Development of Wind Energy in the US and China: A Comparative Study

Development of Wind Energy in the US and China: A Comparative Study Xinlin Li * The two largest consumers of fossil fuel and emitters of greenhouse gas, the United States (US) and China, both have strong interests and responsibilities in developing renewable energy. Wind energy has nearly zero greenhouse gas emission and great potential in replacing significant portions of traditional forms of energy in both the US and China. In addition, the use of wind energy has been growing rapidly in both countries. This note examines the development of wind energy in the US and China, including the legal and policy frameworks, especially the incentive models. It then analyses the different developmental models employed in these two countries. Lastly, it concludes by making suggestions on how to improve wind energy incentive systems for both countries and by drawing lessons from which the two countries can learn from each other. I. Introduction The United States (US) and the People s Republic of China (China) are the top two consumers of coal and crude oil in the world. Together they accounted for 55 per cent of coal and 32 per cent of petroleum consumed by the whole world in 2008. 1 Because of their heavy dependence on these depleting non-renewable resources, energy security occupies a fairly high priority on both countries agenda. Also, because of their heavy reliance on fossil fuels, the US and China are the top two emitters of greenhouse gas, contributing to the global climate change. The two together emitted 40 per cent of the world s carbon dioxide from energy consumption in 2008. 2 * JD graduate of 2010, Columbia Law School, Columbia University. The author is grateful to Professor Benjamin Liebman from Columbia Law School for his supervision and thoughtful comments on this paper. The author is also indebted to Professor Michael Gerrard from Columbia Law School and Professor Qiuyan Zhao from Beijing Normal University Law School. 1 US Energy Information Administration (EIA), Total Consumption of Petroleum Products (Thousand Barrels Per Day) (International Energy Statistics) <http://tonto.eia.doe.gov/cfapps/ipdbproject/iedindex3. cfm?tid=5&pid=54&aid=2> accessed 17 October 2010; US EIA, Total Coal Consumption (Thousand Short Tons) (International Energy Statistics) <http://tonto.eia.doe.gov/cfapps/ipdbproject/iedindex3. cfm?tid=1&pid=1&aid=2> accessed 17 October 2010. 2 US EIA, Total Carbon Dioxide Emissions from the Consumption of Energy (Million Metric Tons) (International Energy Statistics) <http://tonto.eia.doe.gov/cfapps/ipdbproject/iedindex3.cfm?tid=90&pid=44&aid=8> accessed 17 October 2010. (2010) 2 City University of Hong Kong Law Review 331 353.

332 City University of Hong Kong Law Review [ Vol 2:2 To ensure energy security and to lower greenhouse gas emissions, the development and utilisation of renewable energy such as wind energy has become an important goal for both the US and China. In Europe, wind power supplies as much as 25 per cent of Denmark s energy needs and 8 per cent of the electricity needs in Germany and Spain. 3 In the US, wind energy constituted only about 1.34 per cent of the electricity demand in 2008. 4 The US Department of Energy (DOE), in collaboration with wind industry experts, has drafted a plan that would bring up the US installed wind capacity up to 20 per cent of the nation s total electricity supply by 2030. 5 Similarly, China s current utilisation of wind energy is low compared to its energy demand. In 2009, renewable energy made up 9.9 per cent of the total energy consumption in China. 6 Wind energy made up only about 0.4 per cent of China s electricity supply and about 2.4 per cent of China s electricity supply from all renewable sources in 2008. 7 Before the Copenhagen Climate Conference in early 2010, China s State Council announced a goal to reduce carbon emissions per Gross Domestic Product (GDP) unit by 40 45 per cent and to increase its share of non-fossil fuel in total energy consumption to 15 per cent by 2020. 8 By the end of 2009, the US was the world s largest wind power producer measured with an installed capacity of 35.2 gigawatt (GW). China ranks third at 25.1 GW, slightly short of Germany s 25.8 installed capacity of GW. 9 At their respective current rates of development, these two countries are likely to remain the top producers of wind energy in 3 S Butterfield, S Sheng and F Oyague, Wind Energy s New Role in Supplying the World s Energy: What Role Will Structural Health Monitoring Play? (National Renewable Energy Laboratory, Conference Paper NREL/CP 500 46180, December 2009) <http://www.nrel.gov/docs/fy10osti/46180.pdf> accessed 17 October 2010. 4 US EIA, Electricity Net Generation From Renewable Energy by Energy Use Sector and Energy Source (International Energy Statistics) <http://www.eia.doe.gov/cneaf/alternate/page/renew_energy_consump/ table3.html> accessed 17 October 2010; US EIA, Net Generation by Energy Source: Total (All Sectors) <http://www.eia.doe.gov/cneaf/electricity/epm/table1_1.html> accessed 17 October 2010. 5 US Department of Energy (DOE), 20% Wind Energy by 2030: Increasing Wind Energy s Contribution to US Electricity Supply (US DOE, Office of Energy Efficiency and Renewable Energy (EERE July 2008) <http://www.20percentwind.org/20percent_wind_energy_report_revoct08.pdf> accessed 17 October 2010. 6 Ministry of Industry and Information Technology of the People s Republic of China, Zhong Guo Ke Zai Sheng Neng Yuan Xiao Fei Bi Zhong Sheng Zhi 9.9% <http://www.miit.gov.cn/n11293472/n11293832/ n12768545/13010004.html> accessed 17 October 2010. 7 US EIA, Total Electricity New Generation (International Energy Statistics) <http://tonto.eia.doe.gov/ cfapps/ipdbproject/iedindex3.cfm?tid=2&pid=2&aid=12> accessed 17 October 2010. See also M Elroy et al, Potential for Wind-Generated Electricity in China (2009) 325 Science 1378, 1378. 8 The Central People s Government of the People s Republic of China, Guo Wu Yuan Chang Wei Hui Yan Jiu Jue Ding Wo Guo Kong Zhi Wen Shi Qi Ti Pai Fang Mu Biao <http://www.gov.cn/ldhd/2009-11/26/ content_1474016.htm> accessed 17 October 2010. It should be noted that total energy consumption does not equal total electricity supply or consumption. 9 Global Wind Energy Council (GWEC), Global Wind Power Boom Continues Despite Economic Woes (3 February 2010) <http://dev6.semaforce.be/index.php?id=30&no_cache=1&tx_ttnews[tt_news]=247&tx_tt news[backpid]=97&chash=8a55b8eab5> accessed 17 October 2010. For the statistics cited, see annex to the same, available at <http://dev6.semaforce.be/fileadmin/documents/pressreleases/pr_2010/annex%20 stats%20pr%202009.pdf> accessed 17 October 2010.

