STUDY REPORT ON DEVELOPMENT OF
POLICY OF CHINESE WIND POWER TARIFF
China-Danish Wind Energy Development Program Office
Chinese Renewable Energy Industry Association
November 2009, Beijing
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1. The evaluation process of China wind power tariff determination mechanism
In China, grid-connected wind power first started to be developed in the late 1980s, and grew rapidly
during the 11th Five-year Plan (2006-2010), with the total installed capacity increasing from 4.2MW
in end of 1989 to 12,000MW in 2008. Due to the growth in installed capacity of wind power in
China, the country has moved up to fourth biggest wind power producer in the world by the end of
2006, which marks the start of the stage of scaling up the wind industry in China. There have been
three stages in the development of grid-connected wind farms, namely initial demonstration (pilot)
stage, industrialization stage, scaling up and turbines localization stage.
1.1 Initial demonstration period (1986-1993)
From 1986, grid-connected wind power began to develop in China. In May 1986, the first wind
power plant was built in Malanwan, Rongcheng, Shandong province. The project installed Vestas
V15-55/11 turbines and was sponsored by the Shandong provincial government and the Ministry of
Aeronautics Industry utilizing grants and loans from foreign donor countries. Foreign equipment was
introduced for these grid connected wind power plants. These wind farms were demonstration (pilot)
projects for the purpose of scientific research and development, and they were not commercially
operated. Therefore, the feed in tariff of these wind farms were benchmarked against to the tariff of
local coal fired power plant, and the tariff was approved by the price authorities after signing the
Power Purchase Agreement (PPA) between the developer and the grid company. The feed in tariff
was at level of 0.28RMB/kWh. For example, the tariff of Xinjiang Dabancheng wind farm
constructed in the early 1990s was less than 0.3 RMB/kWh.
Generally speaking, the total installed capacity was 4.2MW in this initial demonstration (pilot)
period. The main activity was to build small-scale demonstration (pilot) wind farms funded from
foreign government grants or loans. The support was both for investments in wind farm projects and
research. The feed in tariff of wind farms was almost equivalent to the tariff paid to coal fired plants
1.2 Industrialization period (1994-2003)
From 1994, China started to explore domestic equipment manufacturing to further promote wind
power development. The Chengfeng Plan and Shuangjia Plan were introduced and special policies
were formulated to support domestic equipment manufacturing. In the industrialization period, the
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wind power sector made the first gradual steps towards the commercialization period. The
implementation of these plans and policies played an important role in cultivating China’s
embryonic stage wind industry. Due to technological and policy barriers, the China wind industry
developed slowly and with difficultly. Annual installed capacity is below 100MW. At the end of the
year 2003, the total installed capacity in China was still only 568.4 MW.
In 1994, it was decided by the Chinese government that the grid company should facilitate the
connection of wind farms to the grid and that all electricity generated by wind farms should be
purchased. The grid tariff would be calculated as the combination of power generation costs, loan
re-payments and a reasonable profit. The difference between the wind electricity price and the
average electricity price must be undertaken by the grid company. With deepening the reform of the
Power Sector, the government aimed to split the power grid company with the national power
company, as well as bidding for tariff.
The characteristics of the wind farm tariff during this period are as follows: After negotiated with the
power grid company and signed the PPA, the feed in tariff was approved by the government. During
this period, a wide range of tariffs were adopted. The lowest tariff adopted was the same as for
thermal power; this was, for example, the case for the Zhangbei wind farm, built by the China
Energy Conservation Investment Company, 0.38RMB/kWh. The highest price, on the other hand,
could be more than 1RMB/kWh, for example, the Kuocangshan wind farm in Zhengjiang received
1.2RMB/kWh.
In conclusion, the feed in tariff was increased compare the initial demonstration period with the
period of industrialization.
1.3 Scaling up and turbines localization stage (after 2003)
Following the power sector reform in China, to promote large scale wind power development, the
National Development and Reform Commission (NDRC) organized the first national wind power
concession tender in 2003, which introduces competition to wind farm development and tariff
determination through market mechanism. From 2003 to 2007, five concession tenders were
organized. A total capacity of 8,800 MW was installed up to 2007.
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In order to disseminate the experience from the concession tenders, the NDRC issued the Fagaijiage
[2006] Document No.7, which states that the tariff of wind power projects shall follow the
government guiding tariff; and that the criteria for this guiding tariff shall be determined by
authorized government according to the tendering mechanism. Following the NDRC document,
several provinces, including Inner Mongolia, Jilin, Gansu have organized some local government
concession tenders. And the government approved tariffs for other winds farms in these same
provinces use the tendering tariff as guide. Other regions, which did not carried out concession
tenders, continued the original way of government approved tariff setting for each project.
Therefore, concession tendering and government approval were two parallel processes for the tariff
determination in China. Analyzing the tariffs resulting from the concession tenders for wind power,
we can see an upward trend of price obtained from the concession. With the tendering procedure
becomes more and more regulated, bidding tariff become more reasonable. Following the experience
accumulated through the implementation of concession tendering mechanism and previous tariff
setting, the provincial tariff approvals have become more and more regulated, especially after the
issuance of the Fagaijiage [2006] Document No.7 by NDRC in 2006. The feed-in tariffs of wind
farms with capacity below 50MW are determined through provincial government approval. These
tariffs vary widely due to various construction conditions and local economic development status.
Usually these tariffs are not more than 0.25 RMB/kWh above the price of local desulfurized
coal-fired power.
1.4 The current policy of wind power tariff
The dual approach of “Tendering and Approval” in Scaling Up and Turbines Localization stage can
not satisfy the practical needs for the rapid growth of wind power industry. Therefore, with extensive
wind farm construction all over the country, transferring from the “Tendering and Approval”
approach to a mechanism of centrally guided electricity tariff is an inevitable result of the wind
power industry development, and will lead the wind power industry to a long period of healthy
growth.
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At the end of July 2009, National Development and Reform Commission (NDRC) released the
“Circular on Improving Wind Power On-grid Tariff Policy” (Fagaijiage [2009]1906), which
improved the policy for wind farms tariff. Four different wind resource regions were defined based
on wind resource status and project construction conditions with corresponding guiding tariffs.
The tariffs in these four wind resource regions are 0.51RMB/kWh, 0.54 RMB/kWh, 0.58RMB/kWh
and 0.61 RMB/kWh. Wind power projects which are approved after August 1st 2009 will refer to the
guiding tariff. The only exception is the offshore wind farm tariff which should be set separately in
accordance with construction situations in the future. During “Circular on Improving Wind Power
On-grid Tariff Policy”, the government has set up above mentioned 4 guiding tariffs for wind farms,
in fact this is the floor tariff and the actual tariff should be negotiated between the power company
and grid company (please note: no power grid is willing to offer higher tariff than the government
guiding tariff), then tariff should be reported to the central government for final approval.
2. Concession tendering projects
The five concession tenders (2003-2007) have been an important policy in the reform of China's
electricity industry system. The concession tenders have played an important role both in price
discovery and the development of large scale wind power projects.
Analysing the tariffs resulting from the five concession tenders for wind power, we can see an
upward trend of price obtained from the concession. For example, the tariff of concession projects in
western Inner Mongolia increased from 0.382RMB/kWh in 2003 to 0.5216RMB/kWh in 2007; in
Gansu from 0.4616RMB/kWh in 2005 to 0.5206RMB/kWh in 2007; and the tariff in Hebei province
increased from 0.5006 RMB/kWh in 2006 to 0.551RMB/kWh in 2007. The graphs below show the
changing tariffs of concession projects in provinces such as Western Inner Mongolia, Gansu, Hebei.
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Tendering tariff in West Inner Mongolia
0.6
0.5216
Tariff(RMB/kWh)
0.5
0.4
0.382
0.4656
0.468
2006
Year
2007
0.42
0.3
0.2
0.1
0
2004
2006
2007
Tendering Tariff in Gansu Province
Tariff(RMB/kWh)
0.53
0.52
0.51
0.5
0.49
0.48
0.47
0.46
0.45
0.44
0.43
0.5206
0.4616
2005
Year
2007
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Tendering Tariff in Hebei Province
0.56
0.551
Tariff(RMB/kWh)
0.55
0.54
0.53
0.52
0.51
0.5006
0.5
0.49
0.48
0.47
2006（Phase4）
Year
2007(Phase5)
3. Study case for particular provinces
Due to the special geographical environment, the poor wind resource and the high investment cost,
the investment cost is above 11,000RMB/kWh and the development level of wind farm projects in
this area was lagged behind compared to other provinces. Two demonstration wind farm projects
have been implemented in Heilongjiang Province in 2003 and 2004, which adopted imported turbine
and technology with high price. Therefore, the feed in tariff for these two wind farms were in a
relative higher level. The electricity sales revenue only covered the operation and maintenance costs
of the wind farms. With the accumulative experience about the special wind resources in
Heilongjiang province, the operation cost is going down gradually, and more and more wind farms
has been installed. Furthermore, the rapid development of domestic equipment caused the decreasing
of the investment cost for the wind farms. The wind power industry in Heilongjiang Province began
to develop in a healthy way.
The location of wind resources in western Inner Mongolia are far from the main power grid, which
require long transmission lines and leads to unstable power supply. This has had a great adverse
impact on the power grid. The long distance transmission system should be taken into account
during wind farm construction, therefore, the wind farm cost was relatively high and the approved
tariff was in a high level. From 2003 to 2004, the wind industry in Inner Mongolia was still at a very
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early stage due to the underdeveloped power grid, capacity restrictions and commercialization status
of the domestic wind technology. The government provided financial support for transmission line to
promote the development of wind farms, which help to elevate the burden of high investment cost
and has helped to reduce the investment cost for wind farm developers. At the mean time, along with
the turbine localization and the price of wind farm equipment decreased has helped to reduce the
wind farm cost and subsequently the tariff was lower accordingly.
4. Chinese government subsidy policy for wind power
The Chinese government has been dedicated to the development of wind power industry, and
provides higher tariffs for wind farms compared to coal-fired power plants. The total subsidies
provided for wind farms in China has increased dramatically, from RMB 138 million in 2002 to
RMB 2.377 billion in 20081. Obviously, it can be seen that the policy of Chinese government
encourages the development of renewable energy. As a result, the installed capacity of wind farms
doubled during three years. However, the profit of wind farms is thin due to the uncertainty of
operation risk and the constrain of technology and management.
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The subsidies in 2007 and 2008 are from the statistics of NDRC and from State Electricity Regulatory Commission
(SERC).
There is no official data available for 2002 to 2006, so the author of this report calculated the subsidies as: subsidies=
Annual wind electricity generation×(wind farm tariff - coal fired tariff), where the annual wind electricity generation is
sourced from the China Electric Power Yearbook.
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250000
Subsidies（10000RMB）
237694
200000
150000
96336
100000
60364
50000
13844
22929
26988
31379
2003
2004
2005
Year
0
2002
2006
2007
2008
Form the Figure above, it indicates that the subsidy has increased year by year, exponentially over
the last few years, from RMB 138 million in 2002 to RMB 2.377 billion in 2008.
5. Conclusion
Based on the analysis above, it can be concluded that changes in the wind power tariff in China are
related closely to the development of the wind power industry and the electricity sector in general.
Wind power industry development has become more mature after going through its four stages: the
initial demonstration (pilot) stage, industrialization stage, scaling up and turbine localization stage,
as well as the current stage. Correspondingly, the wind power tariff has gone through its four phases:
I) equivalent to the tariff paid to coal fired plants (less than 0.3 RMB/kWh), II) widely-varying
tariffs determined by PPA between power plant and grid company (from 0.38 RMB/kWh to 1.2
RMB/kWh), III) tendering tariffs combined with approval tariffs, and continuing increase of
tendering tariff; IV) centrally guided tariff according to four wind resource regions (0.51 RMB/kWh,
0.54 RMB/kWh, 0.58 RMB/kWh, and 0.61 RMB/kWh) and becoming more and more rational. The
Chinese government has continued to seek the most appropriate mechanism to set wind power tariff.
The mechanism differs at each phase and the wind power tariff may vary as a result. The tendering
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price has been increasing, while approval tariff has been mostly stable and in some regions slightly
decreasing. The tendering price and guiding tariff fit the development pattern of both Chinese and
global wind electricity industry, which will in the long term help the Chinese wind industry to
compete in the electricity market. At the same time, the Chinese government is seen to provide great
support to the wind power industry while the government is exploring the appropriate pricing
mechanism and standardizing wind price. The Chinese government has dramatically increased the
subsidy on the wind electricity price from RMB 138 million in 2002 to RMB 2.377 billion in 2008
and the subsidy keeps growing year by year. As a result, it greatly inspired the investors’ enthusiasm
and the total capacity of the wind industry has shown an exponential growth trend, bringing China to
the top of the global wind power industry.
It is based on objective laws of the development of China wind power and bearing capability of grid
company, that the Chinese government sets feed in tariff of wind power projects. CDM revenue has
never been taken into consideration in the process of tariff-setting, and CDM revenue discussion has
never been considered / involved in the process of tariff-setting. But, on another hand, during the
development of the China wind power, CDM does play an important role for developers to
overcome the financial and technological barriers. Without CDM, the China wind power would have
not been developed so rapidly, and China wind power would have not achieved such great
contribution to mitigate GHG emission. Therefore, when EB assesses China wind power CDM
projects, we sincerely hope that the EB could take full consideration and understanding of the
tariff-setting mechanism of China wind power, in order to impel successful registration for higher
quality CDM projects globally, to contribute to the target of mitigating global warming.
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