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.

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

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

Why good cybersecurity in business is everyone’s responsibility

Why business schools can’t “return to normal” after the COVID-19 pandemic

SDG progress ‘in danger’ of going backwards without change in direction, new UN report reveals

Remote working and online shopping could drive 14 million cars off US roads – permanently

Donor countries set international standard for preventing sexual exploitation, abuse, and harassment in development sector

EU: Turkey to shelter Syrian refugees and turn other immigrants back in return of €3 billion

UK must end ‘unlawful’ administration of Chagos Archipelago ‘as rapidly as possible,’ top UN court rules

6th Edition of India m2m + iot Forum to open its door on 14th January, in association with The European Sting

Each for Equal is the women’s day theme – these maps of the world show how far we have to go

Lagarde’s metamorphoses, not a laughing matter

Sweden has invented a word to encourage people not to fly. And it’s working

Tuesday’s Daily Brief: hate speech, dementia, Libya and Yemen, human rights in Brazil and Lebanon

European Parliament and Eurovision sign partnership for European Elections

Strawberries and child support; a Thai partnership

Draghi repels Trump’s threats, rejects Schauble’s dictums

The EU launches € 1 billion plan on supercomputers and tries to catch-up with competitors

Afghanistan: EU reinforces humanitarian support with €40 million as crisis worsens

Forget retail therapy – this is the age of the conscious consumer

The Monetary Union drives Europe into dangerous paths, CoR demands an EMU of regional content

In Chad, top UN officials say humanitarian response must go ‘hand in hand’ with longer-term recovery

Worldwide consumer confidence has shot up to its highest level for four years according to a survey of 130 Global Retail leaders

Falling inflation urges ECB to introduce growth measures today

From Policy to Reality: Discrepancies in Universal Health Care Systems across the EU

Consumer protection: Commission welcomes political agreement by Council on the Representative Actions Directive

Early signs of growth in Eurozone?

Tuesday’s Daily Brief: UNESCO ready to help after Notre Dame fire, and updates on Libya, Nicaragua, and the Cyclone Idai response

Humanitarian Aid: €64 million for most vulnerable in Southern Africa

These 11 EU states already meet their 2020 renewable energy targets

How climate change exacerbates the refugee crisis – and what can be done about it

If we don’t protect the ocean, humanitarian disaster awaits

In wake of ‘collapsed’ agreement, new wave of violence threatens millions in Syria’s Idlib

Africa-Europe Alliance: European Commission committed to a sustainable African agri-food sector

Canada has created an Arctic conservation zone almost as big as Germany

The European Council takes more measures to stem illegal migration

UN chief hears ‘heartbreaking accounts’ of suffering from Rohingya refugees in Bangladesh; urges international community to ‘step up support’

Do doctors need to know their patients’ sexual orientation and gender identity?

Greece bailout programme: Full agreement after marathon negotiations on debt relief between IMF and Eurozone

Ukraine’s new political order not accepted in Crimea

UN rights chief calls for release of hundreds abducted and abused in South Sudan

Fighting against the Public Health System dismantling means guaranteeing assistance to all

Alarming number of women mistreated during childbirth, new UN health agency figures show

Sri Lanka PM: This is how I will make my country rich by 2025

AI can help with the COVID-19 crisis – but the right human input is key

Cyclone Fani hits India, UN moves to protect vulnerable refugees in Bangladesh

Germany resists Macron’s plan for closer and more cohesive Eurozone; Paris and Berlin at odds

The European Sting’s 2018 in most critical review

Two-thirds of global drug deaths now from opioids: UN drugs report

An overview of mental health impacts on women diagnosed with gynecologic cancer and suicide prevention

EU–Canada Summit: strengthening the rules-based international order

Mozambique cyclones a ‘wake-up call’ to boost resistance: UN weather agency

Trust and support of Iraqis essential for success of UN’s Da’esh terror investigation

US-EU trade negotiations: pointless tariffs against real economic growth

This is what happened to CO2 emissions in the EU last year

The EU Spring Summit set to challenge austerity

Sassoli: Meals for homeless and key workers a “good example of Parliament’s public spirit”

Peace in the Gulf ‘at a critical juncture’ says DiCarlo, urging continuation of Iran nuclear deal

The digital revolution will transform the steel industry

10 cities are predicted to gain megacity status by 2030

A money laundering case on Vatican Bank’s road to renovation

Artificial Intelligence: These 3 charts show what people really think

More Stings?

Advertising

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