Fitch: China's New Province-Level Renewable Goals More Effective

Fitch Ratings says that the recent guideline from China's Energy Bureau more effectively addresses the off-take of renewable energy by the different provinces than previous rules. Fitch believes that the new guideline is more enforceable, and if effectively implemented, should reduce wastage of renewable energy output and help more accurately plan for renewable energy capacity.

The "Renewable Energy Development and Utilisation Guideline" released on 3 March 2016 sets clear targets for China's overall reliance on renewable energy, as well as minimum consumption levels at the provincial level. The new guideline requires each province to ensure that non-hydro renewable energy reaches specific proportions of the total electricity consumed within the province by2020.
Provinces with rich non-hydro renewable resources, such as Inner Mongolia, Gansu, Ningxia and Xinjiang, are required to ensure at least 13% of their annual electricity demand is met from these sources. Those provinces that lack such resources, like Shanghai, Jiangxi, and Chongqing, have to satisfy at least 5% of annual electricity demand from these sources. On the supply side, each generation company is required to generate at least 9% of total power from non-hydro renewable sources - such as wind and solar - by 2020, or purchase renewable power generation credit from those with surpluses to make up for their shortfall.

This new guideline is one of a series of official regulations and initiatives to promote the development of renewable energy. However, the enforcement of the previous regulations, including the high-profile "Renewable Energy Law" in 2006 was far from effective.

While there have been substantial investments in renewable energy generation in China in the past decade, only 4% of China's total electricity consumption was met by non-hydro renewable sources in 2015 due to limitations with the off-take. For example, the utilisation hours of wind power generation companies has dropped 15% since 2013. This decline is not due to deterioration in wind resources, but largely because wind-based electricity has not been dispatched in line with the priority status under the 2006 law without a binding commitment from demand centres. In addition, in regions without renewable sources, output from local thermal power plants is sometimes prioritised ahead of renewable energy from outside the areas, in spite of the government's national level renewable targets. As such, a considerable portion of wind power generated in western China, for example, is wasted.

Setting region-specific usage targets makes it easier for the central government to track and enforce the off-take requirements. This should lead to lower wastage of renewable energy - which has been a concern for investors in such assets, and help the sector better plan future capacity additions and grid planning.