China’s Idle Wind Power Curbs Tariff Cuts, Regulator Says

Apr 09, 2014 3:16 am ET

April 9 (Bloomberg) -- Switching off wind turbines in China because their electricity can’t be absorbed by the grid is limiting how much planners can cut incentives given to renewable power producers.

Developers “are unable to meet targeted returns” because of idled capacity in northern China even as wind farm costs have fallen to 8,000 yuan ($1,291) a kilowatt from 9,000 yuan in 2009, Yi Yuechun, deputy chief engineer at the China Renewable Energy Engineering Institute, said in an interview in Shanghai on April 7.

“Reasonable tariffs should secure an equity internal rate of return of about 10 percent for operators with a long-term borrowing rate of 6.55 percent,” Yi added.

The idled capacity is a result of the rush to build turbines in the windiest areas of China, surpassing the transmission grid’s ability to handle and transmit the power. Leaving wind farms turned off cost operators at least 8.16 billion yuan in lost revenue last year, according to the institute.

China had 11 percent of its wind power capacity sitting unused last year, with the rate rising to more than 20 percent in the northern provinces of Jilin and Gansu, according to the renewable energy regulator.

“This return is already very low due to operational risks,” said Zhou Yiyi, a Beijing-based analyst from Bloomberg New Energy Finance. “Companies will face losses if the return is below 9 percent, a threshold for the wind-power industry.”

The world’s biggest wind market in 2009 set four different tariffs for onshore wind farms ranging from 0.51 yuan a kilowatt-hour to 0.61 yuan a kilowatt-hour.

The nation’s top economic planning agency vowed last month to “adjust” prices this year.