How to promote electricity from renewable sources in China

Transcription

1 IMRE ALUMNI CONFERENCE & SEMINAR 2011 How to promote electricity from renewable sources in China IMRE 2005 Presented in INDONESIA GERMAN SEMINAR on Setting the Pace for Renewable Energy Technologies in Developing and Emerging Markets with Case Studies on Renewable Energy Technology Transfer Institut Teknologi Bandung Bandung, 27 th of September

2 Contents Introduction Overview of the Most Important Instruments Used by Government to Promote the Generation and the Use of Electricity Carbon Trade for Promoting Renewable Energy in China Renewable Energy Markets in China Case Study in China Conclusion 2

3 Introduction From one side, along with its still-growing economy and GDP, China, as the largest developing country and the second largest economic body in the world, is facing many very serious problems related to energy and power supply, which have increased exponentially. From another side, China s coal production and consumption have more than doubled since 1990, from one billion tones of production to approximate 2.62 billion tones in 2007, making it the world largest coal-producer and coal-consumer. Table 1 shows that more than 70% of electricity is from coal-based power plants in terms of installed capacity. The percentage is even higher in terms of electricity generation. 3

4 Introduction The transition of this current situation is extremely crucial and should be one of the major concerns at governmental, academic and public level. Currently, the concepts of low carbon economy and sustainable development have become much more popular than ever before. The government, companies and the public gradually realize the high dependency on coal during economic development and try to reduce it as fast as possible. The promotion of renewable energy is considered as one of the most effective solutions. 4

5 Types of Instruments Figure 1 Classification of Policy Instruments for the Promotion of RES Source: Reference 3 5

6 Following a study by Bremer Institute, the description is as follows: Institutional instruments To achieve the aims concerning RES, the state has to establish appropriate institutions. The term institutions includes conventions, i.e. laws, policy programs, framework plan, as well as organizations, like the ministry of energy, national, regional and local administrations and energy agencies, etc. Regulation of prices Regulation of prices can be achieved by fiscal and non-fiscal measures. Fiscal measures can either concern the public revenue or the public expenditure. 6

7 Regulation of quantities The definition of quantities can either refer to produced energy quantities, production capacity or emission quantities. Voluntary measures Instruments to support voluntary efforts of end-consumers and industry for the application of RES: information and education. These instruments are soft instruments because they haven t necessarily the strength to change the behavior of the target groups. Voluntary measures are not connected with legal regulations, penalties or financial support. They try to influence behavior by information, education, appeal, voluntary obligations or recommendation of RES-products like green electricity. These measures do not interfere with market mechanisms. 7

8 No. Name of Instrument 9 Government Guaranteed Loans 1 Conventions concerning RES 10 Standards System 2 Relevant Organizations 11 Quantitative Target Agreements 3 Energy taxes & CO 2 taxes 12 Tendering 4 Subsidies 13 Carbon Trade 5 Tax Reduction 14 Quotas 6 Promotion Schemes 15 Information and Education 7 Feed-in Tariffs 16 Voluntary Obligations 8 Net Metering 17 Green Electricity 8

9 Different instruments have their specified advantages and disadvantages during different stages of readiness for marketing. In addition, the advantages and disadvantages of instruments vary for different RES technologies. Conventions concerning RES Advantages: Non-fiscal expense for the national budget Sometimes sufficient to achieve the desired reaction of the relevant actor Obligations for the deployment of RES can induce a market development for technologies Mandatory for all affected actors Market conditions are calculable, transparent, and controllable, which leads to higher planning reliability. The chances to achieve the desired behavior of the actors are high if sanctions are imposed 9

10 Disadvantages: Financial resources are necessary for the administration and control of the compliance with the regulations Interest groups will always try to influence the definition process of the regulations as well as the interpretation after their coming into force As the decision process is often time-consuming, the risk that the factor of fast technology development is neglected when the regulation process is going on exist The regulations are often static and cannot be easily adapted to fast dynamic developments 10

