China Renewables Report

Key View

Mainland China has reaffirmed its already dominant position in the global renewables market with a surge of developments over 2021, leading to upwards revisions to our forecast. While we highlight that the recent boom is partly attributable to the upcoming ending of subsidy schemes we expect to see strong growth remain. The solar sub sector will see the largest share of growth over the long term owing to new reforms unlocking vast amounts of distributed solar while power storage will also trigger growth. Despite seeing slightly less growth in the long term, the wind sector has seen the rapid emergence of the offshore sub sector which supports our up-beat outlook. Furthermore, the markets plans to develop 400GW of hybrid solar and wind projects in the desert areas of Mainland China will support large utility scale systems moving forwards with low land costs becoming more attractive amid the phasing out of subsidies.

Key View: Mainland China has reaffirmed its already dominant position in the global renewables market with a surge of developments over 2021, leading to upwards revisions to our forecast. While we highlight that the recent boom is partly attributable to the upcoming ending of subsidy schemes we expect to see strong growth remain. The solar sub sector will see the largest share of growth over the long term owing to new reforms unlocking vast amounts of distributed solar while power storage will also trigger growth. Despite seeing slightly less growth in the long term, the wind sector has seen the rapid emergence of the offshore sub sector which supports our up-beat outlook. Furthermore, the markets plans to develop 400GW of hybrid solar and wind projects in the desert areas of Mainland China will support large utility scale systems moving forwards with low land costs becoming more attractive amid the phasing out of subsidies.

Renewables Headline Forecasts (China (Mainland) 2021-2026)

Indicator	2021e	2022f	2023f	2024f	2025f	2026f
Generation, Non-Hydropower Renewables, TWh	1,115.684	1,249.387	1,382.041	1,536.996	1,690.113	1,848.924
Generation, Non-Hydropower Renewables, % y-o-y	30.9	12.0	10.6	11.2	10.0	9.4
Capacity, Non-Hydroelectric Renewables, MW	635,067.0	754,150.2	854,104.2	950,953.7	1,045,130.8	1,138,588.8
Capacity, Non-Hydroelectric Renewables, % y-o-y	14.7	18.8	13.3	11.3	9.9	8.9

e/f = Fitch Solutions estimate/forecast. Source: EIA, local sources, Fitch Solutions

Key Forecast And Latest Updates

Early in Q122 the government announced its plans to reduce energy intensity in the economy by 13.5% between 2020 and 2025. Furthermore, over Q421 Mainland China updated its climate target pledge, the Nationally Determined Contribution, to peak emission by 2030. We highlight that such ambitions are driving a surge in support for the growth of renewable in the market over fossil fuel incumbents. However, in light of the energy price crisis over Q321 and Q421 the core issue of energy security remains and we expect power storage, efficiency in consumption and demand side power management to grow in tandem with renewables.
In Q122 it was reported by the National Energy Administration (NEA) that Mainland China had installed 53GW of new solar capacity over 2021, although falling short of solar industry expectations for 70GW. This has led us to make upwards revisions to our near-term outlook and we now expect to see stronger growth persisting over the decade at average annual rate of approximately 50GW. The recent spike in growth is in part due to the ending of subsidy payments at the end of 2021 but also due to a number of new reforms to policy which are creating room for long term growth. Just over half, 55% of all new additions came from the residential sub-sector which stems from policy reform over 2021. We had expected such an acceleration in residential solar systems owing to the NEA outlining that it intended to mandate a minimum target of 20% roof top solar capacity across several pilot counties as well as 30% on commercial and industrial and 40% on government buildings.
Distributed solar gained further policy support owing to a surge in mandates for commercial facilities meaning all new solar systems must come with power storage facilities. Solar and storage will reduce the requirements on the grid alleviating bottlenecks created by utility scale systems. This has been rolled out across two-thirds of the country’s provincial governments. This has been particularly pertinent due to the energy price crisis which has impacted large swathes of Mainland China’s manufacturing sector. It has been estimated by the NEA that this programme could add between 130-170GW of capacity by the end of 2023.
We highlight that Mainland China is able to realise such vast growth figures owing to the massive weight of its solar manufacturing sector. It was announced by Asia Europe Clean Energy (Solar) Advisory (AECEA), an industry trade body, that output from the Mainland Chinese PV manufacturing industry would reach 500GW by year end 2021. Such output capability has established Mainland China as the global leader for module production and driven technology prices ever lower. The AECEA highlighted that module prices could fall as low as USD28 per Watt by the end of 2022. Furthermore, the market has taken steps to address the spiking poly silicon prices which are expected to remain elevated over the year and decline over 2023 as new production comes online.
The wind sector in Mainland China has seen a similar growth boom and we have made upwards revisions to the outlook over the decade, although to a lesser extent than the solar sector. We highlight that we had expected that long-term growth might be curtailed by saturation of the markets in the inland provinces. However, the offshore wind subsector has accelerated rapidly over the past year which has bolstered our near- and long-term outlook for wind. It was reported that Mainland China added 17GW of offshore wind over 2021 alone resulting in the market operating just under half of all offshore wind capacity across the globe. This vastly out weighs the expected 6GW that had been expected from sector analysts. However, we highlight that the subsidy scheme for offshore wind will end over the beginning of 2022 and such extremes in growth are attributable to a surge of developers keen to access payments. As such we expect growth to normalise moving forwards.
Due to the rapid boom in developments the domestic offshore wind industry is seeing growth in innovation. Guangdong Electric Power Development has awarded a contract to MingYang Smart Energy Group to supply turbines for two offshore wind projects with 1GW capacity in Guangdong Province. Under the deal, MingYang will supply MySE 11-230 typhoon-proof hybrid-drive turbines for the 600MW Qingzhou 1 and 400MW Qingzhou 2 offshore wind projects. The wind farms are due to be operational by 2023.
The market has launched the second phase of its new desert renewables programme opening up many project proposals of 1GW or larger. The first phase has already started construction with a 100GW of wind-solar hybrid developments. The programme forms the first phase of a proposed hybrid renewable desert energy complex with estimated 400GW capacity. Around 50% capacity of the complex is likely to be completed by 2025.

