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China continues strong renewables policy support after record PV, offshore wind power expansion in 2021

31 January 2022 Max Tingyao Lin

China had a record year in installing solar photovoltaic (PV) and offshore wind facilities in 2021, according to government figures, as the world's largest GHG emitter continues its rapid renewable power generation capacity expansion.

With policy incentives and a long-term decline in generation costs, Chinese utility and energy firms have been among the world's keenest in adding low-carbon projects to their portfolios in recent years. The country's renewable capacity additions totaled 134 GW last year, just shy of an all-time high of 139 GW in 2020, data from China's National Energy Administration (NEA) showed.

In 2021, 16.9 GW of offshore wind power projects were commissioned in the country. This compared with just 9.49 GW installed nationwide at the end of 2020.

China Three Gorges, a state-owned utility most famous for constructing the world's largest hydropower project, brought three offshore wind farms with a combined capacity of 3.1 GW online in December alone.

"China has now taken a world-leading position in offshore wind power," the NEA declared on its website 28 January.

To put the rapid expansion into context, the former No. 1, the UK, currently has nearly 10.5 GW of offshore capacity, according to trade association RenewableUK.

The rush of installations came as the Chinese government ended the subsidized feed-in tariff (FIT) of Yuan 850 ($134)/MWh for offshore wind farms on 31 December. Projects connected to the power network this year and in the future need to take the lower on-grid tariff available to coal-fired power.

"The expiration of the FIT undoubtedly was a large incentive to getting offshore projects completed," said Norm Waite, an analyst at the Institute for Energy Economics & Financial Analysis. "Having said that, while offshore is expensive at the moment, the logic of offshore wind for China is quite powerful.

"In a country that still fights resistance to cross-provincial energy trading, offshore wind promises to park generation within a province and near to major population centers," Waite told Net-Zero Business Daily.

Separately, the NEA said 54.9 GW of PV projects came onstream in China last year, a record high and up 14% from 2020.

Residential PV installations amounted to 21.5 GW in 2021, compared with just above 10 GW the previous year.

Observers said the enthusiasm for residential solar last year partly resulted from the phaseout of a subsidy scheme, which allowed residential projects installed by 31 December to receive Yuan 30/MWh.

"Given that solar has become cost competitive, policy support other than the FIT will become more critical for its future growth in China," said Muyi Yang, an electricity policy analyst at thinktank Ember.

"This support may include measures to address a range of regulatory and technical issues affecting the uptake of rooftop solar PVs," Yang added.

Meeting expectations

Overall, the pace of renewable expansion in China is mostly in line with expectations.

China's installed renewable capacity reached 1.063 TW at the end of 2021, or 44.8% of total installed generation capacity, NEA data showed.

Total PV capacity amounted to 307 GW as of 31 December, up 20.9% from a year earlier. Onshore and offshore wind power grew 16.6% to a combined 328 GW.

In a forecast last year, the International Energy Agency (IEA) expected China's total renewable capacity to reach 1.058-1.081 TW at the end of 2021, including 312-319 GW of PV, and 322-327 GW of wind power.

China has a goal of at least 1.2 TW of installed wind and solar power in 2030, and many experts anticipate no issues in the country reaching the target. The IEA expects the combined capacity to reach 1.22 TW by 2026, while a recent IHS Markit forecast points to nearly 1.5 TW by 2030.

Also, the NEA said renewable projects generated 2,480 TWh of electricity in China last year, or 29.8% of the power mix. Wind facilities' output increased by 40.5% to 653 TWh, and supply from the PV sector rose 25.1% to 326 TWh.

With the national targets of peak CO2 emissions by 2030 and carbon neutrality by 2060 in place, analysts widely expect Chinese policymakers to continue offering strong support to renewable projects—but the focus is shifting away from direct handouts.

Some provincial governments, such as Guangdong and Zhejiang, will continue to subsidize offshore wind farms. Yet the central government has removed direct subsidies for most renewable projects, aside from a pilot scheme to promote the rollout of rooftop solar projects on government buildings and in residential areas.

Beijing's current policy initiatives focus on tax breaks and low-interest loans to low-carbon project developers, power market reforms, and grid improvement.

"The government has been launching plenty of policies supporting renewables," according to Bing Han, a senior research analyst at IHS Markit.

"From the supply side, flexible power source newbuild, such as batteries and pumped hydro, are encouraged to facilitate renewable consumption," he told Net-Zero Business Daily. "And on transmission, power grid companies have been investing generously in long-distance, ultra-high-voltage transmission lines to help export renewable power to demand centers."

With falling costs for solar and wind projects, making them financially viable without subsidies in many occurrences, Yang suggested China is likely to shift the focus of its policy support from renewable penetration to addressing system-wide challenges.

"Now, the key issue is how to reconfigure the whole electricity system to accommodate large outputs from variable renewable sources while ensuring supply reliability and security," he said.

Mixed signals

In a parallel development, the Chinese government made revisions to its long-standing dual-control policy that caps energy intensity and consumption in each province.

In a document published last week, the State Council said additional usage of renewable electricity in 2021-2025 would not be counted under the consumption cap.

"This would create more demand for renewable energy from grids, and green electricity can get premiums," Shenzhen-based CITIC Securities said in a note.

The revision came after government officials in December said the dual-control policy would eventually regulate carbon intensity and CO2 emissions rather than energy intensity and consumption, without stating a timeline.

"I think this move to dual carbon control … will do a lot to encourage renewable energy consumption," said Waite, adding that renewables' differentiation is in line with the December announcement.

However, the State Council document also stated that "energy consumption from using raw materials" will not be covered by the dual-control policy at the national and local levels, but did not explain further.

This could mean coal and oil consumption during manufacturing will not factor in the calculations of energy intensity and usage in the future, according to local observers. This would blunt the advantage that renewable energy would accrue under the policy.

With a slowing economy and the recent power crisis, Chinese officials have been seeking to strike a balance between pursuing a green transition and economic development in what they describe as a "coal-based economy."

According to state-owned Xinhua News Agency, Chinese President Xi Jinping said in a speech 25 January that "cutting emissions is not aimed at curbing productivity or no emissions at all."

"While bringing down carbon emissions, efforts should be made to safeguard energy security, industrial and supply chain security, and food security, as well as [to] ensure people's normal daily lives" continue, he added.

Posted 31 January 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability

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