china wind power sector - policy & regulatory landscape 2010 - sample

8/6/2019 China Wind Power Sector - Policy & Regulatory Landscape 2010 - Sample

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(TechSci) Page 1

CHINA WIND POWER SECTOR

POLICY & REGULATORY LANDSCAPE 2010

By TechSci Research

September, 2010


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China Wind Power Sector Regulatory & Policy Landscape(TechSci) Page | 2

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Executive Summary

The Chinese government regulatory and policy framework has led to the exponential

growth of wind power sector in recent years. The wind power installation in China has

witnessed average growth of 100% since the implementation of renewable energy law in

2006. The law provides a feed-in tariff for some technologies and establishes grid feed-in

requirements and standard procedures.

During 2009, the Chinese government introduced a feed-in tariff structure for wind power

sector which will apply for the entire operational period of a wind farm. The feed-in tariff

structure has defined four different categories of tariff depending on a particular regions

wind resources, ranging from Yuan 0.51/kWh to Yuan 0.61/kWh.

China is expected to lead the global wind power market in the coming 5 years, driven by

government appetite for renewable energy. Chinese government commitment to derive

20% of energy from renewable sources by 2020 will result in the required thrust towards

the future growth of wind power market.

The research report China Wind Power Sector Regulatory & Policy Landscape

discusses and gives detail overview on the regulatory framework related to wind power

sector in China. this study begins with a brief outlook of regulatory landscape in china

followed by detailed overview on Renewable energy Law 2005 and amendments in 2009,

Mid to Long Term Development Plan for Renewable Energy, Strategy and Goals of Energy

Department, wind farm tariff structure, wind power equipment policy, offshore wind

power policy and a brief overview on the wind power market.


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Table of Contents

1. China Regulatory Landscape Outlook

2. Renewable Energy Law, 2005

2.1 General

2.2 Resource Survey and Development Plan

2.3 Industry Guidance and Technology Support

2.4 Promotion and Application

2.5 Compensation Price Management and Fee Sharing

2.6 Economic Incentives and Supervisory Measures

2.7 Legal Responsibilities

2.8 Supplementary Provisions

2.9 Update of 2005 Renewable Energy Law

3. Medium and Long-Term Development Plan for Renewable Energy

3.1 Guiding Principles

3.2 National Policies and Measures

3.3 Objectives and Targets

3.4 Priority Sectors

3.4.1 Hydropower

3.4.2 Biomass Energy

3.4.3 Wind Power

4. National Energy Administration

5. Strategy and Goals of Energy Department

6. Funding and Development Bodies

7. Wind Farm Concession

8. Wind Power Tariff Structure9. Wind Power Equipment Market Policy Framework

10. Offshore Wind Power Policy

11. China Wind Power Market Outlook


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1. China Regulatory Landscape Outlook

Chinas policies on renewable energy development fall into three categories. Similar to

the way renewable policies are set in the United States, Chinas central government

establishes the first two levels of policy. Local governments, including provincial,

municipal, and county governments, establish the third level of policy with overall

direction from the central government.

First-level policies:

Provide general direction and guidance, and include speeches of state leaders about

development of renewable energy and the Chinese governments standpoint on the global

environment.

Second-level policies:

Specify goals/objectives and development plans, and focuses on rural electrification,

renewable energy-based generation technologies and fuel wood. These policies attempt to

standardize the directions, focal points, and objectives of renewable energy development

from different viewpoints. Some departments propose concrete policies and regulations.

Second-level policies have played a very important role in promoting renewable

technologies in China.

Third-level policies:

Consist of practical and specific incentives and managerial guidelines. These outline

specific supporting measures for developing and using renewable energy. These third-level

government policies provide crucial support to help develop renewable energy in its early

growth stages. Since the mid-1990s, many provinces and autonomous regions of China have

adopted policies for developing renewable energy, including subsidies and tax reduction.

The central government also issued several effective regulations.

The National Development and Reform Commission (NDRC) issued the first policy

statement on climate change in June 2007.5 This policy statement was made with

reference to the United Nations Framework Convention on Climate Change,6 providing

general guidelines and principles to tackle climate change in China. It first set a target of


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raising the proportion of renewable energy to 10 percent of the primary energy supply by

2010.

