China Ends Wind Feed-In Tariffs and Opts for Auctions

China’s renewable story is going through a transformation in 2018.  After many years of growth in renewable energy, the country is beginning to change its policies that will influence its wind and solar sectors.

Recently, the National Energy Administration (NEA), a body formed in 2010 to formulate and implement energy policies, released ‘2018 Wind Farm Construction and Management Rules’, a new set of rules which would herald an era of auctioning system for future wind projects from the feed-in tariff model.

According to the new rules, all large-scale wind farms (both onshore and offshore), will go through competitive bidding based on the cost of construction and power prices. The government will then set a tariff for the project which cannot be exceeded.

China’s 13th five-year plan, which runs from 2016 to 2020, mandates every Chinese province to have a yearly wind development plan. Any wind project included in the 2017-18 plan will be exempted from the auction. The same exemption will be applied to decentralized projects meant for local consumption and not connected to the transmission grid.

NEA estimates that by 2020, wind projects in China should reach grid parity. It has changed the feed-in tariff three times during during 2014-16, which resulted in more than 30 GW of installations in 2016. This prompted the government to experiment with the reverse auctions for wind projects. Another reason for the shift is the 100 billion RMB deficits in its renewables fund at the end of 2017.

Greater competition is expected to reduce the tariff, but in turn the cost will be passed to the entire supply chain. It will also change the developers’ priority to move from the IRR (internal rate of return) to the long term levelized cost of energy (LCOE).

It can have a major impact on the industry as the developers will now look for manufactures who can offer a total range of services for the entire lifecycle of the project and with the lowest LCOE, rather than just cheaper turbines.

Earlier, in many provinces the rule for the allocation of developing rights was ambiguous and companies with closer government ties often got the rights, which were later sold to developers. The auctioning process will check this misuse as it will create a fair system and will address the problem of over capacity. Previously, unfair competition mainly arose out of a provincial government asking turbine manufacturers to set up local manufacturing facilities in return for access to market.

Initially, auctions can be challenging for the industry, but is expected to be greatly beneficial in the long run. It remains be seen what the finer details of the auctioning process are and how the markets will respond to it.

Recently, China’s National Development and Reform Commission (NDRC), the Ministry of Finance and the NEA jointly released the “2018 Solar PV Power Generation Notice,” imposing installation caps and reducing the feed-in tariff (FiT) for solar projects in the country.

Meanwhile, in India, the Ministry of New and Renewable Energy (MNRE) has gone the other direction and issued a clarification that calls for procuring power from small solar and wind projects through feed-in tariffs determined by their respective state electricity regulatory commissions (SERCs).

The feed-in tariff mechanism is expected to apply towards solar projects with capacities less than 5 MWs and wind projects with capacities less than 25 MWs.

Nitin is a staff reporter at Mercomindia.com and writes on renewable energy and related sectors. Prior to Mercom, Nitin has worked for CNN IBN, India News, Agricultural Spectrum and Bureaucracy Today. He received his bachelor’s degree in Journalism & Communication from Manipal Institute of Communication at Manipal University and Master’s degree in International Relations from Jindal School of International Affairs. More articles from Nitin Kabeer