China is a renewable energy champion. But it’s time for a new approach

Field Coverage

A Mongolian family uses solar energy to power their home. UN photo (UNDP)

This article is brought to you based on the strategic cooperation of The European Sting with the World Economic Forum.

Author: Lin Boqiang, Director, China Center for Energy Economics Research

The development of renewable energy in China has attracted global attention in recent years. In 2012, China’s installed capacity of wind and solar power was 61GW and 3.4GW respectively, while the annual electricity generated by renewables was only 2.1% of China’s total consumption. By 2017, China’s wind and solar power capacity had increased to 168.5 GW and 130.06 GW respectively, and renewables were generating 5.3% of China’s electricity supply.

At present, China leads the world in terms of wind and solar power capacity. And with large-scale industrial applications, the costs have fallen substantially. A good example is photovoltaic (PV) technology: the price of PV modules decreased from about 30 Yuan per watt in 2007 to about 10 Yuan in 2012, and by 2017 it had decreased further to just 2 Yuan per watt.

The success of China’s renewable energy drive fully illustrates the effectiveness of China’s on-grid tariff subsidies. The advantage of the on-grid tariff policy – through which the government can make renewable energy production more competitive and attractive to businesses and investors – is that it anchors the revenue of power generation throughout the entire life cycle. In this way, it conveys a clear price signal to investors, and can effectively support the early stages of renewable energy development.

 China's investment in renewables is leaving the rest of the world in its wake

China’s investment in renewables is leaving the rest of the world in its wake
Image: Bloomberg New Energy Finance

However, alongside the rapid expansion of installed capacity, the total amount of renewable subsidies is also mounting rapidly. Based on the average on-grid electricity tariff, the total amount of wind and PV subsidies in 2012 came to about 60 billion yuan, a figure that had increased to 170 billion yuan by 2017. Although the government reduced the subsidy several times during this period, the total amount of subsidy continued to climb. The subsidies for renewable energy should be compensated by the renewable surcharge collected from end consumers. China’s renewable surcharge was 0.015 yuan/kWh in 2012, and rose to 0.019 yuan/kWh in 2016. There was a surplus of 15 billion yuan in the account of China’s ‘renewable energy subsidy’ in 2012, but by 2017 it had turned into a large deficit of about 80 billion yuan.

Therefore, China’s expansion of renewables will inevitably lead to a rapid increase in subsidies. Solutions to accommodate rapid renewable expansion usually lead to two phenomena: one is the rapid growth of end consumer tariffs, such as in Germany, and the other is maintaining high subsidies, such as in China, but with a large subsidy deficit.

The rapid development of renewables in Germany has led to a significant rise in electricity tariffs, which have nearly doubled over the past decade, making Germany one of the countries with the highest electricity tariffs in Europe. Of these tariffs, the largest incremental has been the renewable energy surcharges. At present, Germany’s renewable surcharge roughly amounts to 0.8 yuan/kWh – or €0.11 – which alone is equivalent to China’s average end consumer tariffs. This has had a considerable negative impact and has provoked great opposition. As a result, the development of renewables in Germany has slowed sharply in the last two years.

Last year, there was an appeal to increase China’s renewable surcharge to 0.3 yuan/kWh in order to balance the subsidy deficit. But it did not happen. Instead, the government this year lowered the end consumer tariffs for industrial and commercial consumers by 10%. It would seem it is not possible to increase funding for renewable subsidies. At the same time, the installed capacity of China’s PV surged significantly. In the first nine months of 2017, about 42GW of new capacity had been installed and this increased the subsidy bill by nearly 30 billion yuan.

At present in China the quality of renewables, rather than the quantity, should be prioritized. Since competitiveness is crucial to future development, subsidies should be designed in such a way as to favour competitiveness. The current approach – subsidy based on quantity (generation hours) – could possibly prompt some enterprises to overlook the long-term interests of the industry in order to make short-term profits.

The curtailment of wind and solar in China is largely due to the imbalance in China’s energy endowment. The majority of renewable generation is concentrated in western China, but the market’s capacity to accommodate wind and solar power there is very limited. Despite the government’s efforts, the relatively large curtailment is likely to continue, as long as renewable installed capacity continues to grow rapidly. As such, the government might need to consider reducing subsidies to contain the enthusiasm for renewables. Further, with the current electricity surplus in China, transferring subsidy reductions into cost reductions can reduce inefficient capacity installations. Reducing subsidies can also force renewables manufacturers and power plant investors to consider future investments more carefully, and encourage them to look for more economical projects.

All subsidies are, in general, temporary and unsustainable. With the rapid growth of renewable energy, the increasing financial burden will inevitably lead to the reduction and even elimination of subsidies. It is problematic for an industry to plan long-term development with a reliance on subsidies. Further, with the costs of renewables falling drastically, the marginal stimulus effect of subsidies on renewables has been greatly reduced. It could be more effective to promote renewable development by implementing environmental tax, carbon trading and a carbon tax.