In another policy document titled Medium and Long-Term Development Plan for

Renewable Energy in China released by the NDRC on Aug. 31, 2007 (NDRC Energy [2007]

No. 2174), NDRC reiterates the same target for 2010 and establishes a longer term goal,

that the national target of 15 percent of Chinas total energy generation to be originated

from renewable energy generation by 2020. The policy document also specifies targets for

various renewable energy sources. These targets are based upon the installed generating

capacity rather than the actual amount of electricity connected to the power grid.

In January 2006, the Renewable Energy Law of the PRC (Renewable Energy Law) came into

effect. The Renewable Energy Law serves as the legal framework for the development of

renewable energy in China. Besides providing for the compulsory interconnection of

renewable energy to the grid, the Renewable Energy Law also provides guidelines on the

structuring of power tariffs and cost-sharing arrangements, and the establishment of a

renewable energy development fund to further the development of the renewable energy

sector.

The Renewable Energy Law is umbrella legislation where the details on the

implementation are supported by various ministerial regulations and measures. The

Regulation on Administration of Power Generation from Renewable Energy (NDRC Energy

[2006] No. 13) and the Measures on Supervision and Administration of Grid Enterprises in

the Purchase of Renewable Energy Power (SERC [2007] No. 25) obligate power grid

companies to purchase the full amount of electricity generated from renewable energy

projects that are within the geographical coverage of their grids.

To remove the cost barriers to the purchase of renewable power by grid companies and

utilities, the Renewable Energy Law also provides for cost-sharing arrangements with the

introduction of a feed-in tariff. The concept of a feed-in tariff was further elaborated in

the Provisional Administrative Measures on Pricing and Cost Sharing for Renewable Energy

Power Generation (NDRC Price [2006] No. 7). The measures essentially require the end

users of electricity to pay a surcharge to cover the difference between the price of

renewable energy power and the average price of conventional power.


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Separately, the grid connection expenses incurred by power grid companies to purchase

renewable power and other reasonable expenses may also be included in the power

transmission cost. In relation to wind power, the NDRC issued the Circular on Refining the

Policy for On-Grid Pricing of Wind Power (NDRC Price [2009] No. 1906) on July 20, 2009,

which provides that feed-in tariffs for onshore wind power projects approved from Aug. 1,

2009 onwards are fixed using a centrally controlled price determination mechanism.

Under the circular, China is divided into four different types of wind power resource areas

and different prices are set for each of these areas. For solar power, tidal power and

geothermal power, the pricing department of the State Council will set an appropriate

feed-in tariff based upon the principle of reasonable production cost plus reasonable

profit.


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2.1 General

Article 1

In order to promote the development and utilization of renewable energy, improve the

energy structure, diversify energy supplies, safeguard energy security, protect the

environment, and realize the sustainable development of the economy and society, this

Law is hereby prepared.

Article 2

Renewable energy in this law refers to non-fossil energy of wind energy, solar energy,

water energy, biomass energy, geothermal energy, and ocean energy, etc.

Application of this Law in hydropower shall be regulated by energy authorities of the State

Council and approved by the State Council. This Law does not apply to the direct burning

of straw, firewood and dejecta, etc. on low-efficiency stove.

Article 5

Energy authorities of the State Council implement management for the development and

utilization of renewable energy at the national level. Relevant departments of the State

Council are responsible for the management of relevant development and utilization of

renewable energy within their authorities.

Energy authorities of local peoples governments above the county level are responsible

for the management of the development and utilization of renewable energy within their

own jurisdiction. Relevant departments of local peoples governments above the county

level are responsible for the management of relevant development and utilization of

renewable energy within their authorities.

2.2 Resource Survey and Development Plan

Article 6

Energy authorities of the State Council are responsible for organizing and coordinating

national surveys and management of renewable energy resources, and work with related

departments to establish technical regulations for resource surveys.


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Relevant departments of the State Council, within their respective authorities, are

responsible for related renewable energy resource surveys. The survey results will be

summarized by the energy authorities in the State Council.

The result of the survey of renewable energy shall be released to the public, with the

exception of confidential contents as stipulated by the Government.

Article 9

In preparing the plan for the development and utilization of renewable energy, opinions of

relevant units, experts and the public shall be solicited and the scientific reasoning shall

be done.

2.9 Update of 2005 Renewable Energy Law

An update to the original 2005 renewable energy law was adopted by the National

Peoples Congress in December 2009 and took effect 1 April, 2010. This update contained

three main provisions:

1) More detailed planning and co-ordination is to be required, including co-ordination ofrenewables with overall electric power sector development and transmission planning, and

co-ordination of local- (provincial-) level development with national development plans. In

addition, the roles and responsibilities of electric power companies are to be further

elaborated in relation to grid-interconnection of renewable energy generators and

definition of different classes of renewable generators (including small-scale generators

with positive net power production). The law revisions also address areas such as energy

storage and smart grids.

