1. Renewable Energy Policies: China’s Scale-Up Story Dr. Xiaodong Wang Senior Energy Specialist EASIN, the World Bank SDN Week, Energy Day February 23, 2012

2. Presentation Structure International Experience and Lessons Learned on Renewable Energy Policies China’s Renewable Energy Scale Up WB/GEF China Renewable Energy Scale-UP Program

3. Three Magic Bullets for Successful RE Policies Adequate tariff levels with long-term PPAs: – Mandate Price: Feed-in Tariff (FIT) – Mandate Quantity: Renewable Portfolio Standard (RPS) – Competitive Tendering Mechanisms Mandatory access to the grid Incremental costs pass-through

4. Pros and Cons for RPS, FIT, and Concession ProsCons FIT (45 countries with FIT) The most successful to scale up RE Highest price certainty to investors Most simple to administrate Setting the tariff level is tricky Affordability issue needs to be addressed RPS (12 countries with RPS) If enforced, can meet realistic RE targets Complex to design and administer Favor least-cost technologies Lack of price certainty Concession (20 countries with bidding) Effective at reducing cost Signed contracts may not be realized Favor least-cost technologies More complex than FIT, but simpler than RPS

5. Feed-In Tariff Principles Objective: – balance between stimulating RE market (a reasonable rate of return) and minimizing cost impacts on consumers Three methods of setting price Avoided cost of conventional generation Cost of RE plus reasonable profits Average retail rate: net metering Differentiation by technology, resource, size, and load factor Minimizing cost impacts on consumers: – Tendering mechanism: price discovery tool to set cost benchmarks for FIT level – Periodical adjust downward FIT levels, but only for new projects – Allocate a target for each RE technology to cap consumer price increases: once the target is reached, reduce FIT level

6. FIT: Global Benchmarks Small hydro: 8 cent/kWh (50%) 11 cent/kWh (75%) Wind: 10.5 cent/kWh (50%) 13.0 cent/kWh (75%) Biomass: 10 cent/kWh (50%) 13 cent/kWh (75%) Solar PV: 30 cent/kWh (50%) 50 cent/kWh (75%)

7. Hybrid Approaches: RPS and FIT Principles: Select one option from FIT, RPS, and tendering; but not all three at the same time for the same RE technology and market segment Hybrid approach : Apply RPS and FIT for different RE technologies or plant size -- FIT covers small size projects and emerging technologies (solar PV) that are left out by RPS Emerging International experience: – Italy : FIT for small RE (< 1 MW) and solar PV + RPS – UK : FIT for small RE (< 5 MW) up to 2% of supply + RPS – California: FIT for small RE (< 1.5 MW) up to 480 MW + RPS

8. China’s RE Policy: From Concession to Feed-in Tariff Designing RE law: A critical requirement: incremental costs have to be shared nationwide Debates: RPS or FIT Passing RE law (2005): one of the first in developing world Implementing RE law: Wind: from concession to feed-in tariff At first, no consensus on FIT levels Concession: Mixed results -- bidding too low and winner bids not materialized; but provided cost benchmarks for FIT FIT: 7.8-9.4 cent/kWh, differentiated by region Biomass: Fuel supply is the key. FIT needs to factor in fuel price volatility. FIT level: 11.5 cent/kWh Solar PV: from concession to FIT: 17.7 cent/kWh Wire charge doubled to 0.12 cent/kWh

9. Achievements To Date and Future Challenges RE Share: 8% now and 15% by 2020 in primary energy Achievements: Globally No. 1 in RE capacity No. 1 in SWH No. 2 in wind capacity No. 3 in biomass capacity Future Challenges Cost of the RE program will become prohibitive without cost reduction measures A large share of wind power cannot get connected to the grids Distributed generation does not have grid access RE policies need to be consistent to avoid contradi ction RE quota: under consideration to overcome grid integration bottleneck, but quota on who? consistent with FIT? Global Top Five in 2010 Installed Wind Capacity (GW)

10. China Renewable Energy Scale-up Program: From Scale-up to Sustainable Growth 15% Cost reduction Efficiency improvement Smooth grid integration Open market Needs to consider RE specific characteristics 8% 2010201520202005 RE small percentage Incentives manageable RE large share cost matters Sector reform Sustainable Scale-Up Scale-Up: More GW in a short time Develop and implement policies Build up domestic RE industry

11. China Renewable Energy Scale-Up Program Phase I Technical Assistance: Policy matters: Policy studies made important contributions to RE policies Supported regulations and amendment for RE Law--FIT, RE quota, financial incentives… The quest for manufacturing quality: Technology improvement and transfer contributed to rapid growth of Chinese wind and solar industry Cost-shared sub-grants: supported 23 wind/biomass companies Quality control: standards, testing, and certification Investments: 2 x 100 MW wind farms, 25 MW biomass plant, and 16 small hydro plants with a total capacity of 24 MW Lessons Learned: Long-term engagement with the government paid off Cost-shared sub-grant approach to support domestic manufacturers works well Improving manufacturing quality is essential for the transition to a world class manufacturing industry

12. Take Away Messages Viable Business Model A pre-requisite for renewable energy scale-up: RE policies should provide market certainty Someone has to pay for the incremental costs Future Challenges Conductive Policies Grid integration Attract large established players (e.g. utilities and IPPs)