China’s new market tool steers clean energy to where it’s needed

[BEIJING] Two of China’s industrial powerhouses are showing how the country’s new market-based electricity pricing system can steer clean energy investment to the areas that suit them best.

In the southern province of Guangdong, thirsty for electricity but constrained by population density and surrounded by relatively shallow waters, officials have offered generous rates to offshore wind. Further north in Shandong, they are using the new tools to correct course and reduce a glut of solar power that has built up over the years.

The system that went into effect on Jun 1 offers more flexibility than previous rules, which paid fixed rates to all power sources, regardless of whether they fit the needs of local grids. That led to rapid but often scattershot deployment of wind and solar, which has helped bring China to the verge of peaking its carbon emissions but also seen large volumes of clean energy go to waste.

So, having led the world in rolling out renewables, the trick now for authorities is to make sure all that power is delivered cheaply and effectively.

The result is that the coastal province of Guangdong, already the country’s top offshore wind power generator, intends to build even more turbines on the ocean. The local government this week set price ranges for its first annual auction of renewables projects that heavily favour the technology, which could enjoy rates at a similar level to coal-fired power generators. Operators of new solar developments, by contrast, will get payments on a lower scale.

The Guangdong government’s clear preference for offshore wind stems naturally from its economic circumstances and topography, said Cosimo Ries, an energy analyst with Trivium China.

Shandong province in northern China is indisputably the country’s solar leader with a total capacity of 91.3 gigawatts as at July, compared with 27.5 gigawatts of wind. But the coastal province is also tilting towards other sources after too much solar brought a glut of midday electricity that frequently turned prices negative in the region’s power market.

In the country’s first renewable power auction earlier this month, Shandong allotted 6 million megawatt-hours to wind power and just 1.2 million megawatt-hours to solar. Wind developers will also get about 40 per cent more for their electricity than their solar rivals.

“They were using these marketing mechanisms at their disposal to try to support wind and basically put the brakes on solar investments,” said Ries.

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Shandong’s auction also did not differentiate between offshore and onshore wind. The former is typically more expensive, but officials are using the new system to push offshore turbine makers to cut costs to stay competitive, Jiang Zhiwei, a director at the province’s Guangli port, said in a government-organised interview last week. BLOOMBERG