2010 ] Development of Wind Energy in the US and China: A Comparative Study 333 years to come. 10 According to the latest government analysis, onshore US wind resources could generate nearly 37 petawatt-hour (PWh) annually, more than nine times its current total electricity consumption. 11 The total potential capacity of America s onshore wind resource is over 10,000 GW, about 284 times more than its current installed capacity. 12 The estimated number of wind resources in China is likewise impressive. During 2004 2005, the China Meteorological Administration conducted its third general investigation of energy resources. It concluded that the theoretically exploitable wind resource in China was 4,350 GW, and the technically exploitable wind resource was 297 GW (at a height of 10m), over 173 and 11 times, respectively, its current installed capacity. 13 In 2006, the China National Climate Center concluded that the technically exploitable wind resource was 2,548 GW (excluding Qinghai-Tibet Plateau), over 101 times more than the current installed capacity. 14 Scientists from Harvard University and Tsinghua University suggested that the electricity generated from commercially profitable wind energy production could be as much as 6.94 PWh annually, more than twice the current electricity consumption in China, which is 3.4 PWh, and can meet the projected electricity demand for China in 2030. 15 This note provides a comparative study of the developments of wind energy in the US and China. It examines the legal and policy frameworks as well as incentives provided for the development of wind energy, and compares their effects on the development of wind energy in the two countries. In particular, this note focuses on tax incentives, non-tax production incentives, and funding and financing incentives for the development of wind energy in both countries. Whereas incentives in the US are discussed at both the federal and state levels, incentives in China are mostly discussed at the national level. It concludes that the US needs to adopt a more consistent and long-term tax incentive policy for wind energy, while China should improve its production incentives, possibly by endorsing the Renewable Portfolio System and Competitive Renewable Energy Zones used in the US. A comparative review also indicates that the funding and financing incentives of both countries are similar in nature, that is, mostly flowing from the national government instead of the state or provincial government. 10 It is reported that China overtook the US in 2010 so as to become the largest producer of wind energy. Platts, Wind Power Installation Slowed in 2010, Outlook for 2011 Stronger: AWEA (24 January 2011) <http:// www.platts.com/rssfeeddetailednews/rssfeed/electricpower/6773195> accessed 23 April 2011. 11 American Wind Energy Association (AWEA), US Wind Resource Even Larger Than Previously Estimated: Government Assessment (18 February 2010) <http://www.awea.org/newsroom/releases/02-18-10_us_ Wind_Resource_Larger.html> accessed 17 October 2010. See also National Renewable Energy Laboratory and AWS Truewind LLC, Estimates of Windy Land Area and Wind Energy Potential By State for Areas >= 30% Capacity Factor at 80m <http://www.windpoweringamerica.gov/docs/wind_potential_80m_30percent. xlsx> accessed 17 October 2010. 12 13 Zhenyu Zhao, Ji Hu and Jian Zuo, Performance of Wind Power Industry Development in China: A Diamond Model Study (2009) 34 Renewable Energy 2883. 14 15 See Elroy et al (n 7) 1379.

334 City University of Hong Kong Law Review [ Vol 2:2 II. Laws, Policies and Incentives for the Development of Wind Energy in the US In this part, legal and policy frameworks as well as incentives on wind energy in the US are examined. Incentives are divided into three categories: tax incentives, non-tax production incentives, and funding and financing incentives. For incentives in the US, both federal and state level incentives are discussed. A. Relevant Energy Agencies In the US, federal agencies play an important role in the energy sector because many energy issues are addressed at the national level. 16 The DOE maintains and advances energy security and promotes scientific research and technological innovation that supports energy security. 17 One particular branch of the DOE, the Office of Energy Efficiency and Renewable Energy (EERE), is tasked with bringing clean, reliable and affordable energy technologies to the marketplace and enhancing energy efficiency and productivity. 18 The Department of Interior (DOI) controls the federal lands, from which much of the energy resources including wind resources are extracted. 19 The Federal Energy Regulatory Commission (FERC) implements national level public utility regulations, but public utility regulation is largely controlled by state agencies. 20 The Environmental Protection Agency (EPA) administers environmental programmes that can affect energy, including wind energy. 21 On the state level, the State Energy Office, named differently in each state, plays a role similar to that of the DOE with regard to each state. It is the primary energy policy and planning agency of states. 22 The State Public Utility Commissions, sometimes called the Public Service Commission or Corporation Commission, exercise state level public utility regulatory control over the rates, facilities and services of the private utilities that supply natural gas and electricity within the state. 23 State level environmental regulatory agencies administer state environmental programmes and co-operate with the EPA in federal programmes. 24 16 F Bosselman, J Rossi and J Weaver, Energy, Economics and the Environment: Cases and Materials (2 nd edn Foundation Press, New York 2006) 15. 17 US DOE, About Us <http://www.energy.gov/about/index.htm> accessed 17 October 2010. 18 US DOE, EERE, Mission <http://www1.eere.energy.gov/office_eere/mission.html> accessed 17 October 2010. 19 Bosselman, Rossi and Weaver (n 16). 20 Ibid 60. 21 Ibid (discussing the possible harmful impact of wind projects on birds, for example, which may trigger the EPA s duties under the Endangered Species Act). 22 See, for example, California Energy Commission, Welcome to the Website of the California Energy Commission! <http://www.energy.ca.gov/commission/index.html> accessed 17 October 2010. 23 See California Public Utilities Commission <http://www.cpuc.ca.gov/puc/> accessed 6 November 2010; New York State Public Service Commission <http://www.dps.state.ny.us/> accessed 6 November 2010; Arizona Corporation Commission <http://www.azcc.gov/> accessed 6 November 2010. 24 Bosselman, Rossi and Weaver (n 16) 15.

2010 ] Development of Wind Energy in the US and China: A Comparative Study 335 B. Wind Energy Incentives Both federal and state level incentives for wind energy development are discussed here. On the state level, this note limits its scope of examination to incentives in Texas, Iowa and California, the top three wind-producing states, as a representative group. 25 1. Tax Incentives Many scholars and wind industry experts have argued that the Production Tax Credit (PTC) has been one of the most important and successful stimuli for the development of wind energy in the US. 26 The Energy Policy Act of 1992 first established the energy PTC to promote renewable energy development. Under Section 45 of the Internal Revenue Code, utility scale renewable energy projects receive 1.5 cents per kilowatt-hour (kwh) (in 1993 dollars indexed for inflation which equals to 2.1 cents per kwh in 2009) of corporate tax credit on the electricity generated from qualified energy resources including wind for the first ten years of their facility operation. 27 It is estimated that this incentive could provide a moderately-sized thirty megawatt (MW) wind farm with up to USD 1.6 million in annual federal subsidies. 28 The production and integration cost of wind energy ranges from 5 cents per kwh to 8 cents per kwh before the PTC depending on a variety of factors, therefore the PTC can subsidise about 25 40 per cent of the costs of wind energy. 29 Since its enactment in 1992, the ten-year limit on the PTC has expired several times and Congress has re-enacted it on several occasions. 30 With the passage of the Energy Policy Act of 2005, the PTC was extended for another two years. Wind projects accounted for over 90 per cent of the dollar value of PTC claims through 2004. 31 From 1994 to 2007, estimated claims for the PTC total a cumulative USD 2.7 billion. 32 With the passage of the American Recovery and Reinvestment Act of 2009 (ARRA), the PTC was extended for another three years through 31 December 2012. 33 The PTC has been volatile because 25 AWEA, US Wind Energy Projects <http://www.awea.org/> accessed 6 November 2010. 26 J Hinman, The Green Economic Recovery: Wind Energy Tax Policy after Financial Crisis and the American Recovery and Reinvestment Tax Act of 2009 (2009) 24 Journal of Environmental Law and Litigation 35; R Rosenberg, Diversifying America s Energy Future: The Future of Renewable Wind Power (2008) 26 Virginia Environmental Law Journal 505. 27 26 USC s 45 (2009). 28 See Rosenberg (n 26) 532. 29 For wind energy production and integration costs, see D Berry, Innovation and the Price of Wind Energy in the US (2009) 37 Energy Policy 4493. See also R Wiser and M Bolinger, Annual Report on US Wind Power Installation, Cost, and Performance Trends: 2006 (2007) (Lawrence Berkeley National Laboratory, LBNL Paper LBNL-62702, 2007) <http://www.nrel.gov/docs/fy07osti/41435.pdf> accessed 17 October 2010. 30 S Carleyolsen, Tangled in the Wires: An Assessment of the Existing US Renewable Energy Legal Framework (2006) 46 Natural Resources Journal 759, 771. 31 R Wiser, M Bolinger and G Barbose, Using the Federal Production Tax Credit to Build a Durable Market for Wind Power in the United States (2007) 20:9 The Electricity Journal 77. 32 33 Database of State Incentives for Renewables & Efficiency (DSIRE), Renewable Electricity Production Tax Credit (PTC) <http://www.dsireusa.org/incentives/incentive.cfm?incentive_code=us13f> accessed 17 October 2010.

