.Chinese energy policy through to 2020 is set to be spelled out in the country’s 13th Five-Year Plan (13FYP), which is due to be finalised at the National People’s Congress in Beijing on 14 March and implemented a few days later.
Draft documents of the 13FYP show that authorities are keen to correct past mistakes in the world’s largest renewables market and fine-tune existing development policies. And a shift in emphasis from pure installation capacity growth towards projects’ energy output and sustainability for utility-scale projects offers huge opportunities for foreign companies
Policymakers in the world’s biggest renewables market are expected to raise the PV installation target from 100GW to up to 200GW by 2020; improvements in the speed at which state subsidies are paid — a problem that, in many cases, has led to severe cash-flow problems for developers; and a major drive to increase offshore wind development.
“We expect the government to put less emphasis on the wind installation target in its 13FYP,” says Bloomberg New Energy Finance analyst Yiyi Zhou. “It will focus on solving problems [that have] plagued China’s wind industry, including severe grid curtailment, the subsidy payment issue, lengthy project permitting processes and a lack of offshore wind technology.”
The first policy change expected to kick in this year will be the start of annual reductions to the feed-in tariff (FIT) for onshore and offshore wind. The draft 13FYP submitted in October showed “severe” cuts, according to MAKE Consulting analyst Shane Sun. “I don’t think it’s going to be sustainable — there’s going to be a lot of opposition from IPPs [independent power producers]. There should be substantial changes to the final release [of the 13FYP].”
The big question is whether the government will launch a Renewable Portfolio Standard (RPS) by the end of 2016, which would shift the focus from installation growth to generation and consumption, Sun says.
“That should bring down curtailment, or at least reduce curtailment,” he argues. “It would help the cash flows of the entire industry significantly.”
Several provinces are now pushing RPS plans and these could be brought together in a national system in 2016. An RPS, coupled with ongoing efforts to reform the Chinese electricity sector, are a “good sign”, says Sun.
Beijing may also raise the combined onshore and offshore installation target for 2020 from 200GW to 250GW. “It’s probably a little too high,” Sun says. “We probably should exceed 200GW, but reaching 250GW will be a challenge.”
It is believed that the government will give offshore a “strong push” from 2016, with Sun noting that policymakers are discussing a new cumulative installation goal for 2020 of 12-12.5GW. Even a target as low as 10GW would contribute to “speedy” growth. Sun hopes annual offshore installation will reach 1GW in 2016, with “gradual improvements” every year after that, and “maybe significant growth around 2019-20, when we could see maybe 3-4GW per year just to meet the target”.
Onshore, Western turbine suppliers will have had a strong year in 2015 on the back of historically high installations, but Sun believes that “they’re not going to get any significant improvements in market share over the 13FYP period”.
The outlook is different offshore, where a growing need for Western technology and expertise could open up the market to foreign OEMs and developers. “We’re also beginning to see a lot of interest from Chinese IPPs to co-operate with some European heavyweights, in terms of offshore joint ventures, either in Europe or China,” Sun says. “Definitely there should be more opportunities for Western players if the supporting policies continue for offshore.”
That door will swing in both directions in 2016, as Zhou says Beijing “will encourage turbine manufacturers to become globally competitive and to actively explore cross-border business during the 13FYP [period], with the support of the domestic banks”.
Macquarie analyst Patrick Dai also believes the government may focus on selling renewable electricity to other countries in Asia. “Power expansion, power exports, renewables exports will surely be mentioned in the 13FYP,” he says.
The biggest change to the local solar industry from the 13FYP will be the increased 2020 installation target to up to 200GW, says IHS analyst Frank Xie. But a decision to finally give a definitive period for PV subsidies of 20 years, which was indicated in the draft 13FYP document in October, will be hugely significant, he explains.
“Previously there was no official document talking about the duration of subsidies,” he says.
The 13FYP is also expected to clarify that the Finance Ministry will pay the subsidies, while grid operators will have to pay for the solar-generated electricity (at the same rate as local coal-fired electricity).
“The policy is becoming more clear... that’s good news for the industry and people are curious how the government will allocate enough money,” Xie says. “The government realises this issue now and they’re trying to find a solution.”
It is worth noting, however, that the National Development and Reform Commission (NDRC) is considering cutting solar tariff rates by 2-4% per year through to 2020.
Residential and commercial PV will remain a government priority throughout the 13FYP period, but there are not expected to be any specific new policies to increase distributed-generation uptake.
Dai argues that growth will remain slow for several more years, due to a lack of viable business models for rooftop projects. Organic growth is likely to be the only way forward, as the government will never be able to jump-start the rooftop market in a top-down fashion, he says.
“China never closed its doors to foreign investors,” says Xie, noting that unclear regulations and an inability to compete on price complicated their involvement. “[But] the doors are now opening wider than ever for foreign investors in the Chinese market, because the policies are becoming more transparent.”
ONES TO WATCH is Recharge’s exclusive series of insights into the trends, policies, companies and individuals that will shape wind and solar in 2016.
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