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27/03/2018 16:01

Wind & solar generators to gain from China's quota system

[ET Net News Agency, 27 March 2018] China's long-awaited rollout of its renewable
energy-quota system will force grid companies to purchase and transmit more non-fossil
fuel sources of power. Wind and solar are at the top of the pecking order under the
framework, S&P Global Ratings said today.
"China's renewable energy quota system will be more effective in boosting renewables use
than before," said S&P Global Ratings credit analyst Gloria Lu. "This is credit positive
for renewables, especially wind and solar generators, whose quotas are increasing the most
by 2020."
The new system sets quotas for renewable energy consumption, whereas previously
renewables targets were based on generation. The rules were issued on 23 March 2018, with
the aim to go into effect this year after industry consultation.
Generation-focused quotas contributed to a rush of renewables investments by major power
generation groups. This in turn aggravated curtailment, or cases when the energy was
produced but not dispatched. Excess renewables supply in the northern and southwest
regions sat idle. This is because there was not enough demand for local consumption, while
the excess could not be transmitted outside the region.
"High curtailment rates have been a major bottleneck for China's renewables sector in
recent years," said Lu. "That said, curtailment started to trend down from 2017, after
local governments were required to stringently observe a minimum-utilization hour policy
on renewable energy generation facilities."
Under the new framework, provincial grid companies and power purchasers will be
obligated to meet the renewable energy consumption quotas set for each province by the end
of 2018 and 2020 respectively. If they do not meet targets, they can be penalized. Beijing
plans to raise non-fossil fuels to 15% of energy consumption by 2020--from 13.3% in
2016--and to 20% by 2030.
However, a great deal of abandoned wind and solar power in the northern China and
hydro-power in southwest China has become a deterrent for the nation's development of
renewable energy.
"The new quota system will push the provincial government and the grid companies to take
effective measures to increase renewables consumption in order to avoid punitive economic
and political consequences for missing the quota," said Lu.
As part of the quota system, China will also issue renewable power certificates to power
companies for every megawatt hour of generation. The renewables generators will transfer
the certificates to grid companies or power purchasers when they dispatch the power and
receive payment.
Importantly, the generators will still be entitled to government subsidies for renewable
energy even after the certificate transfer. Note the difference in approach from the
"green-certificate" program for onshore wind and solar starting in 1 July 2017.
On a voluntary basis, energy companies could earn and trade green certificates to raise
short-term cash in the market. However, by doing so, these companies lost their
eligibility to receive government subsidies on renewables generation. The
green-certificate program helped the government reduce its mounting subsidy burden.
It is not clear whether these two certificates will merge in a mandatory
green-certificate program. This would force companies to trade their green certificates on
the market--where returns are uncertain--rather than hold out for subsidies. (KL)

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