336 City University of Hong Kong Law Review [ Vol 2:2 it requires constant renewal. As a result, the rate of wind installations has been volatile. 34 Since late 2004, however, the PTC has been continuously available to projects placed in service through the end of 2012, which has led to five consecutive years of record growth in installed capacity of wind energy. 35 For smaller wind energy producers who use the electricity generated for their homes, farms, or businesses, their individual energy production capacity is not significant enough to be classified as utility scale for receiving PTC. Instead, the Business Energy Investment Tax Credit (ITC) was provided to them under the Emergency Economic Stabilization Act of 2008. A federal-level ITC is available to purchasers of small wind turbines for home, farm, or business use in the amount of 30 per cent of the total cost of the system installed. 36 An Advanced Energy Manufacturing Tax Credit (MTC) in the amount of USD 2.3 billion was created under Section 1302 of the ARRA and was designed to offer a 30 per cent credit for investments in new, expanded, or re-equipped advanced energy manufacturing projects. 37 Additionally, under the ARRA, wind project developers can choose to receive a 30 per cent ITC in place of the 2.1 cents per kwh PTC for facilities placed in service in 2009 and 2010, and also for facilities placed in service before 2013 if construction begins before the end of 2010. 38 Section 1603 of the ARRA further allows taxpayers to receive a cash grant from the Department of Treasury in lieu of Section 45 of the PTC or Section 48 of the ITC for investment in a certain renewable energy property if the renewable energy facility is in service or constructed between 2009 and 2010. 39 The federal government also grants a Residential Renewable Energy Tax Credit equal to 30 per cent of expenditures, capped at USD 2,000, through the Energy Policy Act of 2005 to individuals who utilise certain types of renewable energy not including wind energy to heat or power their homes. 40 The Energy Improvement and Extension Act of 2008 extended the personal tax credit to wind energy, which was capped at USD 4,000. 41 The ARRA removed this cap, so individuals can now recoup all 30 per cent of the costs of installing small wind systems for their homes. 42 34 F Laird and C Stefes, The Diverging Paths of German and United States Policies for Renewable Energy: Sources of Difference (2009) 37 Energy Policy 2619, 2626. 35 Wind Powering America, Installed U.S. Wind Capacity and Wind Project Locations <http://www. windpoweringamerica.gov/wind_installed_capacity.asp> accessed 17 October 2010. 36 26 USC s 48 (2009). 37 US DOE, Advanced Energy Manufacturing Tax Credit (48C) <http://www.energy.gov/recovery/48c.htm> accessed 17 October 2010. 38 American Recovery and Reinvestment Act (ARRA) Division B (Public Law Sec 111-5 17 Feb 2009, 123 Stat 115). 39 40 26 USC s 25 (2009). 41 The Energy Improvement and Extension Act of 2008 (HR 1424). 42 ARRA (HR 1: Division B, Sec 1122, 46).

2010 ] Development of Wind Energy in the US and China: A Comparative Study 337 Under the federal Modified Accelerated Cost-Recovery System (MACRS), renewable energy businesses including wind energy can recover the costs of their investment through an accelerated five-year depreciation deduction plan since 1986. 43 Compared to the fifteenyear depreciation schedule available to some fossil power plants in the US, this accelerated tax depreciation schedule offers an incentive to wind projects equivalent to roughly 1.4 cents per kwh. 44 The Economic Stimulus Act of 2008 provided a further bonus deduction incentive, under which 50 per cent of the costs of eligible renewable energy facilities acquired and placed in service in 2008 can be deducted as depreciation in the first year and the rest deducted in the next four years. 45 This 50 per cent bonus deduction was extended to energy facilities placed in service in 2009, 2010, 2011 or 2012 under the ARRA. 46 In addition to the federal government, many US states also provide tax incentives to promote the development of wind energy. In Texas, the largest wind-producing state, for example, both exemption and deduction of the franchise tax, Texas corporate tax, are available to solar energy producers and users under the Texas Tax Code. 47 Wind energy has continuously qualified as eligible technology under the meaning of solar energy in the Code. 48 In practice, companies in Texas engaged solely in the business of manufacturing, selling or installing solar energy devices are exempted from the franchise tax 49 and all companies can deduct 10 per cent of amortised costs of solar energy devices that they have purchased from the franchise tax. 50 The Texas Property Tax Code also allows an exemption of the amount of the appraised property value that arises from the installation or construction of a solar or wind-powered energy device. 51 In Iowa, the second largest wind-producing state in the US, there is a state level PTC of either 1.5 cents or 1.0 cents per kwh similar to the federal PTC available to eligible wind and renewable energy facilities depending on the capacity of the wind energy facilities 43 26 USCS s 168. 44 M Bolinger and R Wiser, Wind Power Price Trends in the United States: Struggling to Remain Competitive in the Face of Strong Growth (2009) 37 Energy Policy 1061. 45 The Economic Stimulus Act of 2008 (enacted 13 February 2008) (Public Law Sec 110-185, 122 Stat 613). 46 ARRA s (a)(5)(c)(i). 47 Texas Tax Code Ann s 171.056 (2009); Texas Tax Code Ann s 171.107 (2009). 48 State Energy Conservation Office, Texas Tax Code Incentives for Renewable Energy <http://www.seco. cpa.state.tx.us/re_incentives-taxcode-statutes.htm#171107> accessed 17 October 2010, which states Wind energy continues to qualify under the term solar energy for the exemption and deduction under Sections 171.056 and 171.107. See also Wind and Hydropower Technologies Program, How Wind Turbines Work <http://www1.eere.energy.gov/windandhydro/wind_how.html> accessed 17 October 2010 (stating that Wind is a form of solar energy. Winds are caused by the uneven heating of the atmosphere by the sun, the irregularities of the earth s surface, and rotation of the earth. ). 49 Texas Tax Code Ann s 171.056 (2009). 50 Ibid s 171.107. 51 Ibid s 11.27.

