Electricity can account for 30 per cent of costs in power-intensive sectors such as concrete manufacturing, so pricing changes have a major impact on company performance. One view is that the new mechanism will allow power generators and power-hungry firms to form mutually beneficial relationships, with the generators gaining reliable customer and the company keeping electricity costs under control.

Yuan Jiahai, a professor at North China Electric Power University, pointed out that encouraging power-intensive industry via lower power prices will increase pollution rather than aid high-quality economic growth. Zheng Xinye, deputy head of Renmin University’s School of Economics, says it should not be done even when the economy is slowing.

What about renewables?

For years the benchmark coal power tariff has been used as a point of reference for subsidies for the renewables sector. The government sets the price the grid will pay for solar and other renewables in different regions, and the Renewable Energy Development Fund pays a subsidy to offset the difference between that price and the benchmark tariff.

Tao Ye, director of the Renewable Energy Development Centre at the NDRC’s Energy Research Institute, explained that renewables subsidies will remain steady because they will be anchored to the base price, which will not fluctuate much, and won’t float.

“The method for setting the base price will be the same as for the benchmark tariff, and in the near- to mid-term there is no chance of frequent changes or even falls,” he said.

Peng Peng, secretary of the China New Energy and Electricity Investment Alliance, thinks that subsidies alone have a limited impact on renewables. She points to the power surpluses in many provinces that put downward pressure on prices, and whether renewables get priority over other sources when dispatching power to the grid.

But as these reforms are clearly intended to reduce prices, some experts think the renewables sector will also suffer. Li Junfeng, chair of the China Energy Research Society’s renewables committee, thinks doing away with the benchmark tariff will reduce coal power prices and make it harder for renewables to achieve grid parity.

Commenting on these concerns, Tao Ye said that renewable energy firms that have achieved grid parity already benefit from policies, such as the creation of power purchase agreements for at least 20 years, and so do not need to participate in the market. He suggests current preferential policies be maintained during the first years of the 14th Five Year Plan period (2021-25) to ensure a smooth transition.

This story originally published by Chinadialogue under a Creative Commons’ License.