Is local grid parity affordable in China? Discussion on the regional wind power potential and investment returns under policy uncertainty

Abstract

In China, achieving grid parity is critical for a low-cost carbon-neutral transition over the next decades. However, it may post investment dilemma in renewable energy, given the significant differences in resource endowment across various regions. In this paper, we quantify the regional wind resource endowment and evaluate the impact of different grid parity scenarios on regional wind power investments, including long-term contracts with fixed prices, free contracts with decreasing prices and the marketisation of the electricity market. The results show that while the wind power investment returns decrease in all regions with the feed-in tariff degression, the regions in west China with less developed economies are more affected. Additionally, the regional wind power investment return significantly and positively correlates with the regional wind power potential, but the degree of correlation decreases with the increase of electricity price uncertainty. Regions with abundant wind power resources, such as Inner Mongolia, Xinjiang and Gansu, cannot guarantee a sufficient return on investment when the uncertainty of electricity prices increases. It is suggested that alternative support schemes (e.g., long-term contract) and safeguard policies should be designed to reduce the uncertainty of electricity prices and offset the investment incentives created by subsidies (especially in western regions).