11 Carbon Trade Advantages: Market mechanism Sustainable approach Without strong impact on the national budget Result in cost-efficient solutions for the reduction of greenhouse gases Can be applied until RES has achieved competitiveness with fossil fuels Can be easily transferred on an international level Disadvantages: Only works effectively on RES, which are close to or in the stage of marketing readiness Prices of the emission certificates are subject to fluctuant with strong uncertainty It does not deliver a sufficiently reliable basis for decision on investments 11

12 Instruments have been used in China No. Name of Instrument In Force Planning No. Name of Instrument In Force Planning 1 Conventions concerning RES Yes - 10 Standards System Yes - 2 Relevant Organizations Yes - 11 Quantitative Target Agreements Yes - 3 Energy taxes & CO 2 taxes - Yes 12 Tendering Yes, but stop recently 4 Subsidies Yes - 13 Carbon Trade Yes, internatio nal - Yes(dome stic 5 Tax Reduction Yes - 14 Quotas Yes - 6 Promotion Schemes Yes - 15 Information and Education Yes - 7 Feed-in Tariffs Yes - 16 Voluntary Obligations Yes - 8 Net Metering Green Electricity Yes - 9 Government Guaranteed Loans Yes - 12

13 Figure 2 Instruments for the Promotion of RES and Readiness for Marketing Self-prepared, revisions according to reference [25] 13

14 Conventions concerning RES THE RENEWABLE ENERGY LAW IN BRIEF The Renewable Energy Law entered into force on 1 January 2006 and covers energy generated from all non-fossil sources (with the exception of nuclear generation). It provides the framework for legislative initiatives, designed to secure the strategic position and future development of renewable energy. These include: Renewable energy targets, including both economy-wide and technology-specific targets; Compulsory grid connection for renewable energy facilities to the State electricity grid; Power pricing arrangements, including feed-in tariffs and competitive tendering systems, to allow renewable energy to compete with traditional, fossil fuel-powered generation; and Cost sharing arrangements to divide the costs of renewable energy generation and grid connection equitably amongst utilities and electricity end users. 14

15 Conventions concerning RES As per above text, it is apparent that the Renewable Energy Law is the fundamental of many other promoting instruments and regulations. In addition to the Renewable Energy Law, there are several related conventions taking effect in China, such as, the Energy Conservation Law of the People s Republic of China and the Circular Economy Law of the People s Republic of China. 15

16 Relevant Organizations Figure 3 Chinese Government Map for the Promotion of Renewable Energy Self-prepared, Source from the State Council of the People s Republic of China 16

17 Subsidies Most RES have enjoyed certain subsidies in China. In addition to the Renewable Energy Law, there are several related conventions taking effect in China, such as, the Energy Conservation Law of the People s Republic of China and the Circular Economy Law of the People s Republic of China. The Chinese government has given support to biogas projects since 2006, in order to help certain eligible farming families to have biogas digesters for cooking and electricity. The value of this subsidy is approximately 40 million CNY so far. In addition, for biomassbased power projects, a premium of 0.25 CNY/kWh (around EUR/kWh) plus the average coal-based tariffs is applied over the first 15 operational years. 17

18 Subsidies China Solar Roof Plan: Project Size is >=50 kw 15 CNY/W (around 1.67 EUR/W) for rooftop systems 20 CNY/W (around 2.22 EUR/W) for BIPV systems Golden Sun Program: Project Size is >=300 kw 50% of total cost for grid connected systems 70% of total cost for non-grid connected systems 18

19 Tax Reduction The Chinese government has reduced both the enterprise income tax (EIT) and the value added tax (VAT) for renewable energy industry. As per the Implementing Regulations for the Enterprise Income Tax Law of the People s Republic of China, most renewable energy projects and factories in this industry enjoy the preferential treatment of income tax reduction. For companies qualifying as encouraged high-tech industries, the tax rate is lowered from 25% to 15%. The equipment manufacturing in electricity generation from RES is one of the eight encouraged industries. 19