338 City University of Hong Kong Law Review [ Vol 2:2 and whether the energy is for the owner s self use. 52 Iowa also exempts sales tax on the purchase of renewable energy equipments and the energy replacement generation tax of 0.06 cents per kwh on energy generated from eligible renewable sources. 53 California, the third largest wind power-producing state, interestingly, only used to have a wind energy system tax credit from 2001-2005; it no longer offers any tax incentives for wind energy. 54 2. Non-Tax Production Incentives The DOE operates the Renewable Energy Production Incentive (REPI) established under the Energy Policy Act of 1992, which provides annual incentive payments of 2.1 cents per kwh (in 1993, 1.5 cents per kwh dollars and indexed for inflation) for electricity generated and sold by new qualifying renewable energy generation facilities for their first ten years of operation. 55 The REPI was designed to complement the PTC. The latter is only available to entities that pay federal corporate taxes, while the former is available to mostly governments, not-for-profit electric cooperatives, and native corporations that do not pay federal corporate taxes. 56 State-level production policies such as Renewable Portfolio Standards (RPS) play a substantial role in directing the location and amount of wind development. More than half of the states have employed RPS. 57 The RPS is a flexible, market-driven policy which ensures that a minimum amount of renewable energy is included in the electricity portfolio for the state. 58 For example, from 1999 through 2007, more than 55 per cent of the wind power capacity built in the US was located in states with RPS policies and in 2007, the number was more than 75 per cent. 59 A key component of the RPS is the use of Renewable Energy Credits (REC) trading system to validate compliance in meeting the renewable 52 Iowa Utilities Board, Renewable Energy Tax Credits <http://www.state.ia.us/government/com/util/energy/ renewable_tax_credits.html> accessed 17 October 2010; Iowa Code s 476B and,s 476C (2009). 53 Iowa Code s 423.3, s 437A.3, s 437A.6 (2009). 54 California Energy Commission, 2001-2005 Tax years forms solar and wind energy system credit (SB17x2 Tax Credit) <http://www.consumerenergycenter.org/erprebate/tax_credit_prior.html> accessed 17 October 2010; California Energy Commission, Solar and Wind Energy System Credits <http://www. consumerenergycenter.org/erprebate/tax_credit.html> accessed 17 October 2010. 55 42 USC s 13317 (2009). 56 US DOE EERE, Renewable Energy Production Incentive <http://apps1.eere.energy.gov/repi> accessed 17 October 2010. 57 EPA, Renewable Portfolio Standards Fact Sheet <http://www.epa.gov/chp/state-policy/renewable_fs.html> accessed 17 October 2010. 58 AWEA, The Renewables Portfolio Standard: How It Works and Why It s Needed <http://www.awea.org/ policy/rpsbrief.html> accessed 17 October 2010. 59 R Wiser and G Barbose, Renewables Portfolio Standards in the United States: A Status Report with Data Through 2007 (Lawrence Berkeley National Laboratory, LBNL-154E, 2008) <http://eetd.lbl.gov/ea/ems/ reports/lbnl-154e.pdf> accessed 17 October 2010.

2010 ] Development of Wind Energy in the US and China: A Comparative Study 339 energy goal. 60 The REC encourages renewable energy producers who are able to produce more at lower costs because of the existence of a market to sell their excess production and is thus similar to the emission trading system. 61 It relies on a basic economics principle, the economic specialisation based on comparative advantage, which increases productivity and total surplus to society. 62 In Texas, for instance, the RPS established in 1999 mandated that electricity providers (competitive retailers, municipal electric utilities and electric cooperatives) collectively generate 2,000 MW of additional renewable energy by 2009. 63 Texas has met the goal in 2005. 64 The 2005 Texas Legislature thereafter increased the state s 2015 goal to 5,880 MW and set a target of 10,000 MW for 2025. 65 Each electricity provider is required to obtain new renewable energy capacity proportional to their market share in terms of energy sales. 66 After the RPS was implemented, Texas wind corporations and utilities invested USD 1 billion in wind power. 67 The wind power development in Texas has more than quadrupled since the RPS was established. 68 In addition to its RPS, Texas also enacted a law in response to the lack of adequate electricity transmission for wind projects to encourage the production of renewable energy in 2005. 69 Under the law, areas within the state with the best renewable energy resources would be designated as Competitive Renewable Energy Zones (CREZs) by the Texas Public Utility Commission. 70 After the CREZs were identified, the Texas Public Utility Commission would develop a plan to construct the transmission necessary to deliver the electricity generated by the CREZs to customers. 71 California s RPS was established in 2002. It requires electricity providers to add renewable resources equal to one per cent of their retail sales annually until they reach 20 per cent, no later than the end of 2010. 72 However, it is loosely implemented by allowing a utility that demonstrates a good faith effort to comply with the RPS to forego paying the 60 The Wind Coalition, Renewable Portfolio Standard: a Texas Success Story <http://www.windcoalition.org/ policy/renewable-portfolio-standard> accessed 17 October 2010. 61 W Montgomery, Markets in Licenses and Efficient Pollution Control Programs (1972) 5 Journal of Economic Theory 395. But see Haitao Yin and N Power, Do State Renewable Portfolio Standards Promote In-state Renewable Generation (2010) 38 Energy Policy 1140. 62 Montgomery (n 61). 63 State Energy Conservation Office, Texas Renewable Energy Portfolio Standard <http://www.seco.cpa. state.tx.us/re_rps-portfolio.htm> accessed 17 October 2010. 64 65 66 67 68 69 Senate Bill 20, 79th Leg, 1st Called Session (Tex 2005). 70 71 72 California Public Utilities Code s 399.11 (West Supp 2009).

340 City University of Hong Kong Law Review [ Vol 2:2 penalty for non-compliance. 73 In order to help the state achieve its RPS goals, California has adopted a feed-in tariff system, which allows eligible customer-generators to enter into long-term contracts with their utilities to sell the electricity produced by small renewable energy systems, up to three MW, at market-based prices. 74 Current California law requires that large utilities and publicly-owned utilities with 75,000 or more customers must make a standard feed-in tariff available to their customers. 75 Interestingly, Iowa does not have an RPS. 76 Its Alternative Energy Law only requires its two investor-owned utilities MidAmerican Energy and Alliant Energy Interstate Power and Light to own or contract for a combined total of 105 MW of renewable generating capacity and associated energy production per year. 77 Despite Iowa s lack of an RPS, wind generators in Iowa are still able to sell RECs to utilities in other states. 78 In lieu of an RPS, Iowa has set a goal to be energy independent by 2025. 79 3. Funding and Financing Incentives The federal government offers many funding and financing incentives. The Clean Renewable Energy Bonds (CREBs) are a mixture of preferential loan and tax credits. Created under the Energy Improvement and Extension Act of 2008, USD 800 million of CREBS were made available to eligible entities, mostly entities in the public sector, to fund renewable energy projects. CREBs may be issued by electric cooperatives, government entities (states, cities, counties, territories, Indian tribal governments or any political subdivision thereof), and by certain lenders. CREBs are issued, theoretically, with a zero per cent interest rate. 80 The borrower pays back only the principal of the bond, and the bondholder receives federal tax credits in lieu of the traditional bond interest. The ARRA has allocated another USD 1.6 billion to be used for CREBs. The Qualified Energy Conservation Bonds (QECBs), also created under the Energy Improvement and Extension Act, are similar to CREBs to a large extent. The ARRA has 73 Ibid s 399.14(a)(2)(C)(ii)(I) (IV). 74 Ibid s 399.20. 75 76 B Stahl, L Chavarria and J Nydegger, Wind Energy Laws and Incentives: a Survey of Selected State Rules (2009) 49 Washburn Law Journal 99, 109. 77 Iowa Code s 476.41-45 (2009). 78 Stahl, Chavarria and Nydegger (n 76) 108. 79 Iowa Code s 469.4.2 (2009). 80 DSIRE, Clean Renewable Energy Bonds (CREBs) <http://www.dsireusa.org/incentives/incentive. cfm?incentive_code=us45f&re=1&ee=1> accessed 17 October 2010, which states that in practice, for a variety of reasons, bond issuers have sometimes had to issue the bonds at a discount or make supplemental interest payments in order to find a buyer.

