China is considering cutting the preferential rate it offers wind and solar power developers because the surcharges slapped onto electricity bills to pay for clean energy subsidies aren’t high enough.
The National Development and Reform Commission, China’s top economic planning agency, plans to cut the tariffs annually in the five years through 2020 to make electricity from clean sources more competitive compared with coal power, according to a document seen by Bloomberg.
China proposes reducing tariffs for wind farms by as much as 5.8 percent in 2016 from current levels and by another 19 percent in 2020 from the 2016 tariff levels. Reductions for solar power projects will be as much as 5.6 percent in 2016 and another 15 percent in 2020, according to the document.
The mismatch between surcharges and what the government pays out to developers of renewable projects is threatening the nation’s plans to use clean energy as part of efforts to combat climate change.
The cuts may have a larger impact on wind power because turbine costs are forecast to drop only about 9 percent by 2020, said Zhou Yiyi, a Shanghai-based analyst from Bloomberg New Energy Finance.
"The room for a reduction in solar technology costs is bigger than that of wind power," Zhou said.
China Longyuan Power Group Corp., the nation’s biggest wind-farm operator, declined as much as 5.4 percent, the biggest decrease since Sept. 23, 2014, to HK$7.21 in Hong Kong trading. Huaneng Renewables Corp. slumped as much as 6.6 percent.
"The reductions will be negative for developers or operators’ profitability," discouraging the market, said Louis Sun, an analyst at BOCOM International Holdings Co. in Shanghai.
Should operational costs decline sharply, the NDRC will study whether to cut the tariffs previously awarded, according to the document.
The NDRC is seeking comment from the two industries. Once agreement is reached, the cuts will come into effect from Jan. 1, 2016. A fax sent to the NDRC seeking comment wasn’t immediately answered.
China Business News reported the possible reductions on Oct. 29.
©2015 Bloomberg News
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