China’s green energy financing is blowing in the wind

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A solar power plant next to a rapeseed field in Hefei, China’s Anhui Province.


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Press Tpg / Zuma

China’s renewable energy has grown in leaps and bounds in recent years, but it also comes at a price: unfunded liabilities. Unless Beijing fixes the problem, green energy stocks – and China’s gigantic clean energy ambitions for the next five years – may remain entrenched.

The country is targeting 16.5% of its energy consumption from solar and wind power by 2025, an increase from the 11% expected this year, according to a draft policy document released by the government this year. week. This is in line with Chinese President Xi Jinping’s goal of having a quarter of the country’s energy consumption from non-fossil fuel sources by 2030.

And China is making great strides towards this goal. It added 72 gigawatts of wind capacity last year, nearly triple the amount added in 2019. New solar power installations increased by 60% in 2020. One reason for the increase is that the government is phasing out generous grants that have helped the industry, so developers rushed to complete projects last year while they were still qualified. New onshore wind farms, for example, will not receive any central government subsidy from this year. With the cost of renewables falling in recent years, the government is encouraging projects to be competitive with fossil fuels.

There is a persistent problem with the grants: much of it has not yet been paid. The government has set up a fund to pay them financed by a surcharge on electricity consumption. But because the growth in renewable energy capacity has been much faster than the demand for electricity, the fund has been in deficit for years. The cumulative deficit stood at 328 billion yuan, or the equivalent of $ 50 billion, at the end of 2020, according to estimates by Credit Suisse.

Earlier this year, the government offered companies to cancel part of the subsidies owed in exchange for allowances to build new projects. This sparked a massive sell-off of renewable energy companies: China Longyuan Power,

the largest producer of wind power in the country, lost a third of its value in four days. This week’s last draft policy no longer mentions this proposal.

Nonetheless, the problem could continue to affect the willingness or ability of some utilities to finance new projects. Upstream suppliers of equipment like wind turbines and solar glass may be a better bet. SOEs can continue to invest in new projects, especially as they are more willing to accept lower returns as subsidies decline.

Generous subsidies have increased capacity and lowered the prices of renewable energy in China. This is good news for the planet and the lungs of Chinese citizens. However, high expectations for developers are not necessarily a boon to investors.

Write to Jacky Wong at [email protected]

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Appeared in the print edition of April 22, 2021 under the title “China’s Green Aid Wanes”.

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