures will be more effective, observers say. A carbon tax implemented on coal burners is one option. "It is a fundamental way to aid renewable energy," Li says, "Polluters should pay." China now collects a pollution fee on offenders, but its impact is limited.

Whatever the policy fix, "No breakthrough is likely to come this year," says Zhu Junsheng from China Renewable Energy Industries Association and formerly a senior official overseeing the Renewable Energy Division at SETC. As expected, a target of 1200 MW of wind power has been set for 2005 in the Five Year Plan, confirm sources with the State Development Planning Commission. The SETC, which is responsible for promoting technical revamping of enterprises, hopes to see that goal upped to 1500 MW. Currently, China's total on-line wind power capacity is 340 MW; 76 MW was added in 2000 (table).

unambitious

Although the goals are unambitious for a country of China's size, the chances for either target to be met are small if the current situation does not change significantly, says Zhu Junsheng. Many industry observers share this view of China's energy policy.

While the government supports wind power development, existing measures are far from sufficient. To start with, the central government allows wind producers to sell power at a price "reasonably higher than the cost," and utilities are required to buy all the wind power generated in their area. This measure ensures the wind farms' profit, though often very little. But it makes utilities unhappy, due to wind power's expense and lack of incentives -- not to mention its intermittency. The companies may not raise the price of electricity they sell, so they must digest the losses.

This situation exasperates any negotiation for new wind projects between prospective investors and the utilities. With China's shift to a market economy, along with the massive reform going on in the power market, the prospects for wind power are even more blurred. Wind investors worry that in the course of the reform negotiations for new wind power projects may encounter stronger resistance from the utilities. It is not impossible for the government price scheme safeguarding their benefits to be elbowed aside, which can have consequences for existing contracts.

During the March political conference, Inner Mongolia joined a list of wind industry developers petitioning for "favourable treatment of the wind power sector." The main focus is a call on central government to reduce the newly imposed 17% value added tax on wind turbines (Windpower Monthly, March 2001). No sort of response is expected until July.

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