Evolution of China’s PV Subsidy Policy
2020 is a critical stage for PV power stations to move from demonstration to marketization. “In 2021, China’s PV power generation will achieve full grid parity. This year is a bridging year for achieving full grid parity. The orderly application, reasonable design and on-time start of projects will play a vital role in achieving a smooth transition from bidding to grid parity and healthy and sustainable development of the industry,” said Wang Bohua, vice chairman and secretary general of the China Photovoltaic Industry Association. ”
How much do you know about photovoltaic subsidies?
1. Origin of subsidy policy
Since 2009, China has launched photovoltaic building application demonstration projects, Golden Sun demonstration projects and photovoltaic power station concession bidding, thus opening the curtain of domestic photovoltaic development. In 2012, due to the anti-dumping and countervailing duties launched by the United States and Europe against China, the Chinese government increased its support for photovoltaic applications, issued the “12th Five-Year Plan for Solar Power Generation Development”, and measures such as demonstration areas for large-scale application of distributed photovoltaic power generation.
On July 4, 2013, the State Council of China issued the document “Several Opinions of the State Council on Promoting the Healthy Development of the Photovoltaic Industry” No. 24, which made it clear for the first time: the implementation period of the on-grid electricity price and subsidies is 20 years in principle. The source of photovoltaic subsidies is Renewable Energy Development Fund. In the same year, on August 26, 2013, the National Development and Reform Commission issued the Development and Reform Price [2013] No. 1638. The document clearly stated: The electricity price subsidy standard is 0.42 yuan （USD0.6)per kilowatt-hour (tax included), and photovoltaic power generation projects will implement the benchmark on-grid electricity price or electricity price subsidy standard from the time they are put into operation, and the period is in principle 20 years.
2. Adjustment of photovoltaic subsidy policy
With the development of the photovoltaic industry, technology has developed rapidly, and the price of photovoltaic equipment has also dropped significantly. The benchmark electricity price of photovoltaic power stations has also dropped accordingly, and the per-kilowatt-hour subsidy electricity price has remained at 0.42 yuan/KWh (USD0.6/KWh) for five years.
It was not until 2018 that the per-kilowatt-hour subsidy fell for the first time, from the original 0.42 yuan/KWh(USD0.6/KWh) to the later 0.37 Yuan/KWh (USD0.5/KWh)(distributed photovoltaic poverty alleviation projects remain unchanged). With the announcement of the 531 new policy, the photovoltaic subsidy policy has ushered in a new round of adjustments.
On April 30, 2019, the National Development and Reform Commission’s official website announced the “Notice on Issues Concerning the Improvement of Photovoltaic Power Generation On-Grid Electricity Price Mechanism”. The core of this policy is bidding: except for poverty alleviation and household distributed power stations, all distributed photovoltaic power stations and centralized power stations participate in bidding.
(1) Centralized: Benchmark on-grid electricity price changed to guidance price, bidding subsidy
After the new policy was officially implemented, the benchmark on-grid electricity price of centralized power stations was changed to guidance price, which were: 0.4 yuan/kWh in Class I areas, 0.45 yuan/kWh (USD0.64/KWh) in Class II areas, and 0.55 yuan/kWh (USD0.8/KWh)in Class III areas. The year-on-year decline was more than 20%. In May last year On the 31st, the benchmark on-grid electricity prices for newly commissioned photovoltaic power stations in Class I, Class II, and Class III resource areas were 0.5 yuan(USD0.07), 0.6 yuan(USD0.08), and 0.7 yuan (USD0.1)per kilowatt-hour, respectively.
Under the guidance price, the on-grid electricity price of newly added centralized photovoltaic power stations is determined in principle through market competition and cannot exceed the guidance price. The price determined by market competition within the benchmark on-grid electricity price of local coal-fired units (including desulfurization, denitrification, and dust removal prices) will be settled by the local provincial power grid; the excess will be subsidized by the National Renewable Energy Development Fund.