Renewable subsidies should be used to encourage technological innovation. Only the cost reductions brought about by innovation will be certain and permanent. It is commonly understood that the 21st century is a time for renewable development. However, renewable energy development still encounters challenges. Given that the businesses involved in renewables are still by and large struggling in their financial performances, government support is still needed and, in particular, technological innovation needs sufficient financial support.

If subsidy is still necessary at this stage, the government should change the way subsidy is granted. For example, the government could consider subsidising renewable energy enterprises for a fixed quantity until the quota runs out. This can prevent renewables firms from indulging in illegal behaviour, and force them to improve their competitiveness through innovation. Further, the government could move subsidy to the upstream of the industrial value chain to support key technologies such as energy storage.

As renewable energy in China enters this stage of rapid growth, subsidy policy should be more flexible and better designed to reflect reality. The government needs to carefully design subsidies in order to stimulate innovation and to address the developmental problems of renewables.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

South Eurozone urgently needs fairer distribution of taxation burden

Brain drain 2017: why do medical students need to emigrate to become doctors in 2017?

EP Brexit Steering Group calls on the UK to overcome the deadlock

Worth going ‘extra mile’ for a new Syrian constitution, UN envoy urges

This is what countries are doing to fight plastic waste

EU to gain the most from the agreement with Iran

Action needed to end deadly clashes between African herders and farmers: UN chief

5 charts that show renewable energy’s latest milestone

Inspiring medical students to choose primary health care

Malaria could be gone by the middle of the century. Here’s how

Anti-vaccination: a private choice leading to collective outcomes

UN condemns deadly attack against G5 Sahel force headquarters in Mali

Doctors vs. Industry 4.0: who will win?

Youth Entrepreneurship Issue of the month: JEN, organisers of JADE October Meeting, on why JEs should come together

Malaysia has achieved high levels of growth, but must do more to address governance and social challenges

5 things to know about the exploding world of pro gaming

A Sting Exclusive: China’s Foreign Minister Wang Yi on South China Sea issue at the ASEAN Regional Forum

Generation Z will outnumber Millennials by 2019

Turkey remains numb while its economy is expected to shrink further due to a cocktail of EU and US sanctions

Getting African Women into the Boardroom

Why are the Balkans’ political leaders meeting in Geneva this week?

INTERVIEW: Poverty, education and inclusion top new General Assembly President’s priority list

The two big uncertainties shaping our future

Post-Brexit muddled times: the resignation of UK’s top ambassador and Theresa May’s vague plans

Guatemala: UN anti-corruption body will continue working, as Constitutional Court blocks Government expulsion

Europe’s forests are booming. Here’s why.

FROM THE FIELD: What do you want to be when you grow up? One day I will…

Draghi hands over to banks €77.7 billion more

Trump’s Russian affair spills over and upsets Europe

Telemedicine and the Brazilian reality

UK Labour Party leader Corbyn readies to change Brexit political backdrop

Why does the whole world want Britain to stay in the EU?

De-escalation of fighting in Hodeida is key to ‘long-overdue’ restart of Yemen peace talks: UN envoy

This South Korean company has built a 5G search and rescue airship

EU confronts environmental threats as global leaders attempt to revive the global sentiment at NYC climate week

Good Governance in developing modern quality infrastructure systems

French Prime Minister passes Stability Program and takes his ‘café’ in Brussels this June

Friday’s Daily Brief: UN chief in China, counter-terrorism, updates from Bangladesh, Mali and Mozambique

It’s time to end the stigma around mental health in the workplace

Social entrepreneurs can change the world – but these 6 things are holding us back

Commission paralysed before the banking leviathan

Why the world is not as globalized as you think

EU Budget 2019: MEPs increase funding on youth, migration and research

New UN poverty report reveals ‘vast inequalities’ between countries

Canada grants asylum for Saudi teen who fled family: UNHCR

Fertilisers/cadmium: Parliament and Council negotiators reach provisional deal

‘12 million’ stateless people globally, warns UNHCR chief in call to States for decisive action

7 of the world’s 10 most polluted cities are in India

Sustainability is now mission critical for businesses. Here’s why

Security Council approves ‘historic’ political Haiti mission, ending UN peacekeeping role in the country

Mergers: Commission clears E.ON’s acquisition of Innogy, subject to conditions

Century challenge: inclusion of immigrants in the health system

Pharmaceuticals in the environment: Commission defines actions to address risks and challenges

These are the world’s best countries to retire in, as of 2019

Now’s the time to take up cycling – here are 6 reasons why

Third EU-Western Balkans Media Days: EU reaffirms comprehensive support to media freedom in the region

UN chief praises New Zealand premier’s ‘admirable’ response to Christchurch attacks

Europe’s dirty air kills 400,000 people every year

Pakistan: UN Security Council condemns ‘heinous and cowardly’ terrorist attacks

Tropical Cyclone Idai affects 1.5 million across Mozambique and Malawi, as UN ramps up response

More Stings?

Comments

  1. China’s expansion of renewables will inevitably lead to a rapid increase in subsidies. Solutions to accommodate the expansion are needed, ASAP.

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s