China to force grids to buy renewable energy

China will soon require its major electricity grid companies to source up to 15% of their power from renewable energy sources.

State Grid Corporation of China and China Southern Power Grid Co Ltd are expected to comply with the government’s quota order by the end of this year.

China has the world's largest wind power capacity but is unable to deploy this capacity onto its grids since renewable energy is a money-losing business for grid operators.

A foreign analyst said the key barrier is the current tariff-setting mechanism that gives no commercial incentive whatsoever to the grids to connect and transmit renewables. He said it will also take China several years to build ultra high-voltage lines needed to deliver the power produced at remote wind farms in the northwest, north and northeast to users in the south and on the coast.

Grid operators buy wind power at government-dictated wholesale prices of US$0.08 to US$0.10 per kilowatt-hour while the prices of electricity purchased from coal-fired plants can be as low as US$0.05.

The government subsidizes grid companies for selling renewable energy to help move China away from polluting coal, but the subsidies are not enough for grid companies to make a profit.

"With the roll-out of the quota system and acceleration of grid construction, the problem of distributors holding back on wind power purchases will ease," said Hu Yongsheng, president of China Datang Corp Renewable Power Co Ltd.

But until China reforms a pricing policy that makes selling wind power and other renewables like solar energy unprofitable, the country's grid operators have little commercial incentive to follow the new quotas.