According to International Energy Agency (IEA) website publication on Renewables 2022 Analysis and forecast to 2027 report:
China is set to surpass its newly announced renewable electricity targets thanks to rapid wind and PV deployment
China’s cumulative renewable power capacity is expected to double during 2022- 2027, increasing by almost 1 070 GW. Solar PV and wind account for 90% of renewable energy growth, with hydropower providing most of the remainder. In the main case, China is expected to reach its 2030 target of 1 200 GW of total wind and solar PV capacity five years early. By 2023, solar PV will have surpassed hydropower to have the largest portion of installed renewable capacity in China.
Policy guidelines and targets in China’s new 14th Five-Year Plan on renewable energy (released in June 2022) are the basis for this year’s 35% upward revision on last year’s forecast. For the first time, China has shifted its policy focus from installed capacity to shares of renewable energy sources in electricity generation. Accordingly, the country aims for 33% renewables and 18% wind and solar PV in electricity generation by 2025. Depending on overall power demand growth and hydropower output, China could reach its renewable energy generation targets even earlier.
Informing our forecast for China are the four policy aims of its 14th Five-Year Plan on renewable energy: 1) accelerate large-scale renewable energy deployment; 2) increase the share of renewables in overall energy demand through electrification; 3) shift from subsidy-oriented to market-oriented renewable energy deployment with fixed prices; and 4) promote electricity system stability and security.
China’s government has identified large-scale deployment bases for utility-scale PV, with onshore and offshore wind easing project permitting. It has also phased out subsidies for renewable electricity projects because generation costs for mega-sized facilities (i.e. 500-2 000 MW) can easily be lower than for coal-fired generation, especially in provinces with high renewable resource potential.
Utility-scale onshore wind and large-scale solar PV projects with 500 GW of capacity have been announced, to be installed mainly in the Gobi Desert in Xinjiang, around the Yellow River in Inner Mongolia, and in the Hexi Corridor in Gansu. These large plants, most of which are expected to be operational by 2027, are to export power through underutilised ultra-high-voltage (UHV) transmission lines to demand centres. To support large-scale project deployment, the 14th FiveYear Plan also proposes that new UHV lines be built by 2025 to raise power export capacity from east to west from 200 GW to 300 GW.
Recent market reforms enable the use of new business models for solar PV and wind projects, supporting forecast growth. Since November 2021, large commercial and industrial consumers have been exposed to market-based electricity prices, and in the first quarter of 2022 almost half of China’s electricity demand was traded in the liberalised market, mostly through provincial long-term contracts.
In addition, the government passed a regulation enabling large consumers to sign clean energy power purchase agreements with new projects developed without subsidies. Thus, developers and consumers can exchange green certificates and environmental attributes in the market. Depending on the agreement, projects receive a premium either from green certificates or environmental attributes on top of market-based prices, improving project bankability.
New government initiatives and regulations are expected to enable faster distributed solar PV expansion over 2022-2027. At the beginning of 2022, commercial and industrial retail electricity prices rose to 10-20% above last year’s in most provinces because developers have begun to pass the cost of their higher fossil fuel bills on to consumers under the liberalised market. In our main-case forecast, these higher prices are expected to hasten commercial and industrial PV deployment.
The Chinese government also introduced a new target requiring 50% of all large public buildings and new buildings in industrial parks to have rooftop PV installations. For residential consumers, retail electricity prices remain regulated and relatively low, but provincial incentives from rural economic development programmes continue to support small PV applications.
In the accelerated case, renewable capacity growth in China could be 10% or almost 120 GW higher than in our main case, mainly owing to faster solar PV and wind deployment. Plus, addressing remaining policy and market challenges could lead to stronger uptake of renewables in the electricity sector over 2022-2027.
The pace of implementing large-scale renewable energy bases far from demand centres depends partly on the timely expansion of interprovincial transmission lines. In the absence of subsidies, revenue risks associated with curtailment continue to be a challenge for onshore wind and solar PV projects. Furthermore, rising renewable energy investment costs, especially for solar PV, have reduced the profitability and thus the bankability of some projects.
Developers of utility-scale renewable energy projects will also be increasingly exposed to market price fluctuations for green certificates and environmental attributes. Although volumes are increasing, these markets are still nascent and the interactions among various products remain unclear, especially regarding connections with corporate PPAs. Additionally, new government policy requires commercial and industrial distributed PV applications to maximise self consumption, but a detailed accounting regime for self-consumption has yet to be released.
