Three points on China's new renewables policies

 

On 28 March, China announced its latest policies to boost non-hydro renewable generation, partly to cut high curtailment levels and partly to help deliver its commitment to the Paris carbon mitigation efforts.

China introduced its Renewables Portfolio Standard (RPS), specifying numeric targets of renewable generation's share in total demand for each province for 2020; the targets vary between 5% to 13%. The government also unveiled a full grid-purchasing safeguard mechanism. This means renewable generators will see a two-tier pricing structure: one element specified in a power purchase agreement (PPA) that must be dispatched at the benchmark feed-in tariff, the other determined by market-formed price plus subsidy. Despite the many benefits, we believe the systems are still not perfect.

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1. Easier targets for power exporting provinces

Firstly, the RPS sets easier targets for power exporting provinces. To achieve the same 10% demand-based target, a province must produce three more units of renewable generation. This will prove challenging given slowing demand growth, lack of transmission infrastructure and the dominant coal-centric mind-set. So a demand-based RPS seems to be a pragmatic trade-off, though achieving these easy targets won't be as meaningful as the RPS intends.

China 2015 renewables

2. Market reform puts pressure on PPA-enforcement

The full grid-purchasing safeguard system doesn't specify the split between the PPA-secured generation volume and the volume earned through market competition. It will be a delicate balancing act for central government to expand market-based power transaction to 100% of its industrial power demand by 2018, while trying to boost relatively expensive renewable generation.

3. Secured volume might not be secure

The 'PPA-secured volume' may not be safe at all. In case renewables can't be dispatched due to transmission congestion and other physical and safety constraints, their generation contracts can be transferred to coal-fired power. This practice would give local governments more flexibility to work around against the backdrop of coal-fired overcapacity and economic slowdown.

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