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2008-06-19 | All chapters

EU Chamber: Foreign Cos Hurt By China's Power Generation Rule
Aaron Back and David Winning, Dow Jones Newswires, 19th June 2008

BEIJING -(Dow Jones)- China's quota system for renewable energy is handicapping foreign companies that want to set up joint ventures with domestic power generators, an official at the European Chamber of Commerce said Thursday.

Renewable energy apart from hydropower must account for more than 8% of total generating capacity owned by power producers with more than 5 gigawatts of generating assets in China by 2020, according to a blueprint published by the National Development and Reform Commission last September.

However, Alberto Mendez, vice-chairman of the European Chamber's Energy Working Group, said the goal disadvantaged foreign investors as domestic power generators could only count their own share of installed capacity.

This means domestic utilities are more likely to go it alone and wholly own renewable energy projects so they could have the entire generating capacity on their books, he said.

"This rule discourages companies to create JVs, because they want to reach their target as soon as possible," said Mendez, who is general manager of China Wind Farm Development at Spain's Gamesa Corporacion Tecnologica SA (SpanishCats:GAM) (GAM.MC).

The NDRC, China's economic planning agency, wasn't immediately for comment.

China is aiming to increase the use of renewable energy to 15% of its primary energy mix by 2020 - from 7.7% in 2005 - with an initial milestone of 10% targeted in 2010.

Success in reaching this target would reduce China's reliance on coal and crude oil, which account for 90% of the energy mix and are blamed for a worsening environment.

Individual targets have been set for biomass, which involves burning forestry and agricultural waste, solar power and wind energy.

Mendez said the scale of investment in China's wind energy sector so far meant that the official target of having turbines capable of generating 30 GW of power installed by 2020 would be beaten significantly.

"The government is planning to review the target for 2020," he said. "They are discussing whether they should raise this target to 100,000 megawatts (100 GW) by 2020."

Investment of CNY1 trillion ($145 billion) would be needed to achieve a goal of 100 GW over the next 12 years, he said.

The European Chamber has repeatedly called for a better investment climate for wind power developers, including more points where renewable energy can be put into the grid network.

It has also described the lack of a long-term fixed feed-in tariff as the main concern for European investors.

China instead operates a competitive bidding system for concession wind farms of 200 megawatts or more. Critics such as the European Chamber say this has resulted in low bids and unprofitable projects that contribute to insecurity of investment and concern over market credibility.

"We have been recommending the establishment of a feed-in tariff. This fixed- price tariff so far has been the most successful mechanism in the most successful renewable energy markets such as Germany, Spain and the U.S.," Mendez said.

"It provides certainty not only for wind farm developers, but also for manufacturers, and for banks (which loan to the projects)."

Source:http://www.istockanalyst.com/article/viewarticle+articleid_2298183~title_EU-Chamber:-Foreign-Cos.html

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