20 Tax Reduction In addition, the preferential treatment of VAT in the renewable energy industry has been applied since According to the latest taxation policies, municipal solid waste and biomass to energy projects can enjoy the preferential treatment of free VAT. In addition, the VAT rate has been reduced from 17% to 8.5% for wind energy projects and wind power generation equipments. For small-scale hydropower projects can enjoy 6% of the VAT rate since the beginning of 1980s. 20

21 Promotion Schemes Comprehensive Rural Energy Planning and Construction Program Rural Electrification Program Brightness Program Wind Power Concession Program Feed-in Tariff The instrument of feed-in tariff has been applied to those wind power projects, which are approved since August 1st The policy divides China s territory into four regions with different feed-in tariffs specified in proportion to wind resources and investment conditions. 21

22 Government Guaranteed Loans The bank loan issuers are mainly state-owned banks, which are administrated by government. Therefore, these banks strongly follow up the directives on the promotion of renewable energy. Additionally, China provided government loans to local RES equipment manufacturing companies, through revolving fund mechanisms. 22

23 Quantitative Target Agreements Medium and Long Term Development Plan for Renewable Energy, which is envisaged in Article 8 of the Renewable Energy Law, in September The plan establishes targets for the development of various sources of renewable energy up to Table 1 The Specific Targets on the Development of Renewable Energy 23

24 Quantitative Target Agreements 24

25 Quantitative Target Agreements 25

26 Standards System Besides hydropower technologies, most technologies from other renewable energy sources are still prior to the stage of marketing readiness. Therefore, the national standards system of hydropower is complete in China. Large manufactures of wind turbines and solar panels are certified by international standards. Especially, for those solar panel producers, international standards are required by their major clients, which are from developed countries. Some authorities have started to draft or plan the relevant national standards for the technologies of wind power, PV and biomass utilizations. 26

27 Tendering This instrument was widely applied for wind power project in China. However, the main power companies used the tender process to secure the wind resource without consideration of actual investment projects. As a result, a large amount of projects is not properly running. This instrument has been replaced by the Feed-in Tariff for wind power projects and is still applied to PV projects in China. Information and Education Voluntary obligations Green electricity 27

28 Carbon Trade for Promoting Renewable Energy in China Carbon Trade CDM Market in China According to the latest statistics from UNFCCC, China accounts for more than half of the total expected average annual CERs from registered projects. Approximately one third of registered projects are from China. In addition, around half of the total issued CERs are from China. Figure 3 Expected Average Annual CERs from Registered Projects by Host Party source from UNFCCC 28

29 Carbon Trade for Promoting Renewable Energy in China Carbon Trade CDM Market Figure 5 Registered Project Activities by Host Party source from UNFCCC 29

30 Carbon Trade for Promoting Renewable Energy in China Carbon Trade CDM Market Figure 6 CERs Issued by Host Party source from UNFCCC 30

31 Carbon Trade for Promoting Renewable Energy in China Carbon Trade CDM Market in this paper, the renewable energy sector includes hydropower, wind power, biomass energy and geothermal projects. All biogas projects, which utilize methane generated from anaerobic conditions, are also included. The projects which reduce HFC and N2O are merged into one another sector. The energy efficiency sector is the same as the one under the UNFCCC. Others sector includes the rest of project types defined by the UNFCCC. Figure 7 Absolute Numbers of Projects for Each Sector Self prepared, data source Clean Development Mechanism in China 31

32 Carbon Trade for Promoting Renewable Energy in China Carbon Trade CDM Market Figure 8 Expected Annual CERs for Each Sector (t) Self prepared, data source Clean Development Mechanism in China 32

33 Carbon Trade for Promoting Renewable Energy in China Carbon Trade Voluntary Emission Reduction Markets in China Up to date, most transactions in the voluntary market are of rather small size, and they are driven by carbon traders who oversee their projects and facilitate the transaction with the final buyer, in other words, the individual or organization interested in offsetting his or its emissions. The lack of a central coordination system and the fragmentation of the market make it difficult to find data on voluntary projects volumes in China. 33

