China tries to plug funding black hole in green energy scheme

Echo Xie
·4-min read

China’s energy regulator hopes bank loans will help make up for a massive backlog of subsidies owed to renewable energy companies as it tries to plug holes in a funding scheme.

But analysts said it was hard to know how successful the efforts would be because it would be up to the banks to decide whether to grant the loans to the companies.

The National Energy Administration said on Tuesday that it would encourage financial institutions to issue loans to companies that were eligible for the subsidies as part of a range of measures to cover the shortfall.

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“Some renewable energy companies are pretty tight in funding at present because of the subsidy in arrears, and these subsidies … are guaranteed by the government,” NEA energy department chief Li Chuangjun said.

“So we have asked financial institutions to negotiate with the enterprises about loan extensions, renewals or adjustment of the repayment schedule to ensure businesses will not suffer from interruption of cash flow.”

China introduced the subsidies in 2006 to encourage renewable energy developers and the sector has expanded rapidly in the decade and a half since.

China ranks first globally in terms of installed capacity from renewable energy, reaching 930 gigawatts last year. The green energy source now accounts for 42 per cent of the country’s total installed power generation capacity.

Just last year, the country added 120GW of newly installed wind and solar capacity, accounting for about half of that added around the world in 2020, according to NEA chief Zhang Jianhua.

Zhang said renewable sources generated about 30 per cent of the total electricity used in China last year.

As that capacity has grown, so have the subsidies, which are funded by an electricity bill surcharge.

Since 2012, China has allocated more than 500 billion yuan (US$76.2 billion) in the incentives, according to an earlier report by Communist Party mouthpiece People’s Daily.

Qin Haiyan, general secretary of the Chinese Wind Energy Association, calculated that the cumulative subsidies owed to renewable energy developers reached about 300 billion yuan by 2020, with 155 billion yuan for wind power developers and 125 billion yuan for solar power.

Writing in China Energy News in July, Qin said the subsidy deficit would peak in 2028 and take at least another decade to resolve.

Apart from encouraging banks to lend to the developers, Li said the NEA and other departments would issue more tradeable “green electricity certificates” to companies to help ease their burden.

China launched the green certificate trading scheme in 2017, allowing holders to offset interest payments. The certificates are also designed to encourage businesses and individuals to buy renewable energy on a voluntary basis.

The health of the sector has political importance, with President Xi Jinping pledging in December totriple China’s wind and solar capacity to more than 1,200GW by 2030. He also said in September that China aimed to reach peak carbon emissions before 2030 and become a carbon-neutral society by 2060.

Lin Boqiang, dean of Xiamen University’s China Institute for Studies in Energy Policy, said the rate of the electricity bill renewables surcharge used to fund the subsidies had not changed for years, resulting in a huge deficit.

Lin said the NEA’s methods, such as issuing or extending loans, would need the support of the financial institutions and it was hard to predict the result. “What would really work is an increase in the electricity price,” he said.

In the meantime, China ended the subsidy scheme for new onshore wind power projects at the start of this year and said it would not subsidise new offshore wind power that will come online from 2022.

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