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15 April 2021

China’s NDRC proposes 40% cut to solar FiT for its last year

China’s National Development and Reform Commission (NDRC) has issued a proposal for changes to its Feed-in-Tariff. According to a recent draft, residential installations would have one last year of the Feed-in Tariff at a lower level, ending at the start of 2022. Offshore wind will likewise have one last year of the Feed-in Tariff.

Meanwhile the Feed-in Tariff would immediately cease to be offered for most categories of solar project, and for all onshore wind, much as has been expected for several years; China has been gradually reducing its Feed-in Tariff for new projects ever since the program was introduced a decade ago.

Instead of the Feed-in Tariff, the Notice on the 2021 New Energy Feed-in Tariff Policy (Draft for Solicitation of Comments) document describes a more complex and mixed system. The Notice proposes that tariffs would be set for the projects’ “purchasing hours” according to a “guidance price plus competitive allocation” method.

The guidance price, which must not be exceeded, would vary by province, with a calculation involving the ‘coal benchmark price’ and the local average market price. The “purchasing hours” would vary from 1300 to 2000 hours out of the 8760 hours in a year, according to project type and location. Outside of those hours, the market price would be followed; perhaps this reflects the 10% of capacity battery energy storage requirement adopted in many provinces.

Those rules are for the first category of projects – projects which fall under a guaranteed grid-connected scale of renewable energy which each province is obligated to see built. The second category of projects has much the same rules as the first, but without “competitive allocation”.

The Notice also proposes a cap on the Feed-in Tariff subsidy for solar projects commissioned in this last year of the tariff. This cap would be a tiny $4.6 per MWh for domestic PV installations, which is well below the $7.66 per MWh adopted a year ago.

There’s also a huge $160.8 per MWh for concentrated solar (CSP) demonstration projects commissioned this year, and $168.5 per MWh for those commissioned in 2019 and 2020. Perhaps CSP will receive a different subsidy from 2022 onwards, or perhaps it is deemed ready to make its own way beyond the phase of heavy subsidies and pilot projects.

The document leaves plenty of room for the Provinces to set up their own support policies for solar, CSP and wind power – typical of China’s policy environment, in which local authorities wield considerable power.

In November, the Ministry of Finance announced the renewable energy project subsidy allocation for 2021 had been set at $905 million for 2021, 5% higher than 2020. This wasn’t because the subsidy was being inherently increased or prolonged – rather, it was simply that there were far more solar projects under development and claiming the subsidy, compared to 2020. Of the $905 million, $353 million is expected to go to wind – a decline of 24% – while solar projects will draw $518 million, up 57%. These solar projects, the last to claim the subsidy, were pre-approved and all fall into the domestic and poverty alleviation categories.

The general expectation is that China will install 60 GW of solar power in 2021, up 20% from 2020’s 48.2 GW, along with *** GW of wind. Of the wind, perhaps 6 GW could be offshore – unlike onshore, offshore wind has one last year of the Feed-in Tariff to take advantage of.

There are many ways to support the renewable energy industry. For example, the very low electricity prices in northern China reflect government policy – and one of the many industries taking advantage is polysilicon manufacturing. Without that cheap electricity, the cost of silicon PV solar modules would increase worldwide.

An oddity of China’s subsidy system has been its pre-determination of how much it has available to pay – which has led to an ever-growing backlog of unpaid subsidies. This deficit is now at around $50 billion and will grow until around 2030 before finally peaking as 20-year deals begin to expire. Payment is sourced from an electricity surcharge, which the government has been unwilling to raise. So far, since 2012, $76 billion has been paid, according to the People’s Daily.

Another method of support was announced towards the end of March by the People’s Bank of China (PBOC), which announced that it would look into loan extensions, refinancing, and adjustment of loan repayments for suitably promising renewable energy companies. This came in the context of the National Energy Administration’s announcement that it would “encourage” financial institutions to issue loans to companies eligible for subsidies, to compensate for their late payment.

That compensatory policy comes in the form of milquetoast “encouragement” no doubt reflects that China’s government is satisfied with the rate of progress of its renewable energy industry, which has exceeded targets comfortably. Another draft proposal from the National Energy Administration earlier this year would offer developers a guaranteed rate for their power at province-level auctions, if in exchange they waived part of the money owed to them from past projects.