Breaking News! New incremental offshore wind power projects will be excluded from the central REDF subsidy

Breaking News! New incremental offshore wind power projects will be excluded from the central REDF subsidy

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Just a couple of days before the national Chinese New Year celebrations, the Ministry of Finance (MOF), NDRC and NEA have jointly released an announcement on non-hydro renewable power development, reaffirming that all current and new subsidized projects under the Renewable Energy Development Fund should fit within the current REDF budget (meaning that there would be no immediate increase in renewable energy surcharges collected from end users which constitute the pool of funding for the REDF, nor any injection of capital in the REDF budget).

Beginning in 2020, new incremental (which we normally interpret as newly approved, but carries some ambiguity) offshore wind power projects and solar thermal projects will be excluded from the REDF subsidy managed by the MOF. The policy also states that regional governments should take the relay in supporting these projects taking in consideration the local industry and economy. The existing offshore wind farms that have obtained permits and which manage to complete full grid connection by Dec. 31, 2021 can stay within the scope of REDF subsidy managed by the MOF in accordance with the respective FIT policies.

Echoing announcements from the MOF at the end of September 2019, the new policy clarifies that the central government will not issue new batches under REDF, which will not be administered by provincial grid companies. The projects included in batches 1 to 7 are guaranteed to continue receiving subsidies, while projects beyond are required to follow specific procedures to register on the National Renewables Information Management Platform for application. Grid companies will be responsible for reviewing applications and distributing funds accordingly.

Azure’s thoughts:

  • While this is bad news for projects approved in 2020 or later, this is in fact good news for all other renewable energy projects that are connected before the deadline and satisfy the REDF requirements. With less projects forecasted to enter the subsidy arena, these existing projects are more likely to get their share of funding. The new policy also confirmed previous drafts stating that there would be more regular payments from the MoF to grid companies and then downwards to project owners.
  • The news has no further impact on offshore wind farms approved in or before 2018, for which the 2021 deadline was already clear.
  • However the policy suggests that the offshore wind farms approved via competitive FIT bidding during 2019 (16 projects with combined capacity of 4.45GW) which technically should have had more time to complete construction, would now also be subject to the 2021 deadline. Joining as late participants in the race, these projects would face challenges in securing supply chain and resources required to achieve this new deadline. However the language is ambiguous and further investigation will be needed to clarify the outcome for these 2019 projects.
  • Following the same ambiguity, the announcements may also be in direct contradiction with the “518” policy in May 2018 which set out a clear path for competitive FIT projects to be approved in 2019 and 2020.
  • For the long list of projects that are not approved yet, or already approved but will not make the deadline, we still have to find out if they will be abandoned, manage to survive without subsidy (with regulatory advantages under the “grid parity” set of policies) or secure subsidy from local governments. The central government and industry are currently lobbying for local governments to take over the subsidy burden to provide required funding for incremental offshore wind farms between 2022 and 2025 after which it is generally expected that grid parity would be feasible along most of the coast.

Which projects will make the deadline? What will happen to those that don’t? Which provinces have higher chances of reaching grid parity by 2022?  Which governments are more likely to subsidize local projects approved between 2020 and 2025 and what form would these subsidy take? What is the impact of the new policy on the REDF cash flow and subsidy distribution? What are the consequences for Renewable Energy project owners ?

At Azure we have developed tools and analysis around all these topics and can help you address these key questions. Contact us to explore how we can support your China renewable energy strategy and business!