China launches subsidy-free solar, wind power after project costs fall

BEIJING/SHANGHAI (Reuters) - China will launch a series of subsidy-free wind and solar projects this year to take advantage of a rapid fall in construction costs since 2012 and tackle a gaping payment backlog, the country's top planning agency said on Thursday.

Last year, the government was forced to suspend all new subsidised solar capacity approvals after a record 53-gigawatt capacity increase in 2017 left it with a backlog of at least 120 billion yuan ($18 billion) in subsidy payments.

The new subsidy-free projects will generate renewable power for sale at the same prices as non-subsidised coal-fired power plants, and will not have to comply with capacity quota restrictions, the National Development and Reform Commission (NDRC) announced on Wednesday. It added that the projects would, however, receive support on land and financing.

"Some regions with good natural resources and firm demand have already achieved subsidy-free, or grid price parity, conditions," said the NDRC, adding the pilot projects could help renewable energy to compete with coal-fired power.

The NDRC said in its additional comments on Thursday that solar construction costs in China had fallen 45 percent from 2012 to 2017, while wind project costs had dropped 20 percent over the same period.

"The economic efficiency of projects has steadily increased, creating favourable conditions for state subsidies to retreat and pressures on subsidy funds to ease," it said.

China has long aimed to bring renewable power costs down through economies of scale and technological advances. It promised last year to provide direct policy support to help developers achieve "grid price parity" with traditional electricity sources.

Under the new policy, grid companies will be encouraged to guarantee electricity purchases from pilot projects, lower transmission fees and support cross-regional deliveries of subsidy-free power.

The NDRC said it would further boost the income of solar projects by cutting land costs and promoting new market mechanisms like green certificate trading.

The government has already approved the construction of several subsidy-free wind farms, and solar generators have also achieved price parity in some regions.

Some solar projects in northwestern China continue to struggle, though, due to long delays in subsidy payments, high transmission costs and insufficient purchases from grid companies.

The decision to suspend new subsidised projects last year sent solar stocks into free fall and led to fears that excess capacity in China would force manufacturers to close.

The China Photovoltaic Industry Association, which represents equipment manufacturers, said in a note on Wednesday that the new policy was "good news" for the beleaguered sector.

"There will still be subsidised wind and solar projects, and the unsubsidised projects are only an addition," it said.

($1 = 6.8291 yuan)

(Reporting by Muyu Xu and David Stanway; Editing by Kirsten Donovan and Tom Hogue)