Beijing goes slow on power aid

PUBLISHED : Saturday, 02 July, 2011, 12:00am
UPDATED : Saturday, 02 July, 2011, 12:00am


Beijing is not in a hurry to subsidise solar power consumption nationwide as it wants to take time to decide on 'suitable' power prices, according to a senior researcher at a state energy think tank.

Rather, it is prepared to provide incentives region by region, in order to reduce the risk and fallout from potentially giving too few or too many subsidies through a national scheme.

Analysts say the reason Beijing has been delaying a large-scale introduction of subsidised solar power prices for more than two years is that it wants to limit the amount of subsidies it has to dole out.

By waiting for further falls in solar power equipment prices, it can afford to subsidise more projects, especially in economically less-developed regions where most of the country's solar energy resources are located.

Solar power projects are currently economically unviable because solar power is almost double the cost for consumers compared with coal-generated power, on a same- investment return basis for project developers.

With solar panel prices having fallen 20 per cent in the past few months, now may be an opportune time to launch the national scheme long awaited by the industry, some industry watchers say.

But Li Junfeng, a deputy director general of the industry regulator, the Energy Research Institute of the National Development and Reform Commission (NDRC), played down the conjecture.

'This is not necessarily the case. Equipment prices may have fallen, but they will decline more in the future,' Li said on the sidelines of the CBI China Solar Industry Leadership Summit.

He said given the sheer size of the economy and huge regional differences, it was difficult to come up with a policy that worked well across the nation, adding that launching subsidy schemes on a region-by-region basis would be better.

'A successful subsidy scheme does not always have to be top-down. We can start from the local level and work our way upwards,' he said, citing a recent decision to award a solar power tariff of 1.15 yuan (HK$1.38) per kilowatt-hour in Qinghai province for projects completed before September 30 as a policy breakthrough.

This came after the NDRC failed to respond to industry players' calls for the launch of a comprehensive subsidy scheme to encourage solar power consumption. Instead, the regulator decided to let the market decide on fair prices for solar power by launching two rounds of open tenders for project developments.

However, the bidding was dominated by large state-owned energy firms, which are required to have a certain amount of their installed power generation capacity powered by renewable energy sources.

These companies have strong backing from state banks and mostly put operating scale and market shares ahead of profitability. They have won pilot projects with bids ranging from 73 fen to 1.09 yuan per kilowatt-hour that are widely considered to be loss-making or breakeven at best.

The ultra-low power prices put tremendous pressure on the winning companies to cut infrastructure costs to stem losses, which raised concerns they will sacrifice quality for price.

'Mainland project developers focus too much on low equipment prices. They don't much consider other things like functionality and reliability,' said a sales manager at Refusol who declined to be named.

The German maker of electrical inverters, a key component of solar and wind power stations, is having a tough time cracking the cost-conscious mainland market.

China is home to the world's biggest solar panel manufacturing industry, accounting for 48 per cent of last year's global output. About 95 per cent of its output is exported as the domestic market is underdeveloped.

Two years ago, Beijing launched a temporary subsidy scheme for a limited number of solar power projects to encourage consumption of clean energy. It subsidised half the installation costs of solar panels of several hundred projects in different provinces.

Li said the implementation of the subsidised projects had been challenged by the difficulty of connecting the projects to regional power grids. This is because solar power output depends on weather and conditions at times of the day, which means costly upgrades are needed at power grids to ensure solar power can be absorbed without disrupting normal grid operations on a sustained basis.

Lian Rui, a Shanghai-based analyst at United States solar sector research house Solarbuzz, said the ultra-low winning prices for projects tendered by the NDRC had made it politically difficult for policymakers to justify offering higher but economically sustainable power prices for new projects on a nationwide basis.

'It's a catch-22 situation for the NDRC. If the prices it picks turns out to be too high, it will spur a lot of demand, but Beijing will have difficulty paying the huge subsidies,' Lian said. 'If the prices turn out to be too low, it will find no takers for new projects.'

A year ago, Beijing launched fixed subsidised tariffs for wind power projects, which vary between 51 and 61 fen per kilowatt-hour, depending on the region and wind resources, compared with the average coal-generated power price of 30 fen.

Li rejected the suggestion that the NDRC was under pressure to launch similar subsidised tariffs for solar power, in response to projections from some analysts that demand from China's largest solar panel market, the European Union, will fall in the next few years on the back of rapidly falling subsidies.

'China will pursue its own solar power development policy. It will not hinge on what happens in the EU market,' he said.

Lian said nationwide subsidies for solar power would be difficult to launch in the short term because of the huge costs involved, as rapid wind power output growth meant Beijing already had to dole out subsidies.

An average 0.4 fen per kilowatt-hour surcharge on end-users' power bills was insufficient to cover the subsidies that amounted to billions of yuan annually, he said.