CDM decision to block Chinese wind projects provokes industry outrage

CHINA: Wind professionals have lambasted a decision by the executive board (EB) of the UN clean development mechanism (CDM) to block carbon financing for ten Chinese projects with combined capacity of 435.7 MW. The board says information needed to judge eligibility was not provided.

Huiteng Liangfeng wind farm at Xilinguole League, Inner Mongolia
Huiteng Liangfeng wind farm at Xilinguole League, Inner Mongolia

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Through the CDM, a financing system established under the Kyoto Protocol, industrialised countries invest in projects that reduce emissions in developing countries as an alternative to more costly emissions reductions in their own countries. More wind projects have secured CDM finance in China than in any other country (Windpower Monthly, November 2009).

To be eligible for CDM carbon credits, a project must prove that emissions reduction resulting from its clean power would not have been achieved without the CDM revenue. In industry jargon, this is known as additionality. According to the Global Wind Energy Council (GWEC), the EB accused the Chinese government of lowering legislated purchase prices for wind to attract CDM investment.

The EB itself says it did not receive enough information from project developers, and from companies accredited by the CDM to check that projects fulfil CDM criteria, to assess the mandated purchase prices. It has encouraged developers to reapply. "If the project operators could instantly supply information, we may start re-examination right now," says EB chairman Lex de Jonge. "If their arguments are well based, they might pass."

Still critical

Despite strong government support, profits at Chinese wind farms remain small due in part to a lack of sophisticated wind forecasting technology and poor operation and maintenance. For this reason, Chinese officials say CDM remains critical. "Without CDM projects, the Chinese wind power industry will not develop quickly and it will not be able to contribute so significantly to the reduction of greenhouse gas emission across the world," says Wang Yan, assistant to the secretary general of the China Wind Energy Association.

Five of the ten rejected projects are owned by the Longyuan Group, China's largest wind developer. Huadian International and China Datang each own two, and the remaining project belongs to Guangdong Guohua New Energy Investment. Nine leading Chinese wind farm operators signed a joint declaration asking the EB to reconsider. Among them are the country's top five power groups. Tang Renhu, director of the Datang CDM project office, says CDM earnings account for 10-20% of income at wind farms.

Li Gao, climate change division chief at China's National Development and Reform Committee, was similarly critical. Li was part of China's negotiation team at the UN climate conference in Copenhagen. "The Chinese delegation noticed with serious concerns that, during the past year, the development of CDM projects in specific areas was confronted by unprecedented difficulties and barriers, part of which are caused by the irrational, non-transparent and unfair decisions of the EB, which is expected to be fair and impartial," he says. Li's phrase "specific areas" is interpreted as referring to China. De Jonge denies the EB decision specifically targets China, saying that because the country accounts for such a large portion of projects it scrutinises, a certain number of rejections is to be expected.

No decline

GWEC secretary general Steve Sawyer says the EB has never substantiated its concern over mandated purchase prices. He adds: "Since 2006, which marked the beginning of the wind power boom in China, tariffs for wind power have either remained stable or have in fact risen." The China Renewable Energy Industries Association agrees. Its Research Report on the Development of Chinese Wind Power Industry and Power Prices concludes that the Chinese government has not suppressed guaranteed purchase prices for wind to maximise CDM revenue.

China first introduced fixed prices for wind in 1986, when the country's first wind farm was constructed in east China's Rongcheng, Shandong province. Wind farms received a maximum payment of CNY 0.3/kWh ($0.044/kWh), equivalent to those of thermal power. Between 2003 and 2007, the country conducted a wind project concession programme allowing the market to decide prices, which continued to rise.

In July, China introduced fixed prices for electricity from onshore wind farms built after August 1. Grouped into four regional categories, prices have been set according to wind resource and project construction conditions and range from CNY 0.51/kWh ($0.075/kWh) in the windiest parts of the country to CNY 0.61/kWh ($0.089/kWh) in the least windy areas. They are an improvement on the CNY 0.38-0.52/kWh ($0.055-0.076/kWh) under the concession programme (Windpower Monthly, December 2009).

There were some exceptions to the upward trend in price in such areas as Heilongjiang province in China's remote northeast and the western part of Inner Mongolia. Costs of wind farms in such areas had fallen due to accelerated construction of electricity transmission lines and an increase in the portion of wind power equipment manufactured locally. This resulted in lower fixed purchase prices for wind power. The fall in fixed prices, though, did not affect an overall decrease in fixed prices across China.

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