China Throws Lifeline to Solar in Key Factory Hub’s Power Market
November 13, 2024
(Bloomberg) — China is advancing plans to utilize more of its vast wind and solar resources, as it moves toward fully liberalizing the market for electricity by the end of the decade.
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Zhejiang province, one of the growth engines of the economy on China’s east coast, has drafted a proposal to nudge commercial users toward less regulated power usage. While fixed contracts using government-set prices will continue to dictate 90% of the market, the other 10% will be thrown open to spot trading, according to a consultation paper from the Zhejiang Power Trade Center published by news outlet BJX.com.
Under the plan, wind and solar generators would be able to opt in to the spot market and jockey for customers alongside coal-fired power plants. Participants would include the smaller industrial and commercial rooftop projects that have proven trickier to absorb into the grid.
At times of peak demand, the competition should help deliver cheaper electricity to factories. When power supplies are plentiful, the fixed-contract prices would act as a floor. If successful, spot trading — and the role played by renewables — could gradually be expanded and fixed-contracts rolled back.
“Zhejiang’s latest initiatives align with the broader market trend of pushing commercial and industrial solar projects to participate in the power market,” said Shannon Dong, an analyst at BloombergNEF. “Under this market mechanism, it guarantees a set price for electricity and renewable project revenues.”
National Market
Other Chinese provinces are working on their power trading plans for 2025. Countries including the UK employ similar programs to ensure the availability and profitability of clean energy. Renewables in China are increasingly cheaper than the alternatives after a massive buildup in capacity, but they’re not always fully employed because they can’t be relied on when there’s no wind or sun, particularly when the market’s so fragmented.
The fix is being able to seamlessly transmit renewable power from where it’s generated to where it’s needed, irrespective of the huge distances involved. That would also help smooth out wild swings in demand caused by China’s climate, which involves blistering heat in the summer and freezing cold in the winter.
To achieve that, a single, nationwide market is planned by 2030, which would allow electricity to be traded across the country on a near real-time basis. But in the meantime, the government needs to keep power costs low and supplies predictable, particularly for a manufacturing sector that’s already suffering from slowing growth and which is likely to bear the brunt of worsening trade tensions with the US.
In that respect, Zhejiang is only a stepping stone to a national market and a test case of what works. Other pilots have run into teething problems. In the southern manufacturing hub of Guangdong, which is spearheading market liberalization, nearly half of power suppliers could barely break even after rates fell below output costs, according to local press reports last month.
On the Wire
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Citigroup Inc. cut its short-term outlook for copper prices by 11% as likely hikes in US trade tariffs under a Trump presidency and weaker-than-expected China stimulus would weigh on demand.
The Week’s Diary
(All times Beijing unless noted.)
Thursday, Nov. 14:
Friday, Nov. 15:
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China home prices for October, 09:30
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China industrial output for October, including steel & aluminum; coal, gas & power generation; and crude oil & refining, 10:00
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Retail sales, fixed assets investment, property investment, residential sales, jobless rate
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China to release monthly medium-term lending rate by Nov. 25
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China’s new rules on scrap metal imports come into effect
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China’s weekly iron ore port stockpiles
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Shanghai exchange weekly commodities inventory, ~15:00
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