China issued Renewable Energy Development Plan for 14th FYP
On June 1st nine Chinese government agencies including NDRC and NEA issued the development plan on renewable energy development for the 14th FYP (2021-25). Previous commitments were reiterated. First, the dual “30-60” emission goals which aim to achieve peak carbon emissions by 2030 and carbon neutrality by 2060 were emphasized again. Second, the goal to achieve cumulative 1,200GW of wind & solar installations by 2030 was reiterated. Furthermore, non-fossil fuel as percentage of energy consumption is targeted to reach 20% by 2025 and 25% by 2030. The latest plan added more granular targets as follows.
Key targets for renewable energy development in 14th FYP
Target 1: By 2025, cumulative renewable energy consumption should reach 1bn tons of coal equivalent (tce), compared to 680m tce as at end-2020. Furthermore, renewable sources should account for >50% of incremental energy consumption.
Target 2: By 2025