Quotas for renewable power use in China should benefit clean-energy companies by increasing demand and reducing curtailments of wind and solar farms on the electric grid, Moody's Investors Service said May 20.
Aiming for non-fossil fuels to account for 20% of primary energy consumption by 2030, China is creating province-level "consumption guarantee mechanisms" for renewable electricity that will take effect in 2020 and last for five years, Moody's said. Non-fossil fuels accounted for 14.3% of China's primary energy consumption in 2018.
"The new policy will also incentivize companies to voluntarily purchase renewable energy through market-driven sales and green certificates, and should help increase investment returns for renewable energy companies through increased utilization," Moody's Vice President and Senior Analyst Ivy Poon said in a news release.
China's National Energy Administration said in a May 15 notice that the purpose of the new standards is to "encourage provincial-level regions to prioritize the consumption of renewable energy." The agency added that "building a clean, low-carbon, safe and efficient energy system is of great significance."
Because of the sheer size of China's energy market, changes in the country's domestic policies have global ramifications. For example, the International Energy Agency said Beijing's efforts to slow the pace of construction in China's solar market last year were largely to blame for flat growth in the renewable energy industry worldwide. However, China's solar slowdown also had the effect of depressing equipment prices globally, which increased demand in emerging markets.
"Much of the growth over the next five years is going to be driven by emerging solar markets, which are opening up with competitive auctions for utility-scale solar projects," Tom Heggarty, senior analyst on Wood Mackenzie's Power and Renewables research team, said in a May 14 news release. "This is a global phenomenon."
Moody's said support for renewables is expected to increase pressure on coal-fired generators in China. Wood Mackenzie said it expects solar power will be cheaper than coal-fired generation in seven of China's 30 provinces in 2019.