China Environmental Law

An article in yesterday’s Shanghai Daily suggests that China has upped its 2020 wind power goal to 100 GW (from the current target of 30 GW). Don’t get too excited just yet. Let’s look at the article (which appears to be a piece of original reporting by SD) calmly and rationally. First, the only source for the 100 GW figure is Shi Pengfei, vice president of the Chinese Wind Energy Association. He states that

“The NDRC [National Development and Reform Commission] has just recently completed an internal meeting to discuss the possibility of increasing wind power capacity to 100,000MW,”. . .”It’s not 20,000MW or 30,000MW as previously targeted.”

So we have an internal NDRC meeting where the “possibility of increasing” the wind power goal was discussed. This is fairly thin gruel. It does not appear that the NDRC has made any formal proposals, and even if it had, it would need State Council approval before the recommendations would be officially incorporated within the “middle and long-term target of the total volume for the development and utilization of renewable energy at the national level” and released to the public (Article 7 of the Renewable Energy Law).

It is entirely possible that China will raise its wind power goals. It has not done so yet, however, and I would be cautious about predicting an immediate up tick in wind power projects in China.

As the SD article notes

China has 5,600MW of installed wind capacity at the end of last year, though nearly a quarter of them are not connected to grids, according to the electricity regulator and industry association. Distributors in China are not keen on wind power as they have to secure back-up energy during times when the wind is not strong enough, and wind power costs more than coal-fired electricity.

As the article notes, the grid companies in China are not fans of wind power (or most other intermittent forms of renewable energy). These grid companies (there are only two, but they have several regional subsidiaries) suffered large losses during the past winter’s severe snow storms and still face large repair costs. It’s been reported that

Total direct economic losses suffered by State Grid and the other monopoly operator, China Southern Power Grid, exceeded 18 billion yuan, with 36,056 power lines and 1,933 transformer stations damaged, State Electricity Regulatory Commission deputy chairman Shi Yubo said last Friday.

Estimated repair costs are even more significant:

State Grid Corp of China, the monopoly power distributor for 26 provinces, . . . says it needs more than 39 billion yuan to rebuild its networks.  

To put this in perspective, the rebuilding costs are more than 15% of the company’s total “power grid expansion and upgrade” expenditure budgeted for the entire year.

The power generation companies (the most likely bidders on large national concession wind projects) are also feeling the adverse effects of high coal prices and fixed power purchase rates.

My sense is that in the short-term there may actually be a slight cooling of the wind market in China; the power generating companies and the grid are going to be even less anxious than usual to add wind capacity at this time.

Longer term the prospects for wind in China look good, especially if as noted in the SD article ”the state reforms a subsidy system to give wind power larger premiums over coal.” The one certainty, however, is that with the 70% domestic content rule and recent VAT and tariff changes, whatever level of wind power generation is ultimately installed by 2020, it is going to bear a “Made in China” label.