China’s wind, solar energy sectors need the right incentives and market reforms to meet Xi Jinping’s carbon neutrality goals
- Capacity will almost triple to more than 1,200GW by 2030 as China increases the share of non-fossil fuels, President Xi Jinping said in a weekend speech
- A key challenge is to ‘incentivise the entry of flexible generation capacity’, says Lucas Zhang Liutong, director of WaterRock Energy Economics
“The key challenge is to incentivise the entry of flexible generation capacity,” said Lucas Zhang Liutong, director of WaterRock Energy Economics. “They need to enhance the current regulatory framework and market design to incentivise the investment of flexible capacity, like battery energy storage, hydro-pumped storage and natural gas power plants.”
The solar and wind farms installation goal represents an average annual installation of 72GW in the next decade, according to Zhang.
Zhang has a more conservative projection of annual capacity expansion, of 20-30 GW for wind energy and 30-50 GW for solar in the next five years.
No more subsidies from central government will be given to newly-installed onshore wind farms and solar farms from the start of next year, or to offshore wind projects from the beginning of 2022.
Some projects in regions with less favourable wind and solar resources but close to demand centres will struggle to make a reasonable profit unless developers can squeeze the equipment makers for bigger price cuts on turbines and solar panels.
Besides, the financial position of project developers has for years been weakened by a 300 billion yuan deficit in the state-run renewable energy fund, which pays for tariff subsidies and is financed by a surcharge on power users’ bills. They have to wait three to five years to receive the subsidies.
Beijing is mulling a so-called green certificate trading system to replace subsidies, under which renewable energy production quotas would be imposed on coal-fired power generators, which must buy “certificates” from renewable energy operators to make up for any shortfalls.
Another limiting factor is the lack of flexibility that would allow wholesale prices of power generated from “flexible” capacities to go much higher during peak-demand hours.
Such flexibility would go a long way to facilitate the grid system’s absorption of more intermittent wind and solar power.
“Flexible” capacities are typically provided by natural-gas generating units, whose output can be adjusted to a greater degree than coal-fired ones to suit demand fluctuations, and “pumped-storage” hydro units that can store energy when demand is low and release it when demand is high.
“The current system, which features low wholesale price caps, does not give the right price signal to justify the investment and operation of flexible generating capacity,” Zhang said. The construction of such capacity has lagged behind the government’s targets.
This contributed to the wastage of 21.5 billion kilowatt-hours of solar and wind power generated and not absorbed by the grid, equivalent to the annual generation volume of 4.5GW of coal-fired power plants and 6 million tonnes of carbon dioxide emissions, according to a study led by Yuan Jiahai, a professor at North China Electric Power University and Greenpeace.
Being able to store and sell excess wind and solar power is of particular importance to the industry, as subsidies will no longer be available for future projects.
“We are moving away from a subsidies-driven market into a subsidy-free era, new projects will only stay financially viable for as long as the power is taken by the power grid,” said Frank Haugwitz, the founder of the Asia Europe Clean Energy (Solar) Advisory.
