China’s Renewable Target Remains Unchanged; but the Sector’s Marketization Is Underway

The National Energy Administration of China’s, or NEA’s, release of a draft plan on competitive allocation of wind and solar power has raised concerns over an unfavorable policy shift that may dampen renewable energy's growth and profit outlook, leading to a steep fall in renewable operators’ share prices in the past week. In our view, the draft paper delivers two key messages: 1) China’s renewable targets remain unchanged, and the NEA expects total power consumption in 2030 to reach 11,000 TWh, with non-hydro renewable mix of 25.9% by 2030. This implies about an average of 120-130 GW annual capacity additions for wind and solar between 2020 and 2030, compared to 50.5 GW per year over the past 10 years; 2) No immediate solution on the deficit of the Renewable Energy Fund, and renewable operators are encouraged to waive part of their rights for subsidy grants in exchange for quality projects with guaranteed grid connection. This indicates a rising marketization of the renewable power sector, amid competitive-bid for guaranteed grid-connected projects or expanding sales through power trading platforms, which we think implies lower effective tariffs and rising competitiveness of renewable power over coal-fired power generation.