(2) Distributed: The upper limit of subsidies for industrial and commercial use is 0.1 yuan (USD0.01)per kilowatt-hour, and the household subsidy is 0.18 yuan(USD0.02) per kilowatt-hour
In this new photovoltaic policy, except for poverty alleviation and household distributed power stations, all distributed photovoltaic power stations and centralized ones will participate in the bidding.
For industrial and commercial distributed power, the subsidy standard for full power generation of industrial and commercial distributed photovoltaic power generation projects that adopt the “self-generation for self-use, surplus power grid-connected” mode and are included in the 2019 fiscal subsidy scale is adjusted to 0.1 yuan per kilowatt-hour; for industrial and commercial distributed photovoltaic power generation projects that adopt the “full amount grid-connected” mode, the guidance price of centralized photovoltaic power stations in the resource area where they are located shall be implemented. For industrial and commercial distributed power projects that are uniformly allocated by the energy authorities through market competition, the price formed by market competition shall not exceed the guidance price of the resource area where they are located, and the subsidy standard shall not exceed 0.1 yuan (USD0.01) per kilowatt-hour.
For household distributed power, the subsidy standard for full power generation of household distributed photovoltaic power that adopts the “self-generation for self-use, surplus power grid-connected” mode and the “full amount grid-connected” mode and are included in the 2019 fiscal subsidy scale is adjusted to 0.18 (USD0.02) yuan per kilowatt-hour.
On May 30, 2019, the National Energy Administration officially announced the “Notice on Matters Related to the Construction and Management of Wind Power and Photovoltaic Power Generation in 2019” and the annex “2019 Photovoltaic Power Generation Project Construction Work Plan”. This notice uses a competitive approach to allocate PV power generation projects that need subsidies (except for PV poverty alleviation and household PV) and participate in the national unified electricity price ranking. This is the first time in history.
(3) Households are managed separately, 750 million yuan(USD107 million) is equivalent to 3.5GW, and there is a one-month buffer period
For those that were built and connected to the grid before the release of the document but were not included in the scope of national subsidies, they can apply to the local power grid company in accordance with regulations. After joint review and confirmation by the local filing authority and the power grid company, they will be included in the 2019 fiscal subsidy scale. The subsidy amount is based on the 2019 price policy (0.18 yuan/kWh)(usd0.02/kWh) for full electricity subsidies. (That is, a “bottom-line” policy for all household PV projects that have been connected to the grid but were not included in the subsidy scope for various reasons).
Before the 15th of each month, the National Energy Administration will announce the household installed capacity of the previous month; when the cumulative installed capacity of the previous month announced exceeds the total capacity of the year, the last day of the month will be the deadline for household PV installations to enjoy national subsidies (that is, a one-month buffer period).
(4) Make good connections between old and new existing projects
PV projects that have been started but not connected to the grid and are included in the previous national construction scale must be connected to the grid at full capacity by the end of 2019, otherwise they will no longer be included in the scope of national subsidies. Projects that have been included in the previous national construction scale and have not been started must be connected to the grid at full capacity by the end of 2020. For projects that do not meet the construction conditions due to red warnings or other national regulations, the construction period can be appropriately relaxed.
3. 2020 PV Subsidy Policy
On March 10, 2020, the National Energy Administration and the National Development and Reform Commission issued the “Notice on Matters Related to the Construction of Photovoltaic Power Generation Projects in 2020” and the “Notice on Matters Related to the Photovoltaic Power Generation Grid-connected Electricity Price Policy in 2020”.
The “Notice” clarified that the total subsidy budget for new PV power generation projects in 2020 is 1.5 billion yuan(2.14 billion US Dollars) , of which 500 million yuan (USD 71 million) is for household PV and 1 billion yuan is for subsidized bidding projects. It is expected that the corresponding installed capacity of industrial and commercial distributed and centralized ground power stations is about 20GW and household projects is about 6.5GW. The specific electricity price subsidy is 0.08 yuan(USD0.01) for household use, which is 0.1 yuan(USD0.01) lower than the subsidy in 2019, and 5 cents for industrial and commercial use, a year-on-year decrease of 50%. The guidance electricity prices for ground power stations in category III-I resource areas are 0.49 yuan(USD0.07) , 0.4 yuan(USD0.06) , and 0.35 yuan(USD0.05) respectively. Compared with the total subsidy amount of 3 billion (USD400 Million) in 2019, the total subsidy for photovoltaic projects in 2020 has been reduced by half.
