China is drawing up plans for a renewable energy quota system that could require grid companies to transmit up to 15% of their power from renewable sources.
A discussion paper on the law has been sent to provincial governments, power companies and grid operators for comment, according to a report by leading financial news daily China Securities Journal.
The new system, expected to be finalised in the second half of this year and implemented in 2013, will be the first to require grid companies to get a percentage of their power from renewable energy.
As such, it is being seen as a potential boost to wind developers who see up to 30% of wind power produced in some parts of China wasted when grid operators curtail access to their transmission networks.
“This will discourage grid companies from wasting wind power,” says Simon Lee, analyst at Morgan Stanley.
Under the proposals, State Grid – China’s largest grid operator - will have a renewable energy quota of 5% by 2015, while the smaller China Southern Power Grid will have a quota of 3.2%. This compares to about 1.6% nationally in 2011.
The Inner Mongolia Power Company’s quota will be 15% while Shaanxi Electric Power Company will have a quota of 10%, says the report, citing sources from the National Energy Administration.
Lee says that even if grid operators do not make additional investments in the grid, they could increase their dispatch of wind power.
“As far as we understand, this is about a change of behaviour,” he adds.
China’s biggest wind farm developer Longyuan has blamed such attitudes for about half of the wind power curtailment in the market.
The company reported a 12% increase in wind power output in the first quarter compared with a 35% increase in total installed capacity (to 8.9GW), pointing to a sharp decline in utilization hours for wind farms largely because of continuing power curtailment.
According to Huadian New Energy, power loss from grid curtailment exceeded 1.5 billion kWh last year – or 12% of total wind power output – up from 296 million kWh in 2008.
Lee notes that Inner Mongolia increased its coal power utilization significantly last year even as curtailment of wind power remained high.
“If the province gives more market share to coal power, you cannot say there’s no room to increase use of wind power.”
However others believe that grid companies have curtailed wind power mainly due to safety concerns caused by the intermittency of wind power and a lack of sufficient grid transmission capacity, rather than a lack of willingness to transmit renewable energy.
Not all wind turbines have been upgraded to meet new requirements for low-voltage ride-through (LVRT) capabilities and other standards that make them more grid-friendly and forcing operators to meet targets for wind power transmission could threaten grid safety, says Dave Dai, analyst at Daiwa Securities.
“The quota system is a short-term reaction to all the curtailment issues. It’s not a solution,” he says.
Dai adds that a renewable energy quota system, often known as a renewable energy portfolio standard (RPS), has only been introduced in countries with more liberal power markets than China such as the UK, Australia and Japan.
As yet, there is no active market in place in China to trade renewable energy quotas.
Under the plans, provincial governments and power generation companies with capacity of more than 500MW will also be required to meet the quotas. Quotas for provinces will vary depending on their renewable resources and grid networks, with the northeast likely to have higher targets – up to 15% - than the south.
The quota system includes solar and biomass but excludes hydropower.