19 July 2019

Tariff cut plan can blow wind farm profits away

First, the good news: China’s wind power sector is recovering.

Now the not-so-good news: There is talk that the government will cut tariffs to make the alternative energy more cost-competitive against coal-generated electricity.

Since wind equipment prices are now much lower than a few years ago, the National Development and Reform Commission (NDRC) plans to “adjust” on-grid wind power tariff when it is suitable, according to the reports. Qin Haiyan {秦海岩}, secretary general of the China Wind Energy Association, doesn’t think it’s a good idea if an adjustment means a tariff cut.

In an interview with China Securities Journal, Qin argues that the industry’s recovery is still shaky and contingent on many factors. Headwinds facing the sector are still strong.

Wind curtailment, or not allowing wind farms to put power into the grid, has affected the sector’s earnings in previous years, and although the situation has recently improved, the negative impact on income and cash flow lingers, Qin explains.

Meanwhile, wind farm construction costs have been inflated by rising land prices and wages. Government subsidies are often late and insufficient, while income from carbon credit sales has dropped substantially and proved to be unreliable.

Instead of a one-size-fits-all approach, Qin suggests a more flexible tariff and subsidy regime to support the wind power industry.

For instance, wind farms located in central and eastern China should get more subsidies in view of the lower wind speeds in those regions. Offshore wind farms, which usually have lower earning power because of the higher maintenance and logistics costs of the wind turbines, can also use a little more support.

– Contact the writer at [email protected]


EJ Insight writer

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