SWOT

Renewables SWOT

The Mainland Chinese government has outlined ambitious renewables and emissions targets, and maintains its strong support of renewable energy. However, translating this support into practice has seen problems with feed-in tariff payments, curtailment and coal sector dominance.

SWOT Analysis
Strengths	Utilities that are government-owned have easy access to cheap financing, supporting project deployment and reducing cost. Support to reduce curtailment and increase renewable utilisation has been a corner stone of recent government policy. The influence of substantial economies of scale for wind and solar equipment manufacturing is reducing the cost of projects as well as proving an ability to weather near-term manufacturing supply chain issues.
Weaknesses	Power capacity oversupply, exacerbated by the continued build-up of more large-scale coal power plants could reduce the speed by which renewables is prioritised. Presence and dominance of large government-owned utilities serve as a bottleneck for private companies and foreign investors entering the market. Regional level government ability to sidestep central government policies to support renewables has proved problematic in favouring coal.
Opportunities	Mainland China's pledge to carbon neutrality by 2060 and reaffirmation to emissions targets by 2030 will drive supportive policies for the renewable sector. As the curtailment rates of solar and predominantly wind continue to fall dramatically, the renewables capacity of the Gansu and Xinjiang provinces will be unlocked for greater deployment. Offshore wind sector ambitions will create opportunities for niche European technology providers, already experienced in the offshore sector, as the government seeks to reduce costs. A market-wide emissions trading scheme could drive investment in renewable capacity while restricting the growth of coal capacity long term. Potential policy reforms could be enacted to raise the level of foreign investment and involvement.
Threats	Subsidies are phased out for onshore wind and solar, which could dampen short-term growth. Transitioning to competitive renewables procurement drives the need for grid priority access, which is threatened by the vested interest in oversupplied coal. Pressure to raise the coal ceiling will hamper increased levels of renewable capacity growth. The exposure of renewable companies to high levels of unpaid subsidies is a growing issue for many developers and a mounting downside risk.

Industry Forecast

Forecast Scenario

We have made upwards revisions to our renewable outlook for Mainland China owing to a surge in wind and solar deployments over 2021 and supportive policy reform and the emergence of new sectors We expect to see 845GW of capacity come online in the market between 2022 and 2031. With growth coming from predominately the solar subsector with 466GW of additions. Accordingly, we expect the non-hydropower renewable segments share of total generation will rise from 14.4% over 2022 to 23.6% by 2031. Despite Mainland China's vast renewable growth, accelerating power consumption will offset renewable output weighing on the overall contribution in the power mix.

Key View: We have made upwards revisions to our renewable outlook for Mainland China owing to a surge in wind and solar deployments over 2021 and supportive policy reform and the emergence of new sectors We expect to see 845GW of capacity come online in the market between 2022 and 2031. With growth coming from predominately the solar subsector with 466GW of additions. Accordingly, we expect the non-hydropower renewable segments share of total generation will rise from 14.4% over 2022 to 23.6% by 2031. Despite Mainland China's vast renewable growth, accelerating power consumption will offset renewable output weighing on the overall contribution in the power mix.

