China Cuts Wind Energy Prices for Wind Farm Projects

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China has decided to cut wind energy prices of new wind farm projects that are approved after the end of last year and those completed after the end of 2015 by less than expected.

A circular has been dispatched from energy industry regulator National Development and Reform Commission to local authorities and companies which said tariffs in three regions with the richest wind resources – in the northern, northwest and northeast – will each be cut by 0.02 yuan per kilo-watt-hour (kWh) to 0.49 yuan, 0.52 yuan and 0.56 yuan respectively.

It is half the 0.04 yuan cut mooted during an industry consultation exercise in September. The 0.61 yuan per kWh tariff for the rest of the nation will not change, compared to a 0.02 yuan cut proposed earlier.

The completion cut-off date for imposition has also been deferred by six months. It was proposed earlier that wind farms completed after June 30 this year will be subjected to the reduction. Tariffs of existing wind farms are not affected.

The circular has not been posted on the websites of the commission or that of the National Energy Administration, but an official at a Hong Kong-listed mainland wind farm operator said it has received it and an official with another Hong Kong-listed operator said she heard it has been sent to power grid firms.

Citi head of Asia utilities research Pierre Lau estimated in a research report the cut would reduce Hong Kong-listed mainland wind farm operators’ forecast net profit by less than one per cent this year and by three per cent next year. The average tariff cut for the industry amounts to 2.7 per cent, less than the 6.4 per cent intended earlier, he calculated.

“Companies with more new installations in [the exempted region], such as Huaneng Renewables, would be less affected,” he wrote.

It is the first adjustment in wind power prices since Beijing introduced subsidised tariffs in 2009 to spur development of wind farms as part of efforts to combat chronic air pollution from coal consumption in many mainland cities. Industry officials have made clear their opposition to the proposed reduction in last October’s China Wind Power conference in Beijing.

They said long-running power grid bottlenecks remained and billions of yuan in power price subsidies owed by government remained in arrears, lowering their rate of return.

Reducing wind power prices has long been expected since wind turbine prices have fallen substantially since 2009 due to excess supply and technological advances. One of the industry executives said the reduction would have a small impact on operators, since most wind farms being built this year are located in regions exempted from a tariff cut. These are regions little affected by power grid bottlenecks as they are relatively close to power consumption centres.

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