China Energy Outlook 2020 - Flipbook - Page 101
jurisdiction in China to achieve minimum consumption levels of electricity produced from
renewable energy sources (NDRC, 2019f).
China’s Renewable Energy Obligation Scheme, which is valid for 5 years and starts formal
operation January 1, 2020, consists of two mandatory renewable energy obligation quotas:
total renewable power quotas (referred to as “total quotas”) and non-hydro renewable power
quotas (referred to as “non-hydropower quotas”). Annual renewable energy power
consumption responsibility quotas of two types - a binding minimum quota and a motivational
quota that exceeds the binding target - will be issued to each province. To encourage provinces
to consume more renewable energy, the amount of renewable energy consumed above the
motivational quota is excluded from the energy consumption cap set by China’s Double Control
policy. The obligated party includes retailers that sell power to customers, and power
distribution companies that deliver power to end-users, customers who procure electricity in
the wholesale market, and companies that consume power produced from their own power
plants. While obligated entities are required to complete their quotas primarily from directly
consuming renewable energy, China’s Renewable Energy Obligation Scheme provides these
entities alternatives to compliance, allowing them to procure, at mutually agreed-upon prices,
the excess renewable energy consumed by another entity above its annual quotas, and to
voluntarily purchase renewable energy certificates (referred to as “green certificates”), similar
to the Renewable Energy Credits, or RECs, in the voluntary REC markets in the U.S., that
represent the environmental attributes of the power produced from renewable energy projects
and are sold separately from commodity electricity.
Removal of PV Subsidies and Stimulation of Grid Price Parity of Renewables
A policy directive was issued to halt subsidizing PV installation, prompting China’s PV
industry to react with efforts that have led to an earlier-than-expected transition to grid
parity.
Having provided China’s PV industry with significant fiscal support through direct subsidies, the
Chinese government issued a directive on May 31st, 2018, which put an abrupt halt on
subsidizing PV installation (NDRC, 2018f). The policy change was due largely to the fact that
unprecedented growth in the PV industry resulting from generous subsidies created an
unsustainable level of demand for public funding, and to the need for reducing renewable
power curtailment. The new policy, however, caught the PV industry by surprise and as a result
there were production cuts, price cuts, wage arrears, layoffs, and even bankruptcy (China
Business Net, 2018). In the first half of 2019, domestic PV installations were only 11.4GW, a
drop of more than 50% from the same period in 2018. Among them, centralized power plants
installed 6.8GW, down 43.3% year-on-year, and installed distributed PV capacity was only
4.6GW, down 61.7% year-on-year (SolarBe, 2019).
The new policy has brought profound changes to China’s solar industry, driving companies that
can only survive through subsidies out of business and pushing the industry to focus on
technology development to further reduce PV component costs and improve PV system
operation efficiency, work with local governments to reduce non-technical “soft” costs, develop
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