SHANGHAI (Reuters) - China will end subsidies for new onshore wind power projects at the start of 2021, with renewable projects set to compete on an equal footing with coal- and gas-fired electricity, the country’s state planning agency said on Friday.
The move is a milestone for the renewable energy sector, which has traditionally relied on subsidies and other preferential policies to encourage developers to build plants.
China pays a relatively high tariff per kilowatt hour (kWh) of electricity produced by wind or solar projects, but it has been promoting what is known as ‘grid price parity’ with traditional sources of power such as coal.
The National Development and Reform Commission (NDRC) said tariffs paid to onshore wind projects will be cut to as low as 0.29 yuan ($0.0420) per kWh in 2020, while grid price parity will apply to all new projects from Jan. 1 2021.
It said the tariff adjustments beginning this year were designed to ensure wind power could reach the same price level as coal-fired power and also promote fair competition in the sector.
China has been scaling back subsidies for both wind and solar projects after a rapid fall in equipment and construction costs, as well as a huge subsidy payment backlog for existing projects.
The country’s energy regulator said last year that it would make an extra push to provide technological and policy support to the renewables sector to ensure it can operate subsidy-free.
China also launched a series of subsidy-free wind and solar projects in January, noting that solar construction costs in China fell 45 percent from 2012 to 2017, while wind project costs dropped 20 percent over the same period.
Kevin Ao, chairman of Beijing Union Smart Energy, which designs renewable power supply solutions for enterprises, said the move was something that could have be done as early as last year.
Profitability will still be possible especially in regions like Guangdong, where average tariffs tend to be higher, he said.
Industry executives said subsidies for solar power plants could also be cut and eliminated soon.
“I expect that (solar) is likely to follow,” said Thomas Lapham, chief executive of Asia Clean Capital, which builds rooftop solar projects for major corporations in China.
According to a forecast published last weekend by the North China Electric Power University, the use of coal by the power sector is set to peak at 1.32 billion tonnes next year, though it remains higher than the government target of 1.23 billion tonnes.
The study also said the share of non-fossil fuels in China’s total electricity mix is on course to hit 32-34% next year, higher than the 31% target.
Reporting by David Stanway; Editing by Joseph Radford