2010 ] Development of Wind Energy in the US and China: A Comparative Study 341 expanded the total amount of QECBs available to USD 3.2 billion. Renewable projects qualified for CREBs are also eligible for QECBs. 81 One obvious advantage of QECBs over the CREBs is that no Inland Revenue Service application and approval is needed. The amount of QECBs is allocated to state governments based on their population. The states then allocate their shares to large local governments within each state, which then issue the bonds to fund various projects. Loan Guarantee is another kind of funding incentive offered by the federal government. Under the ARRA alone, USD 10 billion was made available to renewable energy projects and research and development (R&D) activities. 82 The most recent funding incentives for renewable energy were offered under the ARRA, which made USD 906 million grants available for R&D activities. 83 Other funding and financing incentives include the Tribal Energy Program Grant, the Tribal Economic Development Bonds, the Additional Recovery Act Incentives, the Advanced Research Projects Agency-Energy (ARPA-E) and the Energy Efficiency and Conservation Block Grant. 84 In contrast to the federal level funding and financing incentives, the state level funding and financing opportunities for wind energy are less common. Most of them are part of a larger federal programme such as the Energy Efficiency and Conservation Block Grant programme and are of smaller amounts. 85 Funding and financing opportunities for smaller scale renewable energy projects like home solar system are available both from the states and the utilities. However, wind energy, even for homes, usually costs much more than the home solar system, which might on the state level contribute to a relative lack of out-ofpocket support as opposed to tax breaks at the federal level. III. Laws, Policies and Incentives for the Development of Wind Energy in China In this part, legal and policy frameworks as well as incentives on wind energy in China are examined. Similar to the approach adopted in the previous part, incentives are divided into three categories: tax incentives, non-tax production incentives, and funding and financing incentives. As opposed to the US, only national laws and incentives are discussed for 81 DSIRE, Qualified Energy Conservation Bonds (QECBs) <http://www.dsireusa.org/incentives/incentive. cfm?incentive_code=us51f&re=1&ee=1> accessed 17 October 2010. 82 See DOE Advanced Energy Manufacturing Tax Credit (48C) (n 37). 83 84 Wind and Hydropower Technologies Program, Overview of Related Incentives & Funding Opportunities (2009) <http://www1.eere.energy.gov/windandhydro/pdfs/wind-water_incentives_funding.pdf> accessed 17 October 2010. 85 DSIRE, Department of Rural Affairs: Renewable Energy Demonstration Pilot Program <http://www. dsireusa.org/incentives/incentive.cfm?incentive_code=tx89f&re=1&ee=1> accessed 17 October 2010.

342 City University of Hong Kong Law Review [ Vol 2:2 China, because provincial laws on and incentives for wind energy are sparse and when they do exist, they often mirror their national counterparts. 86 China s efforts on renewable energy dates back to as early as 1958, when the then Chairman of the Communist Part of China (CPC), Mao Zedong, encouraged the development of marsh gas. 87 In 1979, the State Science and Technology Commission established the Committee on New Energy in Beijing with five subcommittees on solar, wind, biomass, geothermal and Magnetohydrodynamics (MHD) energy, respectively. 88 Within a decade, the Wind Energy Association was established, standards on wind energy production were set, and wind energy projects blossomed. 89 Many Chinese laws and policy measures adopted after 1979 had important ramifications on renewable energy, including wind energy. These laws and measures include the State Council Policies on Rural Energy (1983), Guidelines for Wind Farm development (1994), the Electric Power and Energy Conservation Laws (1995) and Studies into Feed-in Tariffs, Quotas and Renewable Portfolio Standards (2002). 90 The first comprehensive national law for the development of renewable energy, the Renewable Energy Law of 2005 (REL), came into effect in 2006. 91 Under the REL, regulation implementation covering 12 key issues including pricing, grid-connection and incentive policies are to be formulated by relevant departments. 92 By 2007, seven of these regulations have been published. 93 The REL was further amended in late 2009 and these new amendments have become effective in 2010. 94 86 For examples of provincial laws on wind energy development, see Guan Yu Yin Fa A La Shan Meng Feng Neng Zi Yuan Kai Fa Li Yong Guan Li Ban Fa De Tong Zhi, A Shu Fa (2007) no 85, <http://www.als.gov.cn/ main/government/policy/dfgfxwj/7d5a27b0-8460-4d53-a2cd-b6c3d5c3e79b.shtml> accessed 5 November 2010; Guan Yu Yin Fa Zi Zhi Qu Feng Neng Zi Yuan Kai Fa Guan Li Ban Fa De Tong Zhi, Nei Zheng Zi (2006) no 35, <http://www.law-lib.com/law/law_view.asp?id=155951> accessed 5 November 2010. 87 The People s Government of Shangdong Energy Conservation Office, Xin Neng Yuan Zhi: 1958 Nian-2010 Nian (2009) <http://www.sdetn.gov.cn/jnb/zyjyc/xny/webinfo/2009/02/1235607246326882.htm> accessed 17 October 2010. 88 89 See also Chinese Wind Energy Association, Xie Hui Bei Jing <http://www.cwea.org.cn/intro/display_ info.asp?cid=7> accessed 31 October, 2010. 90 Peidong Zhang, Yanli Yang, Jin Shi, Yonghong Zheng, Lisheng Wang & Xinrong Li, Opportunities and Challenges for Renewable Energy Policy in China (2009) 13 Renewable and Sustainable Energy Review 439, 442. 91 The Renewable Energy Law (REL) (Chinese version) <http://www.npc.gov.cn/npc/xinwen/lfgz/zxfl/2009-12/26/content_1533262.htm> accessed 17 October 2010 (English version) <http://www.npc.gov.cn/ englishnpc/law/2007-12/13/content_1384096.htm> accessed 17 October 2010. The English translation for the 2009 version is not available. The 2009 version amended parts of the 2005 version. 92 P Curnow, L Mathews and L Fitz-Gerald, Renewable Energy Law in China (2007) 12 <http://www.bakernet. com/nr/rdonlyres/ee354ab8-fb92-4826-9143-b157ed67531f/42914/renewableenergylawinchina. pdf> accessed 8 March 2010. 93 94 National People s Congress (NPC), Zhong Hua Ren Min Gong He Guo Ke Zai Sheng Neng Yuan Fa (Xiu Zheng An) <http://www.npc.gov.cn/npc/xinwen/lfgz/zxfl/2009-12/26/content_1533262.htm> accessed 17 October 2010.

