4.2 government financial support for renewable energy project2.

China’s renewable energy policy

In this section renewable
energy policy and renewable energy industrial policy in China will be explained
in detail. Since 2005, The Government of China promulgated a series of
renewable energy and renewable energy industrial policies, which include the
Renewable Energy Law, the 11th Five-Year Plan for National Economic and Social
Development (11th FYP), the Medium- to Long-Term Plan for the Development of
Science and Technology (MLP for S), the 11th Five-Year Plan of Science
and Technology Development (11th FYP for S), the Medium- and Long-Term
Plan for Renewable Energy Development (MLP for RED) and the 11th Five-Year Plan
for Renewable Energy Development (11th FYP for RED), and etc. This section
sketches out China’s key renewable energy and industrial policy tools for
renewable energy over between 2005 and 2012, particularly wind and solar PV
sector policies.

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The main renewable
energy policy tools employed by the Chinese government for promoting the
development and deployment of renewable energy and pulling the market demand
for renewable energy equipment, components and parts include guaranteed grid
connection and full purchase, categorized on-grid price setting, mandatory
market share, government concession program and government financial support
for renewable energy project2.

The Renewable Energy
Law that was promulgated in 2005 and took effect as of 1st January 2006 and its
2009 amendments, together with other relevant regulations, obligate power grid
companies to provide grid-connection services and related technical support,
and to purchase and dispatch the entire amount of electricity generated from
the renewable energy projects when entering into interconnection agreements
with projects. The original 2005 Law simply requires grid companies to purchase
without condition all renewable power available for purchase (NPC, 2005).
However, the 2009 amendments limit grid companies’ responsibility to purchase
renewable power only from those renewable power generators that meet certain
technical requirements for connection in order to improve the implementation of
mandatory connection and purchase policy (NPC, 2009). In response to China’s
government’s call for supporting distributed solar PV development, the State
Grid Corporation of China (SGCC), China’s largest state-owned power utility
company, in 2012 announced that starting on 1st November 2012 it would provide
free connection services for distributed solar PV electricity producers located
close to customers and with installed capacities of less than 6 MW each (SGCC,
2012). Subsequent to this, on 27th February 2013 it announced that the free
connection services would expand to all types of distributed electricity
sources (SGCC, 2013) 2.

The government of China
has implemented categorized on-grid price setting for each individual renewable
energy generation connected to the grid. This takes into account the
techno-economic performance of different renewable energy technologies, their
geographic location, and the availability of renewable energy resources. Two
main methods have been adopted— government-guided pricing and government-fixed
pricing (NPC, 2005; NDRC, 2006). Between 2006 and  2009, the grid-connected power price of wind
power projects was determined by a government-guided price set in accordance
with the price selected through a public request for tenders. In August 2009,
China began to implement a national four-category scheme of FITs for new
onshore wind power projects located in regions with different wind abundances,
in the range 0.51–0.61 RMB/kW h (NDRC, 2009). As compared to the 0.385 RMB/kW h
on-grid tariff for coal power, these categorized FITs represented a significant
premium for wind power generation over coal-fired electricity generators2.

For the PV power
projects, prior to 2009, the government approved all on-grid prices, according
to the principle of reasonable production costs plus reasonable profit, which
ranged between 4.0 and 9.0 RMB/kW h (Ma, 2011). Between 2009 and 2010, the
government sponsored two rounds of public tender for solar powered projects.
The approved FIT based on the bidding result for the first round was 1.09
RMB/kW h and the FITs for the second round ranged from 0.729 RMB/kW h to 0.991
RMB/kW h (Shi, 2010). As a consequence of these much lower bidding prices for
projects and the tough time faced by China’s PV industry, in July 2011 the
government announced its first nationwide two category FIT scheme for solar PV
projects: Projects approved before July 2011 are to receive 1.15 RMB/kW h for
their generated electricity. All projects approved later are to obtain a generation
price of 1.10 RMB/kW h with the exception of projects in Tibet, which under
some circumstances, can still receive 1.15 RMB/kW h (NDRC, 2011) 2.

China’s Renewable
Energy Law states that a “mandated market share” of renewable power should be
required of the major national generating companies. Each of these companies
must generate or purchase specific shares of their total power from renewable
sources. In 2007, the exact mandated shares were announced as part of the MLP
for RED. According to the plan, the share of non-hydro renewable energy supply
should account for 1% of total power generation by 2010 and 3% by 2020 for
regions served by centralized power grids. In addition, any power producer with
capacity greater than 5 GW must increase its actual ownership of power capacity
from non-hydro renewable energy supply to 3% by 2010 and 8% by 2020 (NPC, 2005;
NDRC, 2007) 2.

