14 Aug 2019
China’s renewables policy: looking backwards to move forwards
The policy environment for renewables in China is in a state of great transition: China has begun the process of liberalising its electricity markets, current support schemes are changing from a feed-in tariff to a green certificate scheme and there is also a move from administrative allocation of support to an auction-based model.
For organisations whose business is renewables, such as China Three Gorges Corporation, it is critical that the government gets these changes right. This is not an easy task as successfully deploying renewables can be dependent on a number of factors including: cost, grid infrastructure, market design, financial incentives and planning policy. Policies need to be implemented in an integrated way to provide consistent signals to investors and developers. Barriers in any one of these areas could inhibit the growth of renewables. China itself is experiencing such challenges first hand, for example with budget overruns in its existing scheme leading to extensive subsidy payment delays and triggering a major redesign, leading to significant cashflow and investment uncertainties.
Recognising this challenge and as China’s largest renewable energy company, China Three Gorges Corporation commissioned Pöyry, with the support of BVG Associates, to undertake a comprehensive international study of renewables costs and policy. The aim of the study was to learn from best practice and the challenges encountered in other countries which could then be used to influence future renewables policy design in China.
To identify learnings from international experience, the study focussed on the evolution of renewables policy and costs during the last 10 years and the impact this has had on renewables build out. The study focussed on offshore wind, onshore wind and solar PV and covered 14 countries spanning 5 continents. It took examples of the most mature markets, emerging markets and markets that had struggled to meet expectations.
Based on the evidence gathered, we identified 19 key findings and 22 recommendations. At a very high level these included: clear evidence that adopting renewables targets is an important element of supporting the policy framework; whilst the focus is often on the type of financial incentive available, it is at least as important to get the scheme design right; and grid infrastructure planning and ensuring optimal siting of renewables projects is vital.
But the past does not always predict the future, and with a move towards subsidy free renewables, how much does looking at the past really help? Whilst it is true that the changing environment does need to be considered, there are still many reasons to recognise the lessons that can be drawn from past experience. First, the current status in most countries is not yet that different from the past, so for policies being put in place now there is still much that is directly comparable.
Perhaps more importantly, the nature of the respective technologies studied is not significantly changing, and the fundamental questions around the interaction between government policy and the characteristics of renewable technologies remain. These include:
What is the most appropriate way to structure a market for projects with intermittent generation and very low marginal costs? This question relates more to the appropriate electricity market design rather than the design of financial incentives but there is a continued need to account for the different financing structures of these technologies.
What type of auction design is most suitable for particular renewable technologies, and how might this approach need to vary according to the characteristics of the technology in question? For example, for offshore wind there can be quite different impacts where the initial development of sites is managed centrally by the government, such as is seen in Denmark and the Netherlands.
What is the most appropriate siting of renewables given location of resource, demand and existing grid infrastructure?
China is already a world leader in the installation of onshore wind and solar PV and is likely to have the largest offshore wind capacity during the coming years as well. However, just how smoothly this expected renewables build out is will depend to some extent on avoiding the pitfalls in policy and market design encountered in other countries.
If you would like to learn more about our international experience or the Chinese market specifically, please contact or , or read about our recent work on electricity market design in China.