2010 ] Development of Wind Energy in the US and China: A Comparative Study 343 In terms of national policy on wind energy, the Eleventh Five Year Plan for National Economic and Social Development (2006 2010) stressed the importance of increased efforts on developing wind energy and called for the construction of thirty 100 MW level wind projects and the formation of wind energy bases of over 1 GW capacity in Inner Mongolia, Hebei, Jiangsu and Gansu. 95 The Plan also called for the development of installed and interconnected wind energy capacity of over 5 GW by the end of 2010. 96 The Twelfth Five Year Plan for National Economic and Social Development (2011 2015) outlines more robust measures for clean energy and sustainable development. 97 Apart from cutting energy consummation and carbon dioxide emission, the target is set to ensure that non-fossil fuel account for 11.4 per cent of primary energy consumption. 98 A. Relevant Energy Agencies The highest energy agency in China has evolved over time. First there was the former National Energy Commission, established in 1980 and abolished two years later, then the Ministry of Energy, established in 1988 and abolished in 1993, afterwards the National Energy Office established in 2005, and then renamed as the National Energy Bureau. The latest agency is the National Energy Commission (NEC), established in January 2010. 99 The NEC is responsible for determining national energy development strategy, addressing major energy security concerns and development issues, and co-ordinating major programmes for domestic energy development and global co-operation. 100 The NEC is headed by the Premier Wen Jiabao, with 21 commissioners being all minister-level central government officials such as the Minister of National Land and Resources and the head of National Development and Reform Commission (NDRC). It is hoped that having these high-level officials on the NEC will help co-ordinate the work among their respective departments. 101 The NEC is established in part to deal with the lack of macro-management and coordination regarding energy. 102 The most powerful energy agency prior to the establishment of the NEC was the NDRC, which was mostly responsible for evaluating and issuing 95 Zhong Hua Ren Min Gong He Guo Guo Min Jing Ji He She Hui Fa Zhan Di Shi Yi Ge Wu Nian Gui Hua Gang Yao (The Eleventh Five Year Plan) <http://news.xinhuanet.com/misc/2006-03/16/content_4309517. htm> accessed 17 October 2010. 96 97 China Releases 12 th Five Year Plan, SustainableBusiness.com News (8 March 2011) <http://www. sustainablebusiness.com/index.cfm/go/news.display/id/22006> accessed 23 April 2011. 98 Key Targets of China s 12 th Five-year Plan, Xinhua (5 March 2011) <http://www.chinadaily.com.cn/ xinhua/2011-03-05/content_1938144.html> accessed 23 April 2011. 99 Editorial, Energy Problems Looming for Ever-growing China, Global Times (8 February 2010) <http:// opinion.globaltimes.cn/commentary/2010-02/504475.html> accessed 17 October 2010. 100 China s National Energy Commission is established, People s Daily Online (27 January 2010) <http:// english.peopledaily.com.cn/90001/90778/90862/6880658.html> accessed 17 October 2010. 101 Hu Jianlong, Zui Gao Gui Ge Cheng Li Neng Yuan Wei; Huo Wei Neng Yuan Bu Cheng Li Mai Fu Bi <http://news.hexun.com/2010-01-28/122516449.html> accessed 17 October 2010. 102

344 City University of Hong Kong Law Review [ Vol 2:2 permits for individual energy projects, including renewable energy projects. 103 In carrying out these responsibilities, tremendous power was given to the NDRC but because of the case-by-case nature of the NRDC s decision making process, there has been a lack of higher national level co-ordination. 104 With the establishment of the NEC, the task of forming macro-level energy policies and strategies is now assigned to this new organisation. The NDRC, however, still retains the power to set and regulate energy prices. 105 The State Electricity Regulatory Commission (SERC) is responsible for regulating all aspects of the national electricity industry. 106 Critics have pointed out that powers and responsibilities have not been properly distributed between the NDRC and the SERC and that the latter should be given more supervisory powers. 107 The Chinese Ministry of Environmental Protection is the key environmental protection agency and is becoming more and more powerful. It halted construction of several dams and power stations, citing that full environmental impacts had not been considered. 108 In the renewable energy field, it has the dual role of both encouraging the use of renewable energy and monitoring environmental impacts of renewable facilities. 109 B. Wind Energy Incentives Before making any comparison to the US laws on wind energy, it should be noted that Chinese laws are by nature general rather than specific. In China, legislature, judiciary and executive authorities complement the vague nature of laws by issuing implementation guidelines, judicial explanations and notices. 1. Tax Incentives On the national level, Article 26 of the REL provides that The State shall give preferential taxation to projects listed in the development guidance catalogue of the renewable energy industry. In the Mid-term and Long-term Plan on Renewable Energy Development issued by the NDRC, increasing fiscal spending and tax incentives is one of the implementing 103 104 105 National Development and Reform Commission (NRDC), Main Functions of NRDC, points 1 and 3 <http://en.ndrc.gov.cn/mfndrc/default.htm> accessed 7 November 2010. 106 The State Electricity Regulatory Commission (SERC), About Us <http://www.serc.gov.cn/english/index. htm#> accessed 17 October 2010. 107 A Austin, Energy and Power in China: Domestic Regulation and Foreign Policy (The Foreign Policy Centre) (April 2005), 17-18 <http://fpc.org.uk/fsblob/448.pdf> accessed 17 October 2010. 108 See, for example, Chengdu Urban River Association, Huan Bao Bu Jiao Ting Shu Shi Yi Shui Dian Gong Cheng: Huan Ping Nan Dang Gong Cheng Jin Du <http://www.rivers.org.cn/article/news/200910/70.html> accessed 7 November 2010. 109 Ministry of Environmental Protection, Mission <http://english.mep.gov.cn/about_sepa/mission/200803/ t20080318_119444.htm> accessed 7 November 2010.

2010 ] Development of Wind Energy in the US and China: A Comparative Study 345 guidelines. 110 The country s Eleventh Five Year Plan (2006 2010) also seeks to encourage the production and consumption of wind energy through tax incentives. 111 Specifically, all power plants being public utility infrastructure, including eligible wind power plants, they qualify for three years of exemption from and three years of 50 per cent credit on enterprise income tax as from the first year of turning a positive operating income, under Article 27 of the Enterprise Income Tax Law and Article 87 of its implementation guidelines. 112 Wind power plants with a capacity over 1.5 MW further qualify for a reduced enterprise income rate at 15 per cent instead of the normal 33 per cent even after the six-year preferential taxation period, as high and new technology enterprises under Article 25 of the Enterprise Income Tax Law. 113 Wind energy producers have also started to receive a 50 per cent Value Added Tax (VAT) credit on the electricity generated since 2008. This reduces the actual VAT on wind energy from 17 per cent to 8.5 per cent. 114 For wind energy producers in China, there used to be a 100 per cent tariff and VAT credit on all equipments imported to be used in their wind facilities. 115 Since 2008, this credit only applies to wind facilities of over 2.5 MW capacity in an effort to support domestic wind facility producers. 116 For eligible domestic wind energy equipment manufacturers, there is another 100 per cent tariff and VAT credit on important components and raw materials that are necessary for the manufacturing of wind equipments and that are not produced domestically. 117 2. Non-Tax Production Incentives Article 14 of the REL requires grid enterprises that are both connected to and situated within the grid areas to contract with renewable energy producers to purchase all electricity 110 National Development and Reform Commission (NDRC), Ke Zai Sheng Neng Yuan Zhong Chang Qi Fa Zhan Gui Hua, s 8.5, 31 <http://www.ccchina.gov.cn/website/ccchina/upfile/2007/20079583745145. pdf> accessed 17 October 2010. 111 See The Eleventh Five Year Plan (n 95) c 12, s 4. 112 Geng Feng and Cai Rong, Feng Li Fa Dian Shui Shou You Hui Pan Dian, China Taxation News (19 May 2008) <http://www.ctaxnews.net.cn/detail.jsp?no=04830f05b.000018f0.4dc8> accessed 17 October 2010. 113 Enterprise Income Tax Law, art 28, (setting the applicable tax rate for high-tech companies at 15 per cent) <http://www.gov.cn/flfg/2007-03/19/content_554243.htm> accessed 31 October 2010. See also Guo Jia Zhong Dian Zhi Chi De Gao Xin Ji Shu Ling Yu s 6.1.2, 37 (wind energy enterprises are within the meaning of high-tech companies under the Enterprise Income Tax Law) <http://www.most.gov.cn/fggw/zfwj/ zfwj2008/200804/p020080616404499063075.doc> accessed 17 October 2010. 114 Guan Yu Bu Fen Zi Yuan Zong He Li Yong Ji Qi Ta Chan Pin Zeng Zhi Shui Zheng Ce Wen Ti De Tong Zhi, Cai Shui (2001) no 198, <http://www.law-lib.com/law/law_view.asp?id=16775> accessed 31 October 2010. 115 Guan Yu Tiao Zheng Da Gong Lv Deng Li Fa Dian Ji Zu Ji Qi Guan Jian Ling Bu Jian Yuan Cai Liao Jin Kou Shui Shou Zheng Ce De Tong Zhi Cai Guan Shui (2008) no 36, <http://www.jsgs.gov.cn/publicinfo/ PubLicInfoDetail.aspx?Id=8516> accessed 17 October 2010. 116 117