On June 18, the National Development and Reform Commission and the National Energy Administration jointly issued the “Guiding Opinions on Doing a Good Job in Energy Security in 2020”, which mentioned that it will promote photovoltaic power generation installed capacity to reach about 240 million kilowatts in 2020, that is, 35.7GW of new photovoltaic installed capacity in 2020.
4. Source of photovoltaic subsidy funds
In 2006, China began to implement the “Renewable Energy Law”, which stipulates that the renewable energy electricity price surcharge shall be collected from the sales electricity price as a renewable energy development fund. The source of photovoltaic subsidies is this renewable energy development fund.
In 2007, China officially began to collect renewable energy surcharges, with an initial collection standard of 0.2 cents/kWh. According to the national electricity consumption that year, the theoretical amount that could be collected was 5.6 billion yuan. As the country vigorously supports new energy represented by wind power and photovoltaics, subsidy funds began to have a gap.
In January 2016, the renewable energy surcharge was raised to 1.9 cents/kWh, and the theoretical amount that could be collected was 95 billion yuan. However, the actual amount collected did not reach the theoretical calculated amount, mainly due to the huge power generation of self-provided power plants in various places, and the renewable energy surcharge was not paid in full. At the same time, due to the rapid decline in the investment cost of photovoltaic power stations, the investment return rate of photovoltaic power stations has risen rapidly, and the installed capacity of photovoltaic power stations has increased rapidly, resulting in a continuous widening of the subsidy fund gap.
According to Wang Shujuan, a senior expert in the photovoltaic industry, the subsidy gap for existing photovoltaic projects has reached 140 billion yuan, and more than 60 billion yuan will be added each year.
5. PV subsidy outlets – grid parity
On May 23, 2019, the National Development and Reform Commission announced the first batch of wind power and photovoltaic power generation grid parity projects. A total of 16 provincial (autonomous region, municipality) energy authorities submitted the first batch of wind power and photovoltaic power generation grid parity projects in 2019 to the National Energy Administration. This list announced a total of 250 project pilots with a total installed capacity of 20.76GW, including 14.78GW of photovoltaic power, 4.51GW of wind power, and 1.47GW of distributed trading pilots.
The notice pointed out that State Grid Corporation of China and China Southern Power Grid Corporation should organize their provincial grid companies to follow the relevant policy requirements of grid parity projects, conscientiously implement the grid companies’ grid connection project construction responsibilities, ensure that grid parity projects have priority power generation and full guaranteed purchase, and sign long-term fixed price power purchase and sales contracts (not less than 20 years) with wind power and photovoltaic power generation grid parity projects according to the local coal-fired benchmark grid-connected electricity prices stipulated by the state when the project is approved (filed).
Shi Jingli, a researcher at the Renewable Energy Development Center of the Energy Research Institute of the National Development and Reform Commission, believes that the path to achieving grid parity for photovoltaic power generation in China can be roughly divided into three steps: 2017-2018 is the demonstration stage, 2019-2020 is the large-scale promotion stage, and in the early stage of the “14th Five-Year Plan” it will enter the full parity stage. “In 2021, China’s photovoltaic power generation will have the conditions for full parity or mostly parity. 2020 is a key stage for the parity of photovoltaic power stations to move from demonstration to marketization.” Wang Bohua, vice chairman and secretary general of the China Photovoltaic Industry Association, said, “In 2021, China’s photovoltaic power generation will achieve full grid parity. This year is a linking year for achieving full grid parity. The orderly application, reasonable design and on-time start of projects will play a vital role in achieving a smooth transition from bidding to parity and healthy and sustainable development of the industry.”