China needs to change from a wind-power auction pricing system to a feed-in
tariff to protect investors in developing renewable energy, the chairman of the
Global Wind Energy Council said at a recent conference in Beijing.
"The price volatility and uncertainty caused by the current regulation harms
foreign and domestic private manufacturers and developers, who are discouraged
by a pricing pressure they cannot sustain," Arthouros Zervo said.
The Inner Mongolia Autonomous Region has China's richest wind power
resources, and more than 100 foreign investors showed interest in developing
wind farms. But about half of the enterprises gave up the investment plan, and
in the end, only about 10 foreign wind companies launched their projects,
according to a report in the Chinese newspaper 21st Century Business Herald.
"Most of the enterprises withdrawing from Inner Mongolia have already
completed the procedures but still chose to suspend the investment, including
Adxia from Switzerland, EHN (Acciona Group) from Spain and the Golden State
Group from the Untied States, " the report said.
High cost and a low electricity price are the major barriers for wind power
development in China, a study report on the country's pricing policy by the
Chinese Renewable Energy Industries Association, Greenpeace and the Global Wind
Energy Council showed.
It is also said that the solution depended on either a reduction in cost or
at least an increase in the electricity price to cover the existing cost. Wind
power is a new and growing industry that needs support, but the current practice
of bidding for contracts is in conflict with the aim.
"China is faced with a great opportunity for developing wind power, but the
development relies heavily on an enabling pricing system," said Steve Sawyer,
climate and energy policy adviser for Greenpeace International.
Investors in wind power development in China fear that their investment will
vanish because they just experienced a roller-coaster ride in the wind power
pricing policy amendment. They went from the expectation of a high price
supported by preferential policies to a low price, which resulted from bidding.
Their dream began in January 2006, when the Renewable Energy Law took effect
and provided a legal framework for the development of renewable energies in
The law stated that the price management department of the State Council,
China's cabinet, would determine the feed-in-tariffs for renewable energy
Insiders and investors in the wind power industry said the feed-in-tariff set
by the government would be fixed at 0.25 yuan (3.2 US cents) per kilowatt-hour
more than the coal-fired power price.
However, also in January, the National Development and Reform Commission
(NDRC) released the implementation rules of the Renewable Energy Law, stating
that bidding, which has been in effect since 2002, should determine the grid
feed-in rates of wind-sourced power.
And it is also said that to encourage a domestic turbine manufacturing
industry, more than half of the equipment in the first phase of construction
must be made in China. And in the later phases, the domestic manufacturing
percentage should be increased to 70.
"The main reason to continue the auction system is to lower the wind-power
cost and protect domestic equipment producers and investors," said Shi Lishan,
director of the Renewable Energy Division, Energy Bureau of the NDRC.
But this approach has drawn criticism from industry players who fear that the
practice will lead to low prices that deny investors a reasonable profit. In
fact, during bidding, some shockingly low bids have been made.
In 2004, bidding opened for the Huitengxile Wind Farm in Inner Mongolia. The
bid of 0.38 yuan (4.8 US cents) per kilowatt-hour, made by Beijing International
Power New Energy Co Ltd and Beijing International Power Development Co Ltd,
shocked all the bidders because the basic cost of wind power seems to hover
around 0.6 yuan (7.6 US cents) per kilowatt-hour, whereas the coal-fired power
generation cost is 0.3 yuan (3.8 US cents) per kilowatt-hour.
"The bidding system is sensible in line with the market rule," said Li
Junfeng, Chinese Renewable Energy Industries Association (CREIA)
secretary-general. "But many wind power industry players did not make good use
of the market rule."
Until September of this year, the NDRC organized four rounds of bidding for
11 wind-source power projects, each designed to have an installed capacity of
more than 100 megawatts.
Most of the projects were awarded at bids of 0.4 yuan (5.1 US cents) to 0.5
yuan (6.4 US cents) per kilowatt-hour to the country's big five power companies,
such as China Huaneng Group, China Guodian Corporation.
"The big five power companies are using the profit they made from coal-fired
power generation to make up for losses in wind-power projects," Li said.
In addition, the big five power companies, which are registered as joint
ventures, benefited from some preferential tax policies, thus helping them get
refunds of 0.1 yuan (1.2 US cents) per kilowatt-hour, Li said.
From that perspective, the de facto price of their wind-power project is very
reasonable. "But it is not fair to other investors, especially small, private
ones," Li said.
Therefore, the call has been made to amend the policy to create a fair
environment for all potential investors.
However, although many small investors have complained loudly about
concession bidding in general, they have had opportunities on a smaller scale.
"They have licences from local governments to build wind-power projects at a
reasonable price," Li said.
For example, in Inner Mongolia, the installed capacity of wind-power projects
approved through bidding by the NDRC was 1,000 megawatts. But the total amount
of wind-sourced electricity generation in the autonomous region is more than
"The rest of the projects are granted by local governments, accounting for a
very big part," Li said. "The pricing mechanism will gradually be sensible. The
government will make some adjustments if the regulation is not rational."
He did not specify how the mechanism would be adjusted, however.
A report released by CREIA, Greenpeace and Global Wind Energy Council (GWEC)
in October called on the Chinese Government to change the auction system for
wind-power pricing to a feed-in-tariff system, which means the price is
regulated directly by the government. The practice is considered successful in
Germany, making it the leading wind-power country in the world.
The report said that four bidding rounds have established the basis for a
shift from the auction system to a fixed tariff. Under the feed-in-tariff
system, China would be divided into high, medium and low categories according to
how well the wind can be exploited for power purposes.
The price should be adjusted in a timely fashion, the report said, but it
would always be higher than for coal-fired power.
China has taken great strides in wind-power development in recent years. By
the end of 2005, it had built 61 wind farms with a capacity of 1,260 megawatts,
ranking seventh on the list of the world's major wind players. Last year the
Chinese Government raised its wind-power goal for 2020 from 20,000 to 30,000
megawatts, and the report said the goal can be reached earlier if appropriate
policies are in place.
(China Daily 12/27/2006 page1)