346 City University of Hong Kong Law Review [ Vol 2:2 generated by them, as well as to provide interconnection services to renewable energy producers. 118 In 2007, the SERC followed up with an Executive Order No 25, Rules for Grid Enterprises to Purchase All Renewable Electricity, which reiterated in detail grid companies responsibility of purchasing all electricity generated from interconnected renewable energy facilities. 119 The 2009 REL Amendments updated Article 14 in a few aspects. First, the new Article 14 designates a joint taskforce comprising the State Council agency in charge of energy (which is the NEC), the SERC, and the Ministry of Finance (MOF) to make national plans on the development and utilisation of renewable energy and regulate grid enterprises in preferential dispatching and the full purchase of electricity from renewable resources. The NEC and SERC are further charged with the responsibility to monitor grid enterprises. 120 Second, the new Article 14 also adds duties for renewable energy producers, making sure that they follow national plans on the development and utilisation of renewable energy determined by the aforementioned joint taskforce and work with grid enterprises to ensure grid safety. 121 Third, the new Article 14 enumerates various specific efforts that grid enterprises shall make to provide interconnection services to renewable energy generators, such as enhancing grid construction, improving coverage of electricity configuration for electricity generated by renewable energy producers, and improving grid management. 122 For independent and residential use of renewable energy, Article 15 of the REL stipulates that the government will support the construction of an independent system of power generated with renewable energy in areas not covered by power grids. Although not specified in this provision, the funding for such support is likely to come from the Renewable Energy Development Fund (REDF) formulated under Article 24. Although China does not yet have an RPS, the NDRC has adopted a feed-in tariff policy by issuing the Notice on Wind Power Feed-in Tariff Policy in 2009, which sets prices for wind power generated onshore. 123 Depending on the location of wind farms, wind power is priced at one of the four fixed prices: 0.51, 0.54, 0.58, and 0.61 Renminbi (RMB) per kwh. 124 While electricity from coal-fired plants on average costs 0.38 RMB 118 REL Amendments art 14 <http://www.npc.gov.cn/huiyi/cwh/1112/2009-12/26/content_1533216.htm> accessed 17 October 2010. There are only two grid companies in China, the State Grid Corporation of China (a wholly state-owned company) and the China Southern Power Grid Co Ltd. 119 SERC, Dian Wang Qi Ye Quan E Shou Gou Ke Zai Sheng Neng Yuan Dian Liang Jian Guan Ban Fa <http://www.serc.gov.cn/zwgk/jggz/200802/t20080220_4704.htm> accessed 17 October 2010. 120 See NPC, Zhong Hua Ren Min Gong He Guo Ke Zai Sheng Neng Yuan Fa (Xiu Zheng An) (n 94). 121 122 123 The Central People s Government of People s Republic of China, Fa Zhan Gai Ge Wei Fa Bu Wan Shan Feng Li Fa Dian Shang Wang Dian Jia Zheng Ce De Tong Zhi <http://www.gov.cn/gzdt/2009-07/24/ content_1373827.htm> accessed 17 October 2010. 124 Ibid; NDRC Guan Yu Wan Shan Feng Li Fa Dian Shang Wang Dian Jia Zheng Ce De Tong Zhi <http:// www.ndrc.gov.cn/zcfb/zcfbtz/2009tz/t20090727_292827.htm> accessed 17 October 2010.

2010 ] Development of Wind Energy in the US and China: A Comparative Study 347 per kwh, the notice suggests that the difference shall be covered by a national electricity surcharge in support of renewable energy. This surcharge is further discussed in the next section on Funding and Financing Incentives. 3. Funding and Financing Incentives Article 24 of the REL designates a special fund for renewable energy in support of activities such as R&D, pilot projects, residential renewable energy projects in rural areas by means of grants and preferential loans. In 2006, the MOF issued the Provisional Administrative Measures on the REDF setting out rules for using the REDF. 125 The 2009 Amendments to the REL further clarified the scope of the REDF. 126 The exact size of the Fund is unclear but is to be determined by the national fiscal budget. 127 The predecessor of the REDF was an innovation fund set up by the State Council to fund small and medium sized technical enterprises through grants and preferential loans. 128 The innovation fund had a budget of 1 billion RMB and had approved around 1,000 projects. 129 Renewable Energy Surcharge Level Regulation has established a tax-exempt renewable energy surcharge payable by end-users of electricity in order to subsidise the cost of production and interconnection for renewable energy facilities. 130 The surcharge is used to subsidise utilities that acquire electricity generated from renewable sources at a higher price than that of electricity generated by coal-fired plants. In the first six months of 2009, the total amount of surcharge distributed to renewable energy producers reached 2.99 billion RMB, 80 per cent of which, totaling 2.39 billion RMB, was used to subsidise 202 wind energy projects nationwide. 131 Financial institutions are also encouraged but not required to provide preferential loans with reduced interest rates to eligible renewable energy development projects under Article 25 of the REL. 125 MOF Economic and Construction [2006] No 237. Ministry of Commerce, Cai Zheng Bu Guan Yu Yin Fa Ke Zai Sheng Neng Yuan Fa Zhan Zhuan Xiang Zi Jin Guan Li Zan Xing Ban Fa De Tong Zhi <http://www. mofcom.gov.cn/aarticle/b/g/200606/20060602521267.html> accessed 17 October 2010. 126 See NPC Zhong Hua Ren Min Gong He Guo Ke Zai Sheng Neng Yuan Fa (Xiu Zheng An) (n 94). 127 See Ministry of Commerce (n125). 128 J Cherni and J Kentish, Renewable Energy Policy and Electricity Market Reform in China (2007) 35 Energy Policy 3616, 3619. 129 130 NDRC Price [2006] No 28-33 (July 2006). See also Curnow, Mathews and Fitz-Gerald (n 92). 131 NDRC, 2009 Nian 1-6 Yue Ke Zai Sheng Neng Yuan Fa Dian Xiang Mu Bu Tie Biao <http://www.ndrc. gov.cn/zcfb/zcfbtz/2009tz/w020091225564375714237.pdf> accessed 17 October 2010.

