Report Excerpt - FIT Reduction in China Sparks Short-term Growth

China’s wind industry grew rapidly in 2014, as anticipation of potential onshore wind FIT reductions during the second half of 2014 caused a substantial installation and grid-connection rush. MAKE expects a number of market drivers to combine in delivering approximately 21.5GW of new grid-connected capacity in China in 2015 – an increase of 8.6% over 2014. A large volume of new projects were approved in Q4/2014 by several provinces in the Northwest, North and South, exceeding even centrally-planned batch approvals.

Based on analysis of approved project pipeline and results from MAKE’s China Project IRR model, MAKE expects China’s new installed and grid-connected capacity in 2015 will both exceed 20GW. MAKE’s analysis also provide additional detail on the makeup of regional and provincial market activity.

MAKE has upgraded expectations to Xinjiang, especially Hami, where one UHV line is in operation and another is expected to be approved in 2015, continuing short-term growth momentum. Not only is Xinjiang a key geographic location to China’s recent political target to implement the “one belt and one road” economic strategy, that would support substantial investment in the underdeveloped Northwest, it is also home to some of the best wind resources and project development conditions in China.

Coastal provinces in the East and Yunnan province in the South will continue to benefit from relatively high average IRR over the short-term due to consistently high average wind utilization hours in recent years. Consequently, Xinjiang, Yunnan and coastal provinces in the East may become the focus of an upcoming second round of FIT reductions at the end of 2016 or beginning of 2017 and China’s outdated wind classification system may also be adjusted to better reflect the wind resources in each province.

In addition, MAKE’s analysis of approved pipeline indicates a focus on new installations in Xinjiang, Ningxia and Hebei in 2015. Whereas MAKE’s analysis of historical regional grid-connected capacity and grid gap indicate Inner Mongolia will focus more on new grid-connections in 2015, along with Xinjiang and Hebei which will also see substantial increase in new grid-connected capacity in 2015.

More than 60% of new grid-connected capacity in 2015 is expected to be in Class I, II and III regions, majority of which will be located in the Northwest and North. In comparison, Class I, II and III annual grid-connected capacity ranged between 47-57% in the previous three years. Curtailment in certain provinces will worsen in 2015 as the substantial increase in capacity will exceed power demand and grid capability. As a result of 2014-2015’s high growth, China’s wind industry faces uncertainty going into 2016.

MAKE’s Research Note “FIT Reduction in China Sparks Short-term Growth” is a 15-page research note that provides a comprehensive analysis of the impact of China’s FIT reductions on projected IRRs for projects in terms of wind classes and regions. Key provinces in Class I, II and III regions are singled out for detailed analysis and compared with wider regional averages and Class IV regions. Approved project pipelines are analysed for each region and key provinces to identify short-term trends in industry development. 2015 forecasts are made for key provinces in terms of installed and grid-connected capacity growth.