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Renewable energy attractiveness indices - August 2012 - China - EY - Global

Renewable energy attractiveness indices: August 2012

China

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The Government has significantly increased China's 2020 target for domestic solar installations, while the National Energy Bureau has proposed a quota system to address China's chronic grid access problem.

Policy

Q2 has seen an increased focus on China's domestic energy strategy, in response to an excess supply of solar panels and significant wind power curtailment resulting from insufficient grid-connected turbines. In a bid to address China's chronic grid access problem, and increase the amount of renewable energy generated and consumed, the National Energy Bureau has proposed a quota system, which will require power companies generating more than 5GW to attribute 11% of their installed capacity to RES, and 6.5% of gross power generation must be RES — generated electricity.

Grid companies will also have to buy a specified percentage of electricity from RES by 2015, ranging between 3.2% and 15% across the different grid companies. As yet, there is no active market in China to trade renewable energy quotas, but it is hoped that the new policy will discourage grid companies from wasting wind power. The new system is expected to be finalized later this year and implemented in 2013.

This quota proposal may also be complemented by the construction of China's third ultra-high voltage direct current power transmission project, which has seen State Grid Corp of China investing $3.79b (€3.05b) in another west-to-east transmission line in a bid to solve the country's grid challenges.

Notwithstanding the challenges faced by China in developing its infrastructure to support its shift in focus toward domestic RES capacity, a recent report released by the IEA indicates that China will account for 40% of the additional 710GW of new global renewable electricity capacity by 2017.


Solar targets increased but US trade war continues


Ranking Issue 34 Issue 33
All renewables index 1 1
Wind Index 1 1
Solar Index 3 3

Source: EY analysis

Wind

In the short term, China is continuing to curb construction of new onshore wind capacity in a bid to allow the grid infrastructure to catch up with the rapid growth of installations in recent years. As such, it is anticipated that China will experience its first year of slower growth for almost a decade. BNEF estimates that developers will install 18.6GW of new capacity, down 7% from last year.

This is exacerbated by the slow progress of offshore wind development to date, with work yet to begin on four commercial offshore projects awarded in the first auction in 2010. According to the Chinese Wind Energy Association, this is a result of the State Oceanic Administration and other government departments disputing the original locations of the projects awarded by the National Energy Administration.

However, in Q2, Shanghai Donghai Wind Power Co., announced its intention to invest about CYN1.9b (€0.24b) in a 100MW offshore facility next year. The project, which is the second phase of the East China Sea Bridge facility, is awaiting government approval and expects to start construction in the first quarter of 2013, if granted.

In late July, the US imposed tariffs of as much as 73% on wind towers imported from China, following a complaint by the Wind Tower Trade Coalition in December 2011.

Solar

Following the imposition of preliminary anti-subsidy tariffs on Chinese solar panels in March, the US Department of Commerce (DoC) also introduced preliminary anti-dumping tariffs of 31%–250% in May. These rates were higher than expected and, together with the duties of approximately 3%–4% imposed in March, could make Chinese models 27% more expensive in the US market compared with other international manufacturers, according to BNEF. A final decision on the issue is due in October this year.

On 19 July, a month after reports that Chinese firms had filed trade complaints with the Ministry of Commerce, China's Ministry of Commerce announced its own investigation into solar products imported from the US; specifically, whether US producers had been selling polysilicon below cost price and whether US firms have been unfairly advantaged by government subsidies.

However, China could end up fighting its battle on multiple fronts. A group of European manufacturers, led by Germany's Solarworld, has also lodged an anti-dumping complaint against China. While any resulting import duties may be lower than those imposed in the US, the move would make it difficult for Chinese suppliers to avoid the duties given the size of the European market.

In other solar news, as a result of falling costs for solar panel components, the Government has, for the second time this year, reduced the subsidy awarded to solar projects approved under the Golden Sun program in the current year. The incentive has been reduced by approximately 21% from CYN7.0 (€0.89)/MWh to CYN5.5 (€0.70)/MWh.

Notwithstanding the ongoing trade row with the US, China is starting to see high levels of domestic project activity following a government announcement in Q2 urging an accelerated pace of domestic solar installations. The Government has increased its 2020 target from 20GW to 50GW, and its 2015 target from 15GW to 21GW, compared with approximately 3.1GW of installed solar capacity at the end of 2011. The focus on domestic installations has been spurred by the need to absorb an excess supply of panels, as a result of increasing difficulties in exporting products due to falling demand in Europe and US import duties.



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