348 City University of Hong Kong Law Review [ Vol 2:2 IV. Future of Wind Energy in the US and China: A Comparative Review A. US: Need for Long-term Consistent Incentives? The installed capacity of wind power had reached nearly 35.2 GW by the end of 2009 in the US, a 39 per cent or 9.9 GW increase from 25.2 GW in 2008. 132 In 2008, wind machines in the US generated a total of 55.4 gigawatt-hour (GWh), about 1.3 per cent of total US electricity generation. 133 Federal subsidies have supported this strong growth in wind energy. In 2007 alone, wind energy received USD 724 million in federal subsidies, valued at USD 23.37 per mwh. 134 In terms of per production unit level, federal subsidies for wind energy were 53 times more than those for coal and 15 times for nuclear energy in 2007. 135 As far as total amount is concerned, federal subsidies for wind energy ranked third among all fuel types, behind USD 1,276 million for nuclear and USD 854 million for coal. 136 Tax incentives, especially the PTC, are particularly important to the wind power industry. Since the inception of PTC in 1994, wind plant installations in the US have resulted in an aggregate investment of roughly USD 13 billion. 137 However, since the PTC is not a permanent statutory device and requires periodic extensions by the US Congress, the inconsistency and uncertainty of these federal tax incentives have caused volatility in the development of wind energy. 138 The importance of the PTC to the US wind market has caused a yearly boom-and-bust cycle that characterised the market from 1999 through 2004. 139 These cycles were caused by several expirations and subsequent short-term extensions of the PTC, creating uncertainty in the marketplace. 140 After 2004, the PTC has been continuously available for renewable energy producers, which may have contributed to the five consecutive years of tremendous growth in wind 132 See GWEC, Global Wind Power Boom Continues Despite Economic Woes (n 9). 133 EIA, Electricity Net Generation: Total (All Sectors) <http://www.eia.doe.gov/emeu/mer/pdf/pages/sec7_5. pdf> accessed 17 October 2010. 134 EIA, Federal Financial Interventions and Subsidies in Energy Markets (2007) <http://www.eia.doe.gov/ oiaf/servicerpt/subsidy2/pdf/chap5.pdf> accessed 17 October 2010. 135 D Thornley, Texas Wind Energy: Past, Present, and Future (Texas Public Policy Foundation) (2008) <http:// www.texaspolicy.com/pdf/2008-09-rr10-windenergy-dt-new.pdf> accessed 17 October 2010. 136 137 R Wiser, Wind Power and the Production Tax Credit: An Overview of Research Results (Lawrence Berkeley National Laboratory LBNL/PUB-97, 2007) <http://eetd.lbl.gov/ea/emp/reports/wiser-senate-test-4-07.pdf> accessed 8 March 2010. 138 See Carleyolsen (n 30). 139 M Bolinger and R Wiser, Wind Power Price Trends in the United States: Struggling to Remain Competitive in the Face of Strong Growth (2009) 37 Energy Policy 1061. 140

2010 ] Development of Wind Energy in the US and China: A Comparative Study 349 energy. 141 Scholars and industry experts suggest that a long-term consistent PTC policy will further encourage the development of wind energy in the US. 142 At the state level, it is a mixed picture. Texas and Iowa have continued to steadily increase their installed capacity of wind energy at over 30 per cent annually since 2004. 143 Texas has surpassed its RPS goal for 2009 in 2005. In California, it is a different story. Despite ranking third in the nation in installed wind generation capacity in 2009, California has experienced a major slowdown in wind energy development. 144 California s installed wind capacity has only grown at a meagre yearly rate of 4 per cent from 2004 to 2009. 145 As discussed earlier, California no longer offers any tax incentives for wind energy after 2005. This is possibly a cause for the slowdown. With the 2010 RPS goal of 20 per cent, for installed capacity of wind energy, it appears that California s utilities will have to purchase RECs from out-of-state renewable energy producers in order to meet the goal. 146 The 2008 year-end renewable energy utilisation stayed at 13 per cent for the three largest investor-owned utilities, a percentage that has not changed substantially during the last six years. 147 B. China: Overcoming Vague Laws and Limited Interconnecting Capacity? By the end of 2009, the installed wind energy generation capacity in China has reached 25.1 GW, a 13.0 GW increase from 2008 and more than double the 12.1 GW installed in 2008. 148 However, it only makes up about 0.4 per cent of total electricity generation in China. 149 Judging by these results, Chinese incentives seem to be highly effective in encouraging the development of wind energy in China. In a 2008 article citing data from 2005, authors estimated that the tax on wind energy can be up to 27 per cent of the total electricity price, 8 per cent higher than the tax on coal-fired power. 150 That is no longer the case. After the REL came into effect in 2006, many tax incentives have become available to wind energy 141 DSIRE, Renewable Electricity Production Tax Credit (PTC) (n 33). 142 See Hinman (n 26). 143 Wind and Hydropower Technologies Program, Installed Wind Capacity by State <http://www. windpoweringamerica.gov/docs/installed_wind_capacity_by_state.xls> accessed 8 March 2010. 144 See Stahl, Chavarria and Nydegger (n 76). 145 Wind and Hydropower Technologies Program (n 143). 146 See California Public Utilities Commission, Renewable Portfolio Standard Quarterly Report (July 2009). 147 148 GWEC, Global Wind Power Boom Continues Despite Economic Woes (n 9). 149 EIA, Total Electricity New Generation (n 7). 150 See Zhao, Hu and Zuo (n 13); Tao Jiange, Xue Huifeng (2008) 30 Resources Science 1.

350 City University of Hong Kong Law Review [ Vol 2:2 enterprises including both producers and manufacturers of wind turbines. 151 In fact, since 2005, the installed capacity of wind energy has doubled every year in China. 152 Tax incentives seem particularly plentiful and useful. Thanks to tax incentives, Inner Mongolia, for example, used to be known as the source of sand storms threatening Beijing and even Seoul, has now become the Mecca of wind energy in China, home to 40 per cent of wind resources and bears the largest number of installed wind energy facilities in China. 153 The five largest power companies in China have now had wind energy projects approved and are under construction in Inner Mongolia because of rising costs of generating electricity from coal and abundant government incentives to develop wind energy. 154 In Alashanzuoqi of Inner Mongolia, for example, the wind energy industry received VAT credits in the amount of RMB 41.8 million in the first 11 months of 2009, which accounts for 63 per cent of all VAT credits granted in Alashanzuoqi in the same period. 155 The actual VAT rate after tax credits for wind energy companies in Alashanzuoqi was 8.37 per cent in 2008, which was further reduced to 1.74 per cent in 2009. With this reduction in VAT rate, investments in wind energy poured into Alashanzuoqi. 156 Ningxia Power Generation Group alone invested RMB 240 million in a 40.5 MW wind farm project in Alashanzuoqi in 2009. 157 Alashan Silver Star Wind Energy Company finished preliminary construction in 2009 and will start installing wind turbines and generating electricity in 2010. 158 There are problems, however, related to such rapid development in China. There has been a surge in both the manufacturing of wind energy components and installed capacity, but the interconnecting capacity has lagged behind because of gridline transmission limitations. These limitations are caused by both the intermittent nature of wind power and the lack of transmission lines connecting to and from areas rich with wind resources. Sometimes, even when interconnection is technologically feasible, politics between local governments make inter-province interconnection difficult. 159 The gridline transmission limitations in turn contribute to the low share of wind power in total electricity consumption. The REL 2005 first attempted to tackle this problem by requiring grid enterprises to 151 See Zhao, Hu and Zuo (n 13). 152 J Watts, Energy in China: We call it the Three Gorges of the sky. The dam there taps water, we tap wind The Guardian (London 25 July 2008) <http://www.guardian.co.uk/environment/2008/jul/25/renewableenergy. alternativeenergy> accessed 17 October 2010. 153 M Rigen, Wang Lijuan and Qiu Shengyu, Feng Li Fa Dian 21 Shi Ji De Lv Se Neng Yuan <http://azqtj. gov.cn/linkfiles/baogao/flfd21sj.htm> accessed 17 October 2010. 154 Zhong Guo Zheng Quan Bao, Wu Da Dian Li Ji Tuan Gua Fen Nei Meng Gu Feng Neng <http://energy. people.com.cn/gb/71901/7649917.html> accessed 8 March 2010. 155 China Wind Power Info-Net, Alashanzuoqi Feng Li Fa Dian Cheng Zeng Zhi Shui Zhuan Xing Kai Tou Zhi Nian Zhi Zui Da Shou Yi Hang Ye <http://www.cnwp.org.cn/show.php?contentid=6326> accessed 8 March 2010. 156 157 158 159 GWEC, Global Wind Power Boom Continues Despite Economic Woes (n 9).