34 Carbon Trade for Promoting Renewable Energy in China Carbon Trade Brief of Internal Carbon Credit Market in China On August 5 th 2008, the China Beijing Environment Exchange was opened in Beijing. On the same day, in Shanghai, the China Environment & Energy Exchange was set up as well. Afterwards, the Tianjin Climate Exchange was established by China National Petroleum Corporation Assets Management Co. Ltd., Tianjin Property Rights Exchange and the Chicago Climate Exchange. Their business scopes are quite similar but they tend to operate in different regions. 34

35 Renewable Energy Markets in China Wind Power The impacts of Renewable Energy Law and other implemented instruments in China are clearly illustrated since 2006 when the development of wind farm began to increase tremendously. Figure 9 Accumulated Installed Capacity and New Installed Capacity of Onshore Wind Energy Projects in China Self prepared, data are reference [27] and Global Wind Energy Council 35

36 Renewable Energy Markets in China Biomass China is a large country for agricultural industry. It is apparent that the amount of straw coming from agricultural residuals is huge. Currently, there are two major ways to utilize agricultural residuals. The first way is power generation. However, the operation of these power plants is usually very much below expected performance and investors do not meet their financial objectives. 36

37 Renewable Energy Markets in China Biomass The problem comes mainly from the supply side of biomass. Compared to farmlands in Europe and US, many farmers own very small Chinese farmlands. Many farmers tend to their agricultural residuals to biomass power plant operators and they negotiate for very high prices, even though they did not use their biomass before the plants started to operate. That is why state-owned companies, instead foreign or private investors, invest in most biomass power plant because they are mainly forced by government orders. The second way of using biomass consists in using it in stoves in households. 37

38 Renewable Energy Markets in China Solar Energy The impacts of Renewable Energy Law and other implemented instruments in China are clearly illustrated in recent years, but still at the very beginning stage. Figure 10 Accumulated Installed Capacity and New Installed Capacity of PV Projects in China Self prepared, data from reference [37] 38

39 Renewable Energy Markets in China Hydropower Hydropower makes up by far the greatest proportion of non-fossil fuel energy in China. It accounts for 21.6% of China's total installed power capacity. The exploration, design, construction, installation and manufacturing of equipment for hydropower have reached world advanced level. Its industrialization in China has been completed. In most provinces, the prices of electricity to paid by Grid Companies are even lower than those from coal-based power plants. This clearly indicates that hydropower is a competitive energy resource compared with other types of renewable energy. 39

40 Case Study in China Heilongjiang Wangkui 50MW Level Biomass Cogeneration Project (Project No: 2561 under UNFCCC) The project utilizes local surplus biomass residues (mainly as maize stalk) for generating heat and electricity. The install capacity is 50MW. The proposed project will install two straw-fired boilers, imported from Denmark BWE Company, which is a world leading company in biomass boilers production and biomass cogeneration. 40

41 Case Study in China It assists in transferring advanced biomass technology to China. It is estimated that the project can deliver 236 GWh of electricity to the Northeast China Grid and supply 1 million GJ of heat to Wangkui County per year, which consume nearly 283,800 tons maize stalk. Annual Revenue from Electricity Generation is around 13,111,111 EUR 41

42 Case Study in China Promotion Instruments: - Tax Reduction - Subsidy on tariff: 0.25 CNY/kWh (around EUR/kWh), around 50% higher than the one for coal based power plant. Annual Subsidy is around 6,555,555 EUR - Carbon Trade Annual CERs: 321,105 t Annual Carbon Revenue: More than 3,211,050 EUR 42

43 Conclusion Each instrument has different characteristics and functions. They are applied to specific technologies and different stages of readiness for marketing. Different instruments have their specified advantages and disadvantages during at stages of readiness for marketing. In China, except for the instruments of net metering and quotas, all other instruments have been utilized. The instrument of tendering has been stopped and replaced by a feed-in tariff for wind power projects. It is apparent that China strongly encourages the development of renewable energy with an integrated promotion instruments system. The Renewable Energy Law, as the fundamental regulatory framework and the integrated system of different instruments are able to promote each RES into the stage of the readiness for marketing. The instrument of carbon trade can continuously promote RES during the stage of the readiness for marketing in the long term. 43

44 Thanks for your attention! 44