Friday, December 2, 2011

Renewable energy subsidy increase can support an additional 70 000 MW of wind in China

The National Development and Reform Commission (NDRC) announced this week that the Chinese government would increase the surcharge on power sales from December 1, 2011 to 0.008 yuan per kilowatt hour from 0.004 yuan per kwh.

"A doubling of the renewable energy surcharge should benefit mostly wind," said Yuanta Securities renewable energy analyst Min Li. "Assuming half of the funding is used, we estimate the doubled surcharge can support at least 70 gigawatts of wind power capacity in the near term."

The markets reacted favourably to the announcement as China's top wind turbine maker Sinovel Wind Group Co Ltd was up nearly 5% by midday trading on Thursday, while Xinjiang Goldwind Science & Technology Co Ltd and Xiangtan Electric Manufacturing Co Ltd each gained more than 3%. Chinese solar companies listed in Hong Kong and New York also gained ground. Wafer and polysilicon maker GCL Poly Energy Holdings Ltd gained 8% in Hong Kong, while Solargiga Energy Holdings Ltd was up 6% and Comtec Solar Systems Group Ltd was up 6.7% against a 5.85% surge in the Hang Seng Index. U.S.-listed Chinese solar panel makers Suntech Power Holdings Co Ltd, JA Solar Holdings Co Ltd, Trina Solar Ltd and Yingli Green Energy Holding Co Ltd soared more than 10% on Wednesday.

Grid feed-in tariffs for renewable energy sources including solar and wind power are higher than rates for coal-fired power, China's main electricity source. Wind power is the more established source of clean energy in China, next to hydro. With China aiming to increase the proportion of non-fossil fuels to 15% of the total energy mix by 2020, the subsidy consumers paid in their electricity bills was expected to rise, analysts said. China passed a renewable energy law in 2006, similar to a European-style FIT, requiring utilities to buy all the power generated by renewable energy projects. The regulations also allow the utility to collect additional fees when they sell the power.

The move to raise the charges had increased the certainty that development of renewable energy projects would continue in the medium term, said CIMB Research analyst Keith Li.

"This is not going to increase the premium paid to renewable energy projects, although it will double the pool of money used to support clean energy," he said.

The NDRC said revenue from the existing surcharge was not enough to cover the premium power grid operators pay for electricity bought from renewable power developers.

Source: (in part) Reuters

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