Will New Policies Bring a Brighter Future for China’s Renewable Sector?

Wind farm in Xinjiang welcomes a new dawn. (Source: Flickr user zhouyousifang)

Last year, China was the world’s top investor in renewable energy, and the country has expressed even greater ambition for 2013. But before it can realize its planned additional 49 gigawatts (GW) of clean power, it needs to first lead its clean energy industry out of the swamp of overproduction and low-end manufacturing. China’s recent embrace of a set of revised renewable energy policies might bring new hope for the industry’s—and the country’s—ambitions.

Controlling reckless development

In the last decade, in order to increase the share of clean energy in the overall energy mix, the Chinese government released a series of laws and subsidies to give the industry a boost. While such efforts significantly ramped up China’s clean energy equipment manufacturing and renewable energy installations, they also led to reckless development that caused severe overproduction and wasteful investment practices and resource use.

To address these issues, the government has been taking regulatory and policy steps. In August 2011, the National Energy Administration (NEA) issued a new regulatory policy on wind power, requiring that all new projects, including those with installed capacity less than 50 megawatts (MW), be reviewed and registered at the NEA before they can receive government approval or subsidies. Such restrictions are aimed at containing the over-construction of small-scale wind power projects under 50 MW. (See Worldwatch’s earlier post on this issue.)

For solar photovoltaics (PV), the government is learning to intervene less and to let the market do its job. In December 2012, the State Council unveiled at an executive meeting a series of regulatory policies for “healthy development of the PV sector,” emphasizing the role of market selection and assessment of the effectiveness of subsidies. Such mechanisms would force companies with low efficiency to withdraw, undergo restructuring, or be merged with bigger players. This sectoral consolidation would reduce overheated competition for subsidies, which at times has been so desperate as to result in false bidding.

Promoting renewable energy and grid integration

In addition to restricting reckless development, China is attempting to remove the remaining barriers to a flourishing domestic renewables market.

Grid integration is a major hurdle for further expansion of China’s renewables sector. Because electricity generated from wind and solar resources is variable, it requires efficient, coordinated grid functionality to be integrated properly. When feeding wind energy onto the grid, support from advanced technology, such as low-voltage ride-through (LVRT) capacity of wind turbines, is required to prevent occasional voltage disturbance from leading to disconnection of generators.

In the new Technical Rule for Connecting Wind Farms to the Power Network, which came into force in June 2012, the LVRT capacity requirement becomes the standard for all wind farms that are newly added to provincial-level grid systems with more than 5 percent wind generation capacity. Rules and standards like this will push technological breakthroughs and support greater penetration of renewable energy sources in China’s domestic market.

China is also working on aspects of the electricity delivery system, including long-distance transmission and local consumption. To increase grid companies’ interest in building inter-provincial ultra-high voltage (UHV) transmission lines, the NEA issued a measure in March 2012 to subsidize grid companies for connecting with renewable generators. As a result, Qinghai Province interconnected its transmission networks with neighboring provinces and has successfully connected all of its solar PV projects—a total of 1.5 GW—to the grid.

Meanwhile, distributed generation of wind and solar energy has been recognized as the key to expanding the domestic market. Trials are being carried out in western Inner Mongolia, centering on local consumption of wind power and exploring concepts such as wind-to-heat and on-site power storage. To help promote distributed solar PV projects, the Chinese government has set a goal for 10 GW of installed distributed PV capacity by 2015, and it is drafting regulations on operations management, development guidance, and subsidies, to be released shortly.

Going beyond manufacturing

For years, government subsidies for clean equipment manufacturing failed to stimulate sufficient innovation in China’s renewable energy sector. Instead, overproduction and heavy subsidization generated a vicious cycle that led to price wars. To expand their market share, beneficiaries tended to rely on the price advantage they received from higher shares of the subsidies, rather than lowering the real costs of production or improving efficiency.

For China’s wind industry, the government has stopped financial support for domestic turbine manufacturing to allow the market to select for turbine producers with higher energy efficiency. As the price subsidy for wind power peaks in 2015, and then starts to decrease (as projected by China’s Energy Research Institute and the International Energy Agency), a healthier development pattern is expected to emerge. Some farsighted manufacturers have already begun searching for partners in the power sector and have started investing in structural integration and research.

Inspired by the foreseeable increase in domestic demand for solar PV, Zhejiang Province announced in December 2012 that it will invest 1 billion RMB (US$161 million) in a PV pilot project, which looks beyond equipment manufacturing and seeks to build up an entire supply chain. Noticeably, Zhejiang was one of the provinces that failed to achieve China’s national energy efficiency goal in 2012. Under pressure from the central government, this solar PV project might be one of the approaches that the local government is counting on to reduce its energy intensity (energy consumed per unit of GDP) in future development.

The need to avoid falling into old traps

It is heartening to see that China is seriously reviewing its renewable energy policies and is starting to address some of the problems. But it needs to be wary of falling into old traps that have hampered implementation of its renewable energy policies in the past.

Distributed generation might be the new hope to China’s suffering solar manufacturing industry, but aside from the general direction given by the central government, there is still a lack of planning at the local level, as well as too few relevant technical standards to provide rational guidance for the industry.

It will be especially challenging for those provincial and local governments that have already established flawed renewable energy practices to implement new plans based on more rigorous economic and environmental assessment. These governments will need to find new ways to pursue their local energy interests and move away from the low-quality local solar enterprises that have hampered technological innovation in the past.

Wanqing Zhou is an intern with the China Program at Worldwatch Institute.

Go to Source