Introduction

Photovoltaic (PV) power generation is clean, green and pollution free. As such, it meets China's energy transfer requirements and is set to become an important part of the national energy strategy. China has ranked first in the world for five consecutive years for its new PV power generation installed capacity and for three consecutive years for its cumulative installed capacity.(1)

As PV technology advances, development and construction costs continue to decrease. In 2017 the average construction cost for new PV power plants was 45% lower than in 2012, which led the state to reduce subsidies and ease the pressure on subsidy funds. As such, on 31 May 2018 the National Development and Reform Commission (NDRC), the Ministry of Finance and the National Energy Administration (NEA) jointly issued the Notice on Matters relating to PV Power Generation in 2018. Further, on 7 January 2019 the NDRC and the NEA jointly issued the Notice on Actively Promoting Non-subsidised Internet Access for Wind Power and PV Power Generation. Together, these policies have contributed to the development of the PV industry.

Overview

In 1998 the government began investing in solar power generation and made plans to build the first 3MW polysilicon battery and application system demonstration project. In 2001 China launched the Guangming Project Plan, which aimed to solve the problem of electricity use in mountainous areas through PV power generation. In 2005 the Renewable Resources Law was introduced to encourage the development and use of renewable resources, such as solar energy. On 31 August 2007 the NDRC issued the Medium and Long-Term Development Plan for Renewable Energy, which emphasised the importance of solar energy for the development of renewable resources. On 16 July 2009 the Ministry of Finance, the Ministry of Science and Technology and the NEA issued the Interim Measures for the Administration of Financial Subsidy Funds for the Golden Sun Demonstration Project, which stated that, in principle, subsidies for grid-connected PV power generation projects are calculated at 50% of the total investment. The independent PV power generation system in remote and non-powered areas will be subsidised by up to 70% of the total investment. Appropriate subsidies will be given to key technology industrialisation and industrial infrastructure capacity building projects.(2)

On 4 July 2013 the State Council issued Several Opinions on promoting the Healthy Development of the PV Industry, which highlighted the implementation of the power subsidy policy for distributed PV power generation and stated that the implementation period is, in principle, 20 years. The opinions also stipulated that the on-grid tariffs for PV power plants and the subsidies for distributed PV power generation should be reasonably adjusted according to factors such as cost changes.(3)

On 26 August 2013 the NDRC issued the Notice on Playing the Role of Price Leverage to Promote the Healthy Development of the PV Industry, which set out the following ground power station subsidies for the three types of resource area:

  • Rmb0.9 per kilowatt hour (kWh);
  • Rmb0.95 per kWh; and
  • Rmb1 per kWh.

It also stipulated that the subsidies for distributed PV power generation should be based on full power and that the price subsidy standard is Rmb0.42 per kWh (including tax).(4)

On 7 June 2014 the State Council issued the Strategic Action Plan for Energy Development (2014-2020), which aimed to promote price reforms in the power sector and liberalise competitive prices. On-grid and sales prices are determined by the market, while transmission and distribution prices and oil and gas pipeline transport prices are determined by the government.(5) The plan also stated that the new energy benchmarking on-grid tariffs would be gradually reduced in order to rationally guide new energy investment.

On 26 December 2016 the NDRC issued the Notice on Adjusting the On-Grid Electricity Price of Onshore Wind Power for PV Power Generation, which stipulated that PV subsidy projects with financial subsidies would implement new benchmark internet prices after 1 January 2017. The on-grid tariffs for the three types of resource area were adjusted to:

  • Rmb0.65 per kWh;
  • Rmb0.75 per kWh; and
  • Rmb0.85 per kWh.

The distributed PV power generation subsidies remained unchanged.

On 19 December 2017 the NDRC issued the Notice on the Price Policy for PV Power Generation Projects in 2018. The notice lowered the on-grid tariff of PV power plants which began operating after 1 January 2018. The on-grid tariffs for the three types of resource area were adjusted to:

  • Rmb0.55 per kWh;
  • Rmb0.65 per kWh; and
  • Rmb0.75 per kWh.

Since 2019, PV power generation projects that have been included in the annual scale management of financial subsidies have all implemented the corresponding benchmark electricity prices according to the commissioning time. The subsidy standard for distributed PV power generation projects that began operating after 1 January 2018 and adopt the mode of 'spontaneous use and surplus online' has been adjusted to Rmb0.37 per kWh. The price of distributed PV power generation projects which adopt the 'full net access' mode is implemented according to the price of the PV power station in the resource area. The benchmark electricity price for village-level PV poverty alleviation power stations and subsidy standards for household distributed PV poverty alleviation projects remain unchanged. The subsidy policy has driven the investment and development of the PV power generation industry and is an important reason for the rapid development of the domestic PV power generation industry.

Content and significance of new policies

Notice on Matters Related to PV Power Generation in 2018 According to the notice, no locality can arrange the construction of ordinary power stations that require any form of state subsidy before the state issues documents regarding the construction of such power stations. Further, the newly-introduced PV power station benchmark on-grid price was reduced by Rmb0.05 per kWh. The on-grid tariffs for the three types of resource area were adjusted to:

  • Rmb0.5 per kWh;
  • Rmb0.6 per kWh; and
  • Rmb0.7 per kWh.

The subsidy standard for newly-operated distributed PV power generation projects using the spontaneous use and surplus online mode was adjusted to Rmb0.32 per kWh (including tax). Distributed PV power generation projects which adopt the full net access mode must implement the price for their resource area. The benchmark electricity price for village-level PV poverty alleviation power stations (below 0.5MW), which is in line with national policies, remains unchanged.