Continuing Wind And Solar Boom

Mainland China - Non-Hydropower Renewables Capacity, By Type (2021-2031)

e/f = Fitch Solutions estimate/forecast. Sources: EIA, IRENA, Fitch Solutions

Latest Updates

Early in Q122 the government announced its plans to reduce energy intensity in the market’s economy by 13.5% between 2020 and 2025. Furthermore, over Q421 it updated its climate target pledge, the Nationally Determined Contribution, to peak emission by 2030. We highlight that such ambitions are driving a surge in support for the growth of renewable in the market over fossil fuel incumbents. However, in light of the energy price crisis over Q321 and Q421 the core issue of energy security remains and we expect power storage, efficiency in consumption and demand side power management to grow in tandem with renewables.
In Q122 it was reported by the National Energy Administration (NEA) that Mainland China had installed 53GW of new solar capacity over 2021, although falling short of solar industry expectations for 70GW. This has led us to make upwards revisions to our near-term outlook and we now expect to see stronger growth persisting over the decade at average annual rate of approximately 50GW. The recent spike in growth is in part due to the ending of subsidy payments at the end of 2021 but also due to a number of new reforms to policy which are creating room for long term growth. Just over half, 55% of all new additions came from the residential sub sector which stems from policy reform over 2021. We had expected such an acceleration in residential solar systems owing to the NEA outlining that it intended to mandate a minimum target of 20% roof top solar capacity across several pilot counties as well as 30% on commercial and industrial and 40% on government buildings.
Distributed solar gained further policy support owing to a surge in mandates for commercial facilities meaning all new solar systems must come with power storage facilities. Solar+storage will reduce the requirements on the grid, alleviating bottlenecks created by utility scale systems. This has been rolled out across two-thirds of the country’s provincial governments. This has been particularly pertinent due to the energy price crisis which has impacted large swathes of Mainland China’s manufacturing sector. It has been estimated by the NEA that this programme could add between 130-170GW of capacity by the end of 2023.
We highlight that Mainland China is able to realise such vast growth figures owing to the massive weight of its solar manufacturing sector. It was announced by Asia Europe Clean Energy (Solar) Advisory (AECEA), an industry trade body, that output from the Mainland Chinese PV manufacturing industry would reach 500GW by year end 2021. Such output capability has established the market as the global leader for module production and driven technology prices ever lower. The AECEA highlighted that module prices could fall as low as USD28 per Watt by the end of 2022. Furthermore, the market has taken steps to address the spiking poly silicon prices which are expected to remain elevated over the year and decline over 2023 as new production comes online.
The wind sector in Mainland China has seen a similar growth boom and we have made upwards revisions to the outlook over the decade, although to a lesser extent than the solar sector. We highlight that we had expected that long-term growth might be curtailed by saturation of the markets in the inland provinces. However, the offshore wind sub-sector has accelerated rapidly over the past year which has bolstered our near- and long-term outlook for wind. It was reported that Mainland China added 17GW of offshore wind over 2021 alone resulting in the market operating just under half of all offshore wind capacity across the globe. This vastly out weighs the expected 6GW that had been expected from sector analysts. However, we highlight that the subsidy scheme for offshore wind will end over the beginning of 2022 and such extremes in growth are attributable to a surge of developers keen to access payments. As such we expect growth to normalise moving forwards.
Due to the rapid boom in developments the domestic offshore wind industry is seeing growth in innovation. Guangdong Electric Power Development has awarded a contract to MingYang Smart Energy Group to supply turbines for two offshore wind projects with 1GW capacity in Guangdong Province. Under the deal, MingYang will supply MySE 11-230 typhoon-proof hybrid-drive turbines for the 600MW Qingzhou 1 and 400MW Qingzhou 2 offshore wind projects. The wind farms are due to be operational by 2023.
The market has launched the second phase of its new desert renewables program opening up many project proposals of 1GW or larger. The first phase has already started construction with a 100GW of wind-solar hybrid developments. The programme forms the first phase of a proposed hybrid renewable desert energy complex with estimated 400GW capacity. Around 50% capacity of the complex is likely to be completed by 2025.

Structural Trends

The 14th Five-Year Plan

The renewables sector continues to benefit from broad support from the government amid a backdrop of sustainability and climate policy action. On March 11 2021, the National People’s Congress released its 14th Five-Year Plan (14FYP), which laid out its economic roadmap and policy priorities for the upcoming five years (2021-2025). The 14FYP had limited mentions about decarbonising the energy sector specifically, although it remains in line with our existing views and forecasts for the power and renewables sector. Emission reduction targets will continue to support growth in alternative low-carbon power generation segments while consolidating its coal power sector. Any substantial shift away from coal generation will occur only in the longer term, beyond our forecast period. We at Fitch Solutions expect low carbon generation to be a key decarbonisation strategy and for Mainland China to maintain its robust growth momentum for the sector, in line with the strong regulatory support in place. Improvements to grid infrastructure will also aid decarbonisation efforts by facilitating the integration of more intermittent renewables generation.

Energy Policy Reform To Potentially Boost Renewables Growth And Draw Internation