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China to Allow Market Forces to Dictate Clean Energy Prices

6 months ago
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China to Allow Market Forces to Dictate Clean Energy Prices

China is looking to modernize its renewable energy sector by leaving the prices of clean energy to the whims of the markets rather than being dictated by the government. China’s National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) have issued a notice about deepening the “market-oriented reform” wherein the price of on-grid electricity generated from renewable sources such as wind and solar, previously fixed, would be determined by market mechanisms.

“With the large-scale development of new energy, the fixed pricing for on-grid electricity cannot accurately reflect market supply and demand and does not share its responsibility for regulating the power system,” the authorities said.

In an effort to balance the new market-driven pricing, Beijing will implement “balancing payments,” a system comparable to the UK’s contracts for difference. This mechanism ensures power producers receive compensation when electricity prices fall below an agreed level and repay excess profits when rates exceed a certain threshold.

The move underscores Beijing’s shift away from subsidy-driven incentives as its renewable energy sector continues to mature. China’s installed capacity for renewable energy, including wind and solar, reached 1,410 gigawatts last year, surpassing coal. China has been criticized for its highly protectionist policies for its renewable energy sector and blamed for causing a global glut. Last year, we reported that China’s 10 millionth EV rolled off the production line in November, beating the 2023 production seven weeks before the year’s end amid growing worries of overcapacity.

Chinese EV makers delivered 9.75 million units to mainland buyers between January and October, good for a robust 34% Y/Y increase, helped by government subsidies of up to $2,800 apiece for trading in older cars for EVs. China Passenger Car Association (CPCA) secretary-general Cui Dongshu predicted that China’s EV revolution will continue undeterred by a faltering economy. Sales of new energy vehicles (NEVs) in China overtook conventional auto sales for the first time ever in July 2024, and now account for more than half of all units sold during the month.

“As EVs outsell conventional petrol cars, more existing production facilities and workers will become redundant. Demand for petrol cars will weaken in the coming years,” Phate Zhang, founder of Shanghai-based EV data provider CnEVPost, told South China Morning Post.

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Last year, U.S. Treasury Secretary Janet Yellen warned that China’s national underwriting for energy and other companies is creating oversupply and distorting global markets.

“I intend to talk to the Chinese when I visit about overcapacity in some of these industries, and make sure that they understand the undesirable impact that this is having–flooding the market with cheap goods- -on the United States, but also in many of our closest allies, Yellen said in a speech in Norcross, Georgia. “I will convey my belief that excess capacity poses risks not only to American workers and firms and to the global economy, but also productivity and growth in the Chinese economy, as China itself acknowledged in its National People’s Congress this month,” she added. 

China has poured over $50 billion into wafer-to-solar panel production lines, 10 times more than Europe, and also controls ~95% of the world’s polysilicon and wafers. The International Energy Agency has warned of the dangers the world is exposing itself to by relying so heavily on the Middle Kingdom for its solar needs:

“The world will almost completely rely on China for the supply of key building blocks for solar panel production through 2025. This level of concentration in any global supply chain would represent a considerable vulnerability,” the agency wrote in a special report.

U.S. Solar Manufacturing Resumes

Thankfully, the U.S. solar sector is looking to hold its own amid China’s clean energy hegemony. Solar cell manufacturing in the United States resumed in the third quarter of 2024 as silicon cells were manufactured in the country for the first time since 2019, a pivotal moment for America’s surging solar manufacturing sector.

The U.S. added a record-breaking 9.3 gigawatts (GW) of new solar module manufacturing capacity in the third quarter. According to the U.S. Solar Market Insight Q4 2024 report released by Solar Energy Industries Association (SEIA) and Wood Mackenzie, five new or expanded factories in three states were added, bringing U.S. solar module manufacturing capacity to nearly 40 GW–nearly enough to meet the country’s solar demand.

“Federal solar policies and increased private investments are strengthening our nation’s energy security and creating thousands of new job opportunities for American workers,” said SEIA president and CEO Abigail Ross Hopper. “The United States is stepping up to take market share from foreign competitors and making sure that the jobs and economic growth from solar are benefiting American communities.”

Unfortunately, the renewable energy sector is facing turbulent times under the second Trump administration. It’s more than a week since President Donald Trump froze federal grants, and the clean energy sector is beginning to feel the heat. Billions of dollars in fully obligated grants, including those under the Inflation Reduction Act (IRA), remain frozen despite two court orders requiring the Trump administration to release the money. Politico estimates that companies have announced plans to build or expand an estimated 555 manufacturing facilities thanks to generous IRA benefits. But here’s the kicker: less than half of the 230 facilities that were slated to commence by the end of 2024 beat the deadline, meaning that over 60% of IRA investments are now at the mercy of the Trump administration.

Trump has never hidden his disdain for clean energy. He has repeatedly lambasted the IRA, describing it as the “biggest tax hike in history”. Trump pledged to rescind any “unspent” funds under the IRA should he ascend to the Oval Office again.

“To further defeat inflation, my plan will terminate the Green New Deal, which I call the Green New Scam,” the former president said before the Economic Club of New York in September.

Source: oilprice
Via: norvanreports
Tags: ChinaChina to Allow Market Forces to Dictate Clean Energy PricesClean Energy Prices

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