China amends its renewable energy law

On 1 April 2010, amendments to the PRC Renewable Energy Law took effect. The amendments mark the first time that the Renewable Energy Law has been amended since its promulgation in February 2005.

Based on the Chinese government’s commitments in response to global climate change, the legislation provides stronger legal protection, as well as phased support, for the development of renewable energy sources such as wind energy, solar energy and bio-energy. The amendments affect seven articles of the Renewable Energy Law and were passed by the Standing Committee of the National People’s Congress on 26 December 2009. The main features of the Amendments are outlined below.

Coordinated development

The amendments provide for the creation of a national plan for the development and use of renewable energy, which will set goals for the amount of renewable energy to be used, and for the development of related technology.

There are a number of government departments under the State Council that have responsibility for the energy sector, including the National Energy Commission and the National Energy Bureau (which were established by the State Council in 2008). These departments will prepare the plan, and submit it to the State Council for approval prior to its implementation.

Based on this plan and the target it contains, the energy bureaus at the provincial level will be required to prepare plans for the development and use of renewable energy for their respective administrative regions. These plans will require approval from the appropriate branch of the people’s government and should be filed with the relevant department of energy under the State Council and the state power regulatory authority (currently the State Electricity Regulatory Commission).

The plans should be comprehensive and should cover all sources of renewable energy, including wind, solar, hydro, and bio-energy. China has already placed considerable emphasis on renewable energy sources such as wind, solar and hydropower, but these new sources of energy have only had a limited impact on the country’s reliance on coal-fired power generation.

The purchase of renewable energy

The original text of the Renewable Energy Law provided that each grid company should purchase all the electricity generated by the renewable energy-generating entities covered by its electricity grid. It also required that these renewable energy-generating entities be duly licensed or recorded and that they each execute a grid-connection agreement. This clear preference and priority given to renewable energy sources has been important in encouraging its development in recent years.

The amendments reiterate this purchase obligation, but put it within the overall framework of the national plan on renewable energy use and development. On the basis of this national plan, the relevant department of energy under the State Council should, together with the State Electricity Regulatory Commission and the Ministry of Finance, determine the specific amount of renewable energy to be generated within the period covered by the plan as a proportion of the overall volume of generated electricity. To a certain extent, this amendment suggests that renewable energy will be viewed as an integral part of the total national energy resource.

The relevant central-level departments should also formulate specific measures to regulate the scheduling with priority and the purchase of renewable energy, and supervise this scheduling and purchase on an annual basis.

The amendments also stipulate that grid companies should improve the capacity of grids to accept renewable energy, through various measures such as strengthening the construction of grids and using smart grids and energy-preservation technologies. The central government appears to recognize that the existing energy infrastructure in place in China has been largely constructed to utilize conventional energy, and that technology development is also necessary to improve the grid system to support renewable energy sources.

Renewable energy fund

The amendments also provide for the establishment of a renewable energy development fund that will be financed by budgetary allocations including from the central government and from the collection of renewable energy fees charged throughout China in relation to the sale of electricity. The amounts accumulated in that development fund are slated for use as compensation to grid companies for the additional expenses they incur in purchasing renewable energy (as opposed to conventional energy), and for grid connection costs to facilitate the use of renewable energy.

Moreover, the fund can be used to support research into, the formulation of standards for, and the construction of model engineering projects for, the development and use of renewable energy; projects for the use of renewable energy in agricultural and pastoral areas; the construction in remote areas and on islands of independent power grids that use renewable energy; the exploration for, appraisal of, and establishment of data systems on, renewal energy resources; and the promotion of the localized production of equipment used in the generation of renewable energy. Specific measures concerning the renewable energy development fund have not yet been announced.

Since the promulgation of the amendments, there has been a fair amount of related activity. The National Energy Commission, headed by Premier Wen Jiabao, is expected soon to announce long-awaited amended targets for China’s use of non-fossil-fuel resources, as well as the implementation measures for the Renewable Energy Law.

In all, the amendments demonstrate China’s commitment to developing renewable energy as an important part of its overall effort to reduce the carbon-intensity of its economy and cut emissions by 40-45% per GDP unit by 2020. The amendments appear to reiterate the original policy direction and to provide better tools for the central government to manage, monitor, and supervise the development of the renewable energy sector. The full impact of the amendments on the renewable energy industry, however, can only be assessed once the relevant plans have been formulated and implementing regulations are published.

Zhang Danian is the chief representative of the Shanghai office of Baker & McKenzie
Cherrie Shi is an associate in the Shanghai office of Baker & McKenzie