One reason for these grid-related provisions was that the renewables sector has been

growing so fast, especially wind power, that the process of transmission planning and

interconnection was falling behind wind turbine installations. Although not widespread,

some completed wind capacity lacked transmission access, mostly in the cases of rogue

or unapproved projects not coordinated with national planning.

Transmission bottlenecks to seven designated geographic bases for wind power may

become a significant issue in the future. The bases are Gansu/Yumen, East Inner-Mongolia,


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West Inner-Mongolia, Xinjiang/Hami, North Hebei, West Jilin, and Jiangsu Coastline. In

addition, many sources are now reporting time lags in the operational status of completed

turbines due to the time required for interconnection, testing, certification, and final

approvals. These time lags are mostly related to personnel and administration bottlenecks

rather than infrastructure issues, and do not appear to be serious obstacles.

2) Provisions were strengthened to guarantee that electric utilities purchase all renewable

power generated. Previously, utilities were only obligated if there was sufficient power

demand on the grid. Now, utilities must buy the power in all circumstances, but can then

transfer the power to the national grid company for use elsewhere. The revisions to the

law also add deadlines and economic penalties for utilities failing to comply with this

guaranteed-purchase requirement.

3) A renewable energy fund under the Ministry of Finance as part of the 2005 law was

strengthened and consolidated. Previously, the fund was collecting a 0.4 fen/kWh (0.06 US

cents/kWh) surcharge on electric power sales nation-wide (with some customer classes

exempt). The Ministry applies those funds to the costs of government-supported

renewable energy projects and the costs of feed-in tariffs. However, the surcharge has not

kept pace with expenditures, so the new revisions allow the Ministry to supplement the

renewable energy fund from general revenues.


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5. Wind Farm Concession

Wind farms are being developed under NDRC concession programs. Modeled on resource

concessions granted to developers for the extraction of oil, gas and other resources, the

NDRC hopes that wind farm concessions will reduce the cost of energy from wind power,

which is currently higher than that of energy from coal.

Under the concession programme, provincial governments select and open sites for public

bidding. The developer offering the lowest feed-in tariff from the project wins the

contract and a long-term power purchase agreement. Bid prices (i.e. the feed-in tariff)

are driven downwards as a result of the competitive bidding process and the fact that the

long-term power purchase agreement (25 year contract with a 1015 year fixed purchase

price guarantee) reduces risk and offers better financing terms for the developer.

Requirements for wind power concession projects:

The wind farms must be large scale to bring economies of scale in construction and

power generation. Each project should be 100200 MW in capacity, and wind

turbine size cannot be smaller than 600 kW.

The county government is responsible for the access road to the wind farm.

The power grid company is responsible for the transmission line to the substation

of the wind farm.

The period of the wind concession is 25 years.

All electricity generated by the wind project must be purchased by the provincial

power grid company, according to the terms of the power purchase agreement. The incremental cost of wind power will be shared within the provincial power

grid. Each concession is operated on a provincial level, so the cost of wind power

over conventional generation (subsidy) is borne by the province.

For the first 30,000 full load hours (for a 100 MW wind farm, this is equivalent to 3

billion kWh), the wind farm will receive the bid price as the feed-in tariff.

Depending on the wind resources on the site, this period could equate to 1015

years. After 30,000 full load hours, the wind farm will receive the average local

feed-in tariff on the power market at the time.


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8. Wind Power Tariff Structure

During 2009, the Chinese government introduced a feed-in tariff structure for wind power

sector which will apply for the entire operational period of a wind farm (20 years). The

feed-in tariff structure has defined four different categories of tariff depending on a

particular regions wind resources, ranging from Yuan 0.51/kWh to Yuan 0.61/kWh.

The feed in tariff structure for wind power sector in China is higher than the tariff paid for

coal-fired electricity. Before the introduction of current feed in tariff structure for wind

power, there exist dual structures with a concession tendering process on the one hand,

the project-by-project government approval process on the other. The new feed-in

tariff now replaces both these processes. The level of the new feed-in tariff is comparable

to that of the government approved tariffs over the past several years in most regions and

is substantially higher than the concession tariff.

