China energy chief wants market to set wind tariffs

BEIJING (Reuters) - Prices for electricity produced by China's fast-growing wind power sector should be set by the market, Zhang Guobao, head of the National Energy Agency, told a news conference on Friday.

"Demand for higher tariffs comes mainly from investors but the higher the price, the harder it is to develop the industry on a wide scale," he said, responding to widespread criticism of the Chinese system.

Many critics have called for a set feed-in tariff that would encourage wind power development by ensuring a fixed price.

But Zhang argued that such fixed tariffs could hold back development if prices were too high.

Subsidies for renewable energy should come in a different form, Zhang said, with tax relief rather than high prices giving support to wind generators.

That implies China could ditch the system of benchmark on-grid tariffs that aims to give wind generators a leg-up over dirty coal, which provides the vast majority of China's electricity.

When electricity grids buy wind power, they pay a premium over coal but get compensated by electricity surcharges levied nationwide.

While big projects are likely to use the benchmark tariff, smaller projects are still subject to fierce competition in a tendering process that can erode margins.

"At first (the tendering system) led to individual companies slashing prices to below cost, but they can't sustain those losses and the market will find the right price," Zhang said.

Wind power is set to overtake nuclear as a source of electricity in China during the next 10 years, thanks to a massive roll-out being encouraged by the government, which expects wind generating capacity to hit 100 gigawatts by 2020.

China is expected to unveil a "new energy" plan by the end of the year, raising its targets for wind, solar and nuclear output.

(Reporting by David Stanway, Editing by Jacqueline Wong and Jonathan Hopfner)