Under the concession
program, investors and developers are selected for concession projects through
a competitive bidding process and the government is committed to coordinate the
power grid connection and purchasing all the electricity generated by the
concession projects. From 2003 to 2007, the NDRC initiated five rounds of
concession biddings for wind power projects. In the wind concession projects,
price was the determinant criteria in deciding bid winners. In roughly all
cases the company with the lowest bidding price won the bid (Wang, 2010).
Following the example of wind, two rounds of concession biddings were
implemented for solar PV power projects during 2009–20102.

Financial subsidies by
the Chinese government provides support renewable energy projects. For einstance,
in 2009 the government initiated two national solar PV subsidy programs to
boost its domestic solar industry: the Solar Roofs Program which provides
upfront subsidy for building-integrated PV systems and a subsidy of 50% of the
bidding price for the supply of critical components (Huo and Zhang, 2012), and
the Golden Sun Demonstration Program which provides subsidies for both on-grid
and off-grid PV system2.

China’s renewable energy industrial policy

The industrial policy
tools for renewable energy that implemented by the Chinese government include
financial support for innovation, R and manufacturing, local content requirements
and etc.

China’s MLP for S&T
gives top priority to developing technologies related to energy. Consistent
with the MLP for S&T, the 11th FYP for S&T which provides short-term
targets and goals for China’s R and innovation activities between 2006 and
2010, lists energy technologies as a key area. Especially, the Plan underlines
three key clean technologies, one of which is 2–3 MW wind turbine
commercialization. Among various publicly funded S programs, the “863”
and “973” programs, the two most important national research projects, have
provided the most direct funding sources for renewable technologies. Within the
11th FYP period, renewable energy was one of the technology priorities in both
“863” and “973” programs. For example, specific research into large-scale wind
turbines was undertaken in the context of “863” program. On average each
project in the “973” program received funding of 22 million RMB over a span of
5 years (Tan, 2010). Additionally, the Ministry of Finance (MOF) launched a
special fund to support the R of domestically controlled or wholly owned
enterprises manufacturing wind power machines and equipment in China. Wind
power equipment manufacturers carrying out the fund’s qualifications are
eligible for a 600 RMB/kW grant for the first 50 wind turbines produced
(Lovells, 2008). Nowadays, China’s government has started to strengthen the
wind power innovation system by establishing new national-level R centres
and laboratories for all forms of new energy technologies. The central
government has also funded a number of PV R projects which faced many
technical difficulties and uncertainties, so as to supply elemental technologies
for industrial development. For instance, polysilicon was in shortage in China
until the state-owned Emei Semiconductor Research Institution’s achieved
successful R&D of polysilicon technology, and transferred it to polysilicon
manufacturers in China (Huo and Zhang, 2012). In 2010, a total of 38 national
energy R&D centres were approved and established by the National Energy
Administration (NEA) (Yang, 2010).

For promoting
self-sufficiency in renewable energy equipment, China offers import tax
exemptions for complete sets of foreign-made equipment, and import tax
exemptions for key foreign made parts which are necessary for the development
of key equipment to domestic enterprises. China’s state-owned banks and local
governments have also provided strong financial support for renewable
manufacturing industry. In response to the central government’s call for
supporting strategic emerging industries, China’s state-owned banks have given
a huge amount of capital support to domestic PV manufacturers. For instance, out
of the 41.8 USD billion invested in the global solar industry in 2010, 33.7 USD
billion came from the government of China. The China Development Bank (CDB) was
the prime source of this capital infusion. In 2010 solely, the bank handed out
USD 30 billion in low-cost loans to the top five PV manufacturers in the
country. The government of China also supports its PV industry as one of a
number of key industries identified in the Catalog of Chinese High-Technology
Products for Export, updated in 2006. Consequently, PV manufacturers are
eligible for additional financial support for R and provision of export
credits at preferential rates from the Import– Export Bank of China, as well as
export guarantees and insurance through the China Export and Credit Insurance
Corporation (Solar Server, 2011) 2.

A main goal of a local
content policy is to ensure that the government’s renewable energy policy
produces tangible local economic benefits. Wind projects under the China’s wind
concession program were required to source at least 50% of their content from
local manufacturers in 2003, which was increased to 70% in 2004. These local
content requirements caused foreign firms interested in selling wind turbines
in China to develop a manufacturing strategy that allowed them to meet these
requirements. As a result, many leading international wind turbine
manufacturers established either local manufacturing facilities or assembly
plants for Chinese-made components (Lewis and Wiser, 2007). Though the local
content requirement was discontinued in 2009, as it was criticized as being
against WTO rules, ultimately for China it may have been worthwhile having
these local content requirements as it had many years to develop technological
capacity until coming under the scrutiny of the WTO.