China's wind power push not profitable for producers

Wind power developers could not yet benefit from China's scheme ordering electricity distributors to source up to 15 percent from renewable energy.

The quota system will apply to State Grid Corp of China and China Southern Power Grid Co Ltd by the end of this year.

China boasts the world's largest wind power capacity, but a third of it sits idle as renewable energy is a money-losing business for grid operators and network construction has lagged capacity expansion.

"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 powerful grid operators have little commercial incentive to follow the new quotas.

That means wind power developers such as China Longyuan Power Group Corp Ltd, Huaneng Renewables Corp Ltd, Datang Renewable and China Power New Energy Development Co Ltd will continue to struggle.

Chinese wind power developers posted worse-than-expected results for the first half of 2012, with grid operators increasingly reluctant to distribute the costly and unpredictable source of power amid a sharp economic downturn.

"Renewables should boom in China in two to three years but not now," said Joseph Jacobelli, an independent energy analyst who was formerly head of global cleantech research at HSBC Holdings PLC.

"The key barrier is the current tariff-setting mechanism gives no commercial incentive whatsoever to the grids to connect and dispatch renewables," Jacobelli said, adding that it would also take China several years to build ultra high-voltage lines needed to deliver the power produced at remote wind farms to users in the south and on the coast.

Grid operators buy wind power at government-dictated on-grid, or wholesale prices, of 0.51-0.61 yuan ($0.08-$0.10) per kilowatt-hour (kwh), while the prices of electricity purchased from coal-fired plants can be as low as 0.3 yuan.

The government subsidises grid firms for selling renewable energy to help shift China away from polluting coal, but the subsidies are not enough for them to make a profit.

For more.