In a significant move to enhance energy security and protect the environment, the Chinese Government is stepping up efforts to accelerate the development of renewable energy, so as to lift the share of high quality and clean energies in the total energy mix.

The Renewable Energy Law, which came into effect on January 1, 2006, is a decisive move in this direction and requires power grid operators to purchase resources from registered renewable energy producers. However, there have been a series of incentive policies, ranging from tax incentives to subsidies, to stimulate investments, further enlivening opportunities in the growing Chinese renewable energy markets.

”China's landmark renewable energy law is likely to be a major driver for the growth of the Chinese renewable energy markets, echoing the governments target of boosting China's renewable energy capacity to 16.0 percent by 2020, an increase of 8.5 percent from 2006,” notes Frost & Sullivan Research Analyst Linda Yan. „The law also sets the stage for the widespread development of renewable energy in China, particularly for commercial-scale electricity generation facilities.”

The ruling stipulates two forms of renewables pricing: a Government-set price and a Government - „guided” price. For biomass power, the Government sets the price based on the provincial or local on-grid price of desulfurized coal, in addition to a Government subsidy of $0.03 (0.25 yuan) per kilowatt-hour. This subsidy would not be available once a biomass project has been in operation for 15 years. For all renewable power projects approved after 2010, the subsidy provided per kilowatt-hour generated would decrease at an annual rate of 2.0 percent.

Among the market segments, solar PV is likely to be among the fastest growing renewable energy sources in China until 2013, with its growth exceeding even that of wind power. The biomass power industry has great revenue potential, not only because of sufficient Government funding but also due to the adequate availability of feedstock fuels. Small hydropower is also undergoing a period of resurgence, but being a mature technology, developments will be slower when compared to other market segments.

Moving to the challenges, China’s wind and biomass industries are not nearly as developed as their western counterparts, which means less experience in installing, maintaining, and servicing renewable facilities. This also means that there are only a few investors with sufficient knowledge of developing products, assembling business plans, designing financing packages, and so on.

”The lack of independent technologies is likely to be a key restraint for the growth of the Chinese renewable energy markets,” says Yan. „Key components or high technology-involved equipment are imported and relying on imported equipment limits the types of transactions and the number of companies that are able to compete in the market.”

Overall, energy supplies derived from renewable energy sources are currently undergoing a phase of expansion in China and are likely to play a much greater role in the Chinese energy supply in the long term. However, they will certainly not replace conventional generation technologies in short term mainly because of its high costs for power generation.