China to Improve Renewable Energy Financing

飞雪寒冰

China's legislators have submitted a proposal to improve funding for renewable energy development as the world's second-largest energy user seeks to reduce dependence on fossil fuels.

A draft amendment to the Renewable Energy Law was passed to the Standing Committee of the National People's Congress on August 24, advocating the establishment of a fund jointly financed by central government fiscal revenue and surcharges on renewable energy consumption.

The National Development and Reform Commission, the top policy-maker, in 2006 formulated a cost-allocation mechanism that would use consumer surcharges to offset the relatively higher on-grid tariffs for renewable energy compared with benchmark thermal-coal power plants.

The revenue from the surcharges would subsidize renewable energy development.

However, the surcharges totaled only about 2.65 billion yuan based on 2008 power output, insufficient to cover the required investment in renewable energy, Galaxy Securities analyst Shen Wenchun told Caijing.

China aims to raise the proportion of power generated by renewable energy to 16 percent of total consumption by 2020 from 7 percent in 2006.

飞雪寒冰

Shen said that the government needs to hike the surcharges or increase fiscal spending to finance investment.

Zhang Shuai, an analyst with Sinolink Securities Co., agreed the surcharges are insufficient and the fund needs more financing sources.

The draft amendment would also require grid operators to purchase all the electricity generated by renewable projects.

The move will provide an incentive to develop wind, hydropower and solar power projects by guaranteeing demand, Shen said, adding that whether the policy is practical depends on how pricing is structured. No pricing policy details were included in the draft.

Grid operators would need to be compensated if required to purchase all power generated by renewable energy projects, Shen added.