Industry is wary of renewable energy push
Portion of power producers' output may have to come from green technologies
The central government may require power producers to generate a proportion of their total output from renewable energy sources, such as wind power, in an effort to reduce pollution and China's reliance on fossil fuels.
The move is expected to meet resistance from the producers, which are investing heavily in coal-fired generation capacity.
The government has sent a draft of the proposal to power producers, according to a source at Hong Kong-listed Datang International Power Generation. The proposal calls for power producers with more than 5,000 megawatts (MW) of annual capacity to generate at least 5 per cent of their power from renewable resources by 2010 and 10 per cent by 2020.
The government is seeking feedback from the industry. The regulation could be sanctioned as early as next year to give companies enough time to prepare.
'This is a long-term national energy strategy direction to address environmental protection concerns,' the Datang source said.
Only about 1 per cent of China's power needs are met by sources other than hydropower, nuclear and fossil fuels.
Analysts said the proposal would raise costs and reduce profit margins in the industry. 'Although the government may grant some subsidies to the [producers], we believe the impact on their bottom line would be similar to that of a pollution discharge fee,' UBS head of Asia utilities research Alice Hui Suk-fong wrote in a report. 'We expect lower profit margins resulting from the new environmental protection rules.'
In July, Beijing raised pollution discharge fees on power producers and extended their scope to include more regions in the country. The fees are reimbursable if the companies install de-sulphurisation equipment.
The investment costs of renewable energy power plants are much higher than that of coal-fired plants, which produce about 68 per cent of the nation's power.
Suppliers of renewable energy are permitted to charge higher tariffs, however, and are supported by preferential tax incentives.
But the large per-MW capital costs for such technologies translate into higher interest and depreciation charges. Solar and wind plant efficiencies vary widely with climatic conditions, and large high-temperature fuel cell systems - which are non-polluting but consume hydrogen or light hydrocarbons such as natural gas - remain largely untested for practical uses.
Wind power is generally considered to be the most suitable alternative energy source for China, and the technology is simple. According to the National Development and Reform Commission, China wants to raise its wind power generation capacity from 567MW last year to 4,000MW in 2010 and 20,000MW in 2020.
Still, its share of the country's total power generation will be marginal. China plans to raise its total power generation capacity from 385,000MW last year to 600,000MW in 2010.