Hunton & Williams Renewable Energy Quarterly, September 2009

Renewable Energy Quarterly
upwards 5 (rumored targets as high as 100 GW of wind and
9 GW of solar in 2020 have appeared in recent Chinese
press) and there is even talk of revising the nationwide
renewables target for 2010 from 15 percent to 20 percent of
China’s generation mix. 6
The targets in the RE Plan are based on installed generating
capacity rather than actual deliveries to the grid. As such, the
large power generation companies have been concentrating
on deploying capacity as quickly as possible to meet
the mandated RPS, sometimes without assurance that the
projects will be able to connect to the grid and deliver power
in a timely fashion.
RE Law Implementing Regulations
Under China’s institutional framework, the State Council sets
the country’s general policy and appropriate government
ministries are charged with formulating the rules addressing
issues within the national regulation framework that pertain
to their capabilities and responsibilities. The ministerial regulations
then guide the provincial governments as they form
the implementing rules. Many ministerial regulations and
provincial implementing rules have been passed to implement
the RE Law, with more regulations expected.
Tariff Setting and Cost Pass Through to End Users
Viable tariffs are the most important factor for developers
in overcoming the cost challenges attendant to renewable
energy projects. As noted above, tariffs can be set by the
government (feed-in tariffs) or determined through public
tender (although the RE Law stipulates that a winning price
is not to exceed the rate paid to grid-connected projects of
a similar nature). The ministerial regulation covering this
issue is the Provisional Administrative Measures on Pricing
and Cost Sharing for Renewable Energy Power Generation
(NDRC Price [2006] No. 7) (the “Pricing Reg”), which came
into effect on the same day as the RE Law, January 1, 2006.
The Pricing Reg provides the following guidelines for tariff
determination:
(1) Prices for biomass projects may be either feed-in tariffs
or set by bid. For feed-in tariffs, biomass projects enjoy a
subsidy of RMB 0.25 per kWh for 15 years following commercial
operations. The subsidy offered to new biomass
projects will be reduced annually from 2010 by 2 percent.
5
Fu Jing. “China Considers Higher Renewable Energy Targets.”
China Daily. July 6, 2009.
6
Yu Tianyu. “Green Energy Attracts Investors.” China Daily. July
10, 2009.
Hybrid systems employing both traditional fossil-fired and
biomass components will not receive the subsidy if over
20 percent of the heat consumption for power production is
from traditional sources. For tariffs set by competitive bid,
there is no subsidy;
(2) Solar, ocean and geothermal power projects will receive
government-set tariffs (but detailed calculations such as
those for biomass are not provided);
(3) Hydropower project tariff determination is covered under
a separate existing law; and
(4) The “price authorities of the State Council” will be
responsible for setting tariffs or conducting competitive bid
processes, as applicable, in connection with renewable
energy projects.
The RE Law provides the added cost of developing renewable
energy will be “shared in the selling price.” This concept
is further detailed in the Pricing Reg, which provides that
a renewable energy surcharge be paid by all end users of
electricity. The surcharge may be adjusted annually and
will cover (a) the portion of the average purchase price of
renewable energy paid by grid operators over the average
purchase price of energy from coal-fired projects, and (b) the
cost of connecting renewable energy projects to the grid.
The surcharge was initially set at RMB 0.001 per kWh by
the Renewable Energy Surcharge Level Regulation (NDRC
Price [2006] No. 28-33).
Although the Pricing Reg originally provided that wind
tariffs would be determined by competitive bid, a July 2009
NDRC announcement revealed that as of August 1, 2009
onshore wind projects will receive fixed tariffs of RMB 0.51,
RMB 0.54, RMB 0.58 or RMB 0.61, depending on geographic
region. The new benchmark tariff system effectively
eliminates the downward pressure on on-grid prices exerted
by bid competition and allows developers to plan wind farms
around a known price. Tariffs for offshore projects will be
determined separately.
Investment Incentives
As of yet, instruction on investment incentives has been
limited to the generalities of the RE Law and the provision
of feed-in tariffs and subsidies in the Pricing Reg (which are
only really fully explained in respect to biomass projects).
Regulations dealing solely with the special financing terms
and tax treatment for renewable projects mentioned in the
RE Law have not yet been passed. Recent nonrenewable
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