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Renewables: Price Reform Mechanism Guarantees Sale of Renewable Energy Generation on Grid
The NDRCissued a finalized draft on the guaranteed purchase of electricity generated from renewable energy resources. The reform policy affects both new and existing projects. The total purchase price is divided into a guaranteed minimum price and a floating market price, determined at time of purchase. Additionally, a priority purchase contract will be provided, where a feed-in tariff price will be agreed upon between the plant owner and grid company, along with the share of the price determined by the market. (SDPC CN)
Haiyan Qin, the China Renewable Energy Society Wind branch secretary, stated that in wind resource level I areas, wind power utilization hours should reach 2180 hours annually in order to achieve 8% return on investment.
In our view, while the guiding legislation is an important first step, and while it does address some mechanics of compensation for curtailment, critical aspects still need to be clarified in order to effect the intended policy outcome. First and foremost, if after continued curtailment (or poor resource, or defunct equipment) utilization of a wind project is below the guaranteed level, how will the “curtailed amount” be fairly and transparently established? As far as compensation goes, the proposed reform stipulates using the “on grid tarriff.”This means that if it ever comes to a clear case where curtailment was caused because generation was prioritized instead to a low utilization thermal plant, and the plant pays, its loss is magnified as the total includes the cost of consumed coal as well as the on-grid sale tariff. But presumably the grid in this case will have been the one that made the dispatch decision in the first place. Related to this potential case however, we find it at least positive that the guiding legislation now expressedly forbids forcing renewable power generators to purchase generation rights from thermal producers as has happened in some regions.
Of additional concern is the stipulation that renewable enterprises shall share in costs for ancillary services. This seems to confirm that current policy thinking does not include creating a more open market for grid services and power market spot prices to ensure an efficient market for ancillary services. Given the single regional on-grid tarriff, we have seen pump storage for example operated as a cost center for the grid instead of as a profit center buying cheap power in times of high supply and low demand and selling during high demand peaks. We have seen in Europe that ancillary service costs for deepening penetration levels of renewables tend to shrink with power and T&D market liberalization and deeper regional integration. Further policy clarification on this point would do well to go much further eventually enabling renewable projects to actually earn money by providing ancillary services to the grid.
Policy: Transmission and Distribution Pricing Rules Extended to All Provinces in 2017
During a Q&A session about T&D price reformation, the NDRC stated its 2017 price reform rules will be extended to all provinces. The T&D pricing levels are calculated to provide a reasonable return on investment to the grid companies, but the specifics are still being ironed out.
Initially, the pricing laws applied to five provinces: Yunnan, Guizhou, Anhui, Ningxia, and Hubei. These five provinces had CNY 100 billion in expenses in 2014, with an additional CNY 16 billion in supervision and examination that was not covered under T&D pricing. In 2016, half of the provinces will implement the pricing reform, and in 2017 all provinces are expected to switch over to the new reform rules. (SDPC CN)
The new reform rules are focused on improving electricity market trading rules. These reforms should make electricity pricing better at aligning with supply and demand levels within the week and month ahead markets. While fixing the T&D tariff relative to the power price will increase transparency, costs and T&D management services will vary by transaction (including for renewables) and could reinforce the grid's preference for serving certain types of power flows.
Source: China smart grid
Wind: First Wind-to-Heat Project to be Finished this year in Xinjiang
Urumqi, the capital and largest city in Xinjiang, is set to complete its first wind-to-heat clean heating project by August 2016. The project consists of converting wind energy into electricity, and then using the electricity to heat water in large boilers. The heat will then be used for district heating, replacing the heat typically provided in combined heat and power (CHP) plants. The total investment is around 182 million CNY, with 27% of the funding supplied by the government. (Urumqi DRC CN)
In an abstract sense, surplus wind power from winter night (high resource) production correlates well with energy intensive (less time sensitive) heating. Denmark has had positive experience utilizing wind generated electricity in periods of surplus for district heat - and thus offsetting coal use. An initial demonstration project in China's North East aimed at retrofitting an existing district heating plant to utilize surplus wind power was met with muted enthusiasm because the heat itself was ultimately sold at subsidized low prices and the refurbishment and operating costs had no perceivable economic payback to the owners. The Xinjiang project appears to be a greenfield plant, and therefore the capex and opex economics and any subsidies as are required (given that there is no spot price for Xinjiang power) should be clear to the project sponsor.
Source: Hexun News
Economy: 2016 Energy Work Guidance Published
The NEA published its 2016 energy work guidance. They forecast:
After achieving nearly flat growth in 2015, we are unsure how the 6.3% increase in energy consumption will be achieved in 2016 - especially since economic growth is supposed to increasingly decouple from energy consumption as the economy becomes more energy efficient and services become increasingly important. Annually, energy growth over the last 15 years has ranged from no growth to 15% growth in various provinces, so it is not unheard of for energy growth to be sporadic.