China turns the screws on ‘unreliables’
After shortchanging renewable energy developers for years to the point where it owes billions of dollars in unpaid subsidies, the Chinese government is now proposing that those companies may have to cancel part of the debt if they want to keep building new projects.
Under a draft plan by the country’s National Energy Administration, provinces would auction off grid capacity for new wind and solar projects, with at least one third of the contracts going to developers who were prepared to give up money owed to them by the government, according to people familiar with the proposal. The winning bidders would get a guaranteed rate for their power.
The NEA is seeking opinions on the plan and it remains subject to change, said the people, who asked not to be identified because it isn’t public. The NEA didn’t respond to a faxed request for comment.
Chinese renewable developers slumped on the news, with China Longyuan Power Group Corp. falling 14% in Hong Kong on Wednesday, the most in seven years. The NEA proposal underscores how President Xi Jinping’s push to boost clean energy and make the country carbon neutral by 2060 is constrained by a simultaneous desire to end the expensive subsidies that were designed to help wind and solar power become economically competitive with coal.
“The policy setting is too aggressive in our view, and may actually hurt renewable development instead of nurturing it,” said Tony Fei, an analyst with BOCI Research Ltd. “We expect the market to react negatively.”
The problem with China’s renewable subsidies dates back to the mid-2010s, when new developments started growing faster than the pool of money the government set aside every year to pay the fees it promised them. By the end of 2019, the deficit had reached 469 billion yuan ($66 billion) and was set to widen to almost 2 trillion yuan by 2034, before gradually falling to zero by 2049, according to BloombergNEF.