Significance The Notice on Matters Related to PV Power Generation in 2018 will help to alleviate the pressure of financial subsidies. The continued expansion of the financial subsidy gap is a well-known barrier to the development of the PV industry. To date, the subsidy gap for renewable energy power generation has totalled more than Rmb120 billion, which has directly affected the industry's development. Reducing the scale of new projects which require subsidies will avoid the formation of systemic risks and benefit industrial development in the long run.(6)

With the rapid development of the PV power generation industry, the speed at which some power grids are being constructed has not matched that of PV power generation. Adjusting the pace of development will help to solve the problem of PV consumption and reduce the rate of light rejection.

The notice will also encourage technological innovation in the PV industry. Reduced subsidies will enable companies to cease relying on national policies and instead rely on the markets. Further, improving efficiency and reducing costs will help to:

  • promote the 'survival of the fittest' in the PV industry;
  • curb unnecessary expansion; and
  • contribute to the PV industry's sustainable and healthy development.

Notice on Actively Promoting Non-subsidised Internet Access for Wind Power and PV Power Generation

Affordable, subsidised projects The Notice on Actively Promoting Non-subsidised Internet Access for Wind Power and PV Power Generation states that the future installed capacity of PV power generation will be divided into subsidised and non-subsidised installations. The subsidised installed capacity will be based on the NEA's indicators and non-subsidised installations will not be subject to index restrictions. Local governments will provide support and indicators according to local conditions. As the development of PV power generation has traditionally been restricted by the use of subsidies and the developmnt of the industry at large has been limited, allowing non-subsidised installations will enable the industry to develop gradually and ensure parity.

Guarantee priority of power generation projects, electricity marketisation and green certificate trading The policy requires PV power generation level and low-cost projects to enable full online access. In the case of abandonment, the amount of electricity generated can be verified as a transferable priority power generation plan and traded nationwide. For distributed generation, the NEA and the NDRC will organise market-based trading pilots to conduct near-term transactions and encourage large-scale power users to conduct long-term power transactions with new energy companies. The sale of green certificates obtained from new energy power generation will also be encouraged. New energy generation that does not allow internet access can be traded nationwide.

Promote unsubsidised new source consumption and reduce transportation and distribution costs Provincial power grid enterprises are responsible for non-subsidised new energy consumed in their province. These enterprises will sign a long-term (no less than 20 years) fixed electricity price purchase and sale contract for PV power generation projects in accordance with the local coal-fired benchmark on-grid price stipulated by the state at the time of project approval. For unsubsidised PV power generation projects that use cross-provincial and inter-regional transmission channels, the relevant government departments and power grid enterprises in the receiving areas are responsible for electricity consumption. On the consensus of the transmission and reception grid enterprises, companies must sign a long-term fixed electricity price purchase and sale contract with the PV power generation enterprise (for no less than 20 years). For distributed market-oriented trading projects piloted by the state, the transmission costs of the previous voltage level which was not covered are exempted. Pilot projects can also directly trade renewable energy sources and cross-subsidies can be reduced.(7)

Significance Affordable pilot projects will provide innovative industrial policy support, thus helping the industry to transition more smoothly to an era of parity and competitiveness. Only by removing subsidies can PV power gain enough strength to compete with traditional fossil fuels and continue to expand its market share with no marginal costs.(8)

Further, the policy will promote the reduction of non-technical costs (eg, power cuts and illegal charges) and promote the development of the unsubsidised PV industry. The notice clearly requires all localities to optimise the project investment environment and reduce non-technical costs. Local governments must prioritise the supply of land for parity projects and improve the transmission and distribution price policy to support the direct trading of new energy. The collection of resource fees is prohibited.

Another breakthrough introduced by the policy is the requirement for provincial power grid enterprises to sign a fixed-price electricity purchase and sale contract for at least 20 years for parity pilot projects. This should help to protect the income expectations of investment enterprises. Such contracts are based on the local coal-fired benchmark on-grid tariffs stipulated by the state at the time of the project's approval and will increase investors trust in the future of the PV industry.

Overall, the policy should reduce investment risks and promote the stable development of the PV power generation industry.

For further information on this topic please contact Chen Yingnan or Meng Qi at Broad & Bright by telephone (+86 10 8513 1818) or email (yingnan_chen@broadbright.com or meng_qi@broadbright.com). The Broad & Bright website can be accessed at www.broadbright.com.

Endnotes

(1) The NEA and the NDRC answered questions on the Notice on Matters Related to PV Power Generation in 2018. The answers are available here.

(2) See Article 7 of the Interim Measures for the Administration of Financial Subsidy Funds for the Golden Sun Demonstration Project.

(3) See Several Opinions on Promoting the Healthy Development of the PV Industry.

(4) See the Notice on Playing the Role of Price Leverage to Promote the Healthy Development of the PV Industry.

(5) See the Strategic Action Plan for Energy Development (2014-2020).

(6) See the full text of the Notice on Matters Related to Photovoltaic Power Generation in 2018 and authoritative interpretation.

(7) See New Energy Industry Major Issues Comments: Comments on Notice on Actively Promoting Non-subsidized Internet Access for Wind Power and Photovoltaic Power Generation.

(8) See Qin Haiyan, "Interpretation of Non-subsidized Parity Internet Policy for Wind Power and Photovoltaic Power Generation".

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