China Will Build Wind and Solar Only If Their Price Is Less Than Coal

China recently put the brakes on solar and wind energy, indicating that it will no longer approve wind and solar power projects unless they can compete with coal power prices. In late May 2018, China issued “2018 Solar PV Power Generation Notice,” imposing caps on solar energy and reducing feed-in tariffs on those projects. More recently, China’s National Development and Reform Commission and the National Energy Administration provided a series of conditions under which new solar and wind projects would be approved through the end of 2020. Conditions include that the price must match or undercut the national coal benchmark and that the projects must show that the grid can handle their output. In 2017, 12 percent of wind generation and 6 percent of solar generation was curtailed due to lack of transmission capacity.

2018 Solar PV Power Generation Notice

The 2018 notice indicated that a cap of 10 gigawatts would be imposed on the solar distributed generation market for 2018, and those gigawatts would need to be grid connected by May 31, 2018. The national government moved “financial responsibility” for solar projects to local governments, making them take on the responsibility of feed-in-tariffs. The notice also abolished the target for utility-scale solar PV projects of 13.9 gigawatts that the government had set for 2018 and instructed all regional provinces to impose bans on all entities seeking feed-in-tariffs. By the end of 2017, China’s feed-in-tariff payments had increased to $17.5 billion. The notice thus made local governments responsible for the outstanding payments that the national government had not paid.

These changes were major because in 2017, China’s distributed generation solar projects were over 19 gigawatts and the utility scale solar PV projects were almost 34 gigawatts of capacity, totaling over 53 gigawatts of total PV installations—a record high.

China’s Recent Solar Projects

At the end of December, two 500-megawatt solar power plants were connected to the grid, one of which was less expensive than China’s coal benchmark price. That project is selling its power for around five U.S. cents (0.316 yuan), which is less than the benchmark price for coal at 0.325 yuan. Both projects were part of a demonstration program in the Mongolian-Tibetan Autonomous Prefecture of Haixi and are managed by China’s National Energy Administration. However, output from large-scale solar built in the desert regions of northwest China is frequently curtailed because the grid cannot distribute it. In early 2017, Xinjiang province curtailed 39 percent of the solar power available to it and neighboring Gansu province curtailed 19 percent.

China’s Coal Capacity

In its 13^th Five-Year Plan, China set a ceiling for total coal capacity at 1100 gigawatts—more than the total generating capacity in the United States. China’s current coal capacity is 993 gigawatts—over four times as much as the coal capacity in the United States—and the country has over 250 gigawatts of coal capacity under construction. This means China is building more coal capacity than is currently generating power in the United States, in addition to their existing coal fleet, which is by far the largest in the world.

Conclusion

China is cutting back on solar and wind units due to their cost, the ballooning subsidies the state owes the solar and wind power builders, and the lack of grid-connected transmission capacity. It has now placed the financial responsibility for the units on the local governments and required any solar or wind power built to be cheaper than the benchmark coal price. China appears to be pursuing a more market-based approach to electricity than the United States, which is still lavishing subsidies on renewable energy sources, regardless of their costs.

Further information on solar subsidies in China can be found here.

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