China’s power market is reliant on its coal reserves. Around 70% of China’s power is produced through coal-fired power plants. While nuclear energy is one of the alternative options to fossil fuels, China is shifting its focus towards its renewable power market. In 2006, the country introduced the Renewable Energy Law to regulate the renewable energy market by providing subsidies, tax incentives, feed-in tariffs, on-grid power requirements and standard procedures. To support investors, the law also introduced new financial options as well as cost-sharing mechanisms to share the extra operational costs among utility customers.
According to the changing market scenarios, the law was further amended to attract the investors to China’s renewable energy market. In 2009, China’s cumulative renewable energy capacity was around 226.5 GW. The US was second to China with its cumulative renewable installed capacity of approximately 149.8 GW. Hydropower and wind energy sectors accounted for approximately 98.4% of the total renewable power capacity of China.
China top for clean energy investments
GlobalData reports that in 2009, China led investments in clean energy globally, thereby shifting the US to the second position. With an investment of approximately $34.6 billion in clean energy in 2009, it overtook the US which invested around $18.6 billion. The mandatory wind and solar power targets together with the easy availability of project finance are the major drivers for investments in the Chinese clean energy market.
As the country has a strong manufacturing base and large export market, it is now focusing on increasing its clean energy installed capacity to meet its domestic demand due to increasing renewable energy targets.
Asset financing key
Asset financing in global clean energy investments in 2009 decreased by 6% compared to 2008. China led in global clean energy asset finance investments in 2009, with $29.8 billion of investments. Of the total clean energy investments in 2009, asset financing accounted for 86% in China.
Public market financing decreased globally as the investor demand slowed down during the financial crisis. Financing decreased from $22.2 billion in 2007 to $12.1 billion in 2009. However, in this market scenario, China led the global clean energy public financing market with $4.6 billion investments in 2009.
China’s public financing was driven by strong Initial Public Offering (IPO) activity which occurred in late 2009 to support investments in manufacturing facilities.
Offshore wind one to look out for
China’s offshore wind energy market is in its nascent stage. It has a minimum of three active offshore wind projects with a cumulative installed capacity of around 109.5 MW. The Shanghai Donghai Daqiao 102 MW project came online in 2009 operated by the Chinese wind turbine manufacturer, Sinovel.
Around 10 offshore wind power projects are in the planning stage with a cumulative installed capacity of approximately 3,867.9 MW. In 2009, the National Energy Administration (NEA) focused on the development of the country’s offshore wind power resources by dividing the potential offshore wind sites into three categories, which are: inter-tidal zone, offshore zone and deep sea zone. The NEA is expected to start a concession-tendering process to analyze a tariff range for offshore wind power players. In this backdrop, China’s wind power capacity is expected to increase due to the exploration of its offshore wind energy resource potential.
Thus, China’s wind energy market is expected to grow at the same pace. The development of a proper grid infrastructure, mandatory on-grid connectivity of renewable projects, an increase in the capacity base of Chinese wind turbine manufacturers to cater to international markets and development of the country’s offshore wind potential are the major drivers for the growth of China’s wind power market.
2020 wind target could increase five-fold
According to GlobalData, these factors are expected to be the cause of the proposal for the revision of the 2020 wind power target from 30 GW to 150 GW in China.
Wind energy investments of $7.97 billion accounts for 71% of the total clean energy investments in 2005–2009 in China. Huge investments in the wind energy sector are mainly due to government initiatives, such as, local content requirement, renewable energy premium, Mandatory Market Share (MMS) and “Guaranteed Take”. The amendment in Value Added Tax (VAT) rules for wind manufacturing in 2009 also stimulated the growth of the wind energy sector in the country. By 2009, there were around 80 wind turbine manufacturers in China. Of them, the largest domestic manufacturers, namely Sinovel, Goldwind and Dongfang have a combined production capacity of 8.2 GW for an annual market of 13.8 GW.
10% of consumption met by renewables in 2010
With 9% of the country’s final consumption coming from renewable energy, GlobalData highlights that China is expected to achieve its 2010 target of generating 10% of the final energy consumption through renewable energy sources. An increase of approximately 148% in clean energy investments since 2005 depicts the strong growth potential of China’s clean energy market as the country has been seen as a lucrative option for green energy investments.
Furthermore, government initiatives are also concentrating on increasing the domestic demand for renewable power in the country. The government is concentrating on the upgrading of the existing grid infrastructure, which is expected to increase the on-grid power through renewable energy by connecting remote renewable energy projects to the grid as well as by minimizing transmission power losses.
Besides China’s fiscal stimulus of around $220 billion, the government plans to invest $738 billion for the development of its renewable energy sources. Due to its recent support policies in wind and solar photovoltaic (PV) sectors and strong market growth in 2009, the government has proposed to increase its wind and solar PV targets by five-fold and 11-fold respectively. Although the government is concentrating on its clean energy market growth, it should also consider improving its quality standards to withstand competition by international players.
For additional information:
GlobalData Renewable Policy Analysis – September 2010
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