Table Error! No text of specified style in document.-1: Wind Power Tariffs Rate Structure byProvince

WindResourceRegion

Feed-inPrice(Yuan/kWH)

Region

Class I WindResourceRegion

0.51 Inner Mongolia (excluding Chifeng,Tongliao,Xing'anMeng, Hulunbeir), Xinijiang'sUrumqi,Yilli,Changji,Kiamayi, Shihezi

Class II WindResourceRegion

0.54 Heibei's Zhangjiakou and Chengde, Inner Mongolia(Chifeng,Tongliao,Xing'an Meng, Hulunbeir), Gansu'sZhangye, Jiayuguan and Jiuquan

Class IIIWindResource

Region

0.58 Jinlin's Baicheng and Songyuna, Heilongjiang province'sJixi,Shuang ,Qitaihe,shuihua,Yichun and Daxinganlingarea, Gansu Province ( excluding Zhangye, Jiayuguan

and Jiuguan), Xinjiang Province ( excluding Urumqui,Yilli, Chnagji, Kiamayi), Shihezi and Ningxia HuiAutonomus Region

Class IVWindResourceRegion

0.61 Those areas excluded in Class I,II and III regions.


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The wind feed-in tariffs are less than those in Germany and France and less than those

proposed in Ontario. Though the Chinese feed-in tariffs are thought to be based on the

differences in the wind resource across the vast country, it is impossible to estimate the

effectiveness of the feed-in tariffs without knowing the specific wind resources of the four

wind energy zones. Nevertheless, the Chinese programme may represent an innovative

hybrid between the graduated wind energy tariffs in Germany and France and those

single-value tariffs in Ontario, Vermont, and California.


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8. Offshore Wind Power Policy

On 22 January 2010, the State Energy Administration (the "SEA") and the State Oceanic

Administration (the "SOA") jointly issued the Interim Measures on the Administration of

Development and Construction of Offshore Wind Energy (the "Measures"). The Measures

came into effect on the date of issuance.

Comprising 10 chapters and 38 articles, the Measures set out the procedures for offshore

wind energy planning, the procedures and requirements for the grant of development

rights, the application and approvals process for project construction and the use of sea

space, oceanic environmental protection obligations, construction completion inspection

procedures and ongoing reporting obligations of project developers to the relevant

supervising authorities.

The 38-article document regulates every aspect of offshore wind farm development across

the country. It stipulates that offshore wind farms must be developed through public

tender, whereby prices for sending power to grids, project plans, technical abilities and

performance results will all be considered. Using public tender for concession projects,

China will obtain reasonable prices and choose the most competitive enterprises to take

on offshore wind farm construction. This should also support localized production of

equipment for offshore wind farms and avoid redundant development.

The Interim Measure states that the developers of offshore wind farms must be Chinese-

funded enterprises or Sino-foreign joint ventures with majority Chinese ownership. It also

requires businesses to start construction within two years of winning the tender.

Otherwise the NEB will revoke development rights. Interim Measures on the Administrationof Development and Construction of Offshore Wind Energy.

The most notable points of the Measures include the following:

The provincial level Energy Administration Department is responsible for drawing

up plans for local offshore wind energy development, whilst the provincial level


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Oceanic Administration Department is to provide preliminary opinions on the use of

sea space and on a project's impact on oceanic environments.

The SEA is responsible for national wind energy planning and management and the

examination of planning for each province which possesses offshore wind

resources. All offshore wind projects will be subject to the approval of the SEA.

Project developers will be selected from a concession scheme. Bidding feed-in

tariff, construction design, technological capability and performance record will be

the elements affecting the Energy Administration Department's decision.

Unlike onshore wind energy projects, the Measures rule out the possibility of

wholly-foreign-owned enterprises developing offshore wind energy projects. The

Measures provide that "developing and investing companies should be Chinese

funded companies or Chinese-controlled joint venture companies (in which the

Chinese party holds at least a 50% stake)".

Financial compensation from the winner of the concession will be awarded to those

who fail in the concession process but who have conducted work on offshore wind

energy projects previously. Such compensation is to be based on the fee standards

verified by the Energy Administration Department at the provincial level.

The right of development will be cancelled if no construction of a project has been

started within two years after the granting of approval. The right of use of seaspace will be withdrawn by the SOA.

Project developers are asked to report relevant data, such as operational and

meteorological data, to the State Wind Energy Information Centre and the local

Energy Administration Departments.

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