After shortchanging renewable energy developers for years to the point where it owes billions of dollars in unpaid subsidies, the Chinese government is now proposing that those companies may have to cancel part of the debt if they want to keep building new projects. Under a draft plan by the country’s National Energy Administration, provinces would auction off grid capacity for new wind and solar projects, with at least one third of the contracts going to developers who were prepared to give up money owed to them by the government, according to people familiar with the proposal. The winning bidders would get a guaranteed rate for their power.
The NEA is seeking opinions on the plan and it remains subject to change, said the people, who asked not to be identified because it isn’t public. The NEA didn’t respond to a faxed request for comment.
Chinese renewable companies slumped a second day on the news. China Longyuan Power Group Corp. fell as much as 14% in Hong Kong Thursday after closing 14% down on Wednesday, the biggest one-day drop in seven years.
China Longyuan’s offshore wind farm in Rudong, China.
“The policy setting is too aggressive in our view, and may actually hurt renewable development instead of nurturing it,” said Tony Fei, an analyst with BOCI Research Ltd. “We expect the market to react negatively.”
The problem with China’s renewable subsidies dates back to the mid-2010s, when new developments started growing faster than the pool of money the government set aside every year to pay the fees it promised them. By the end of 2019, the deficit had reached 469 billion yuan ($66 billion) and was set to widen to almost 2 trillion yuan by 2034, before gradually falling to zero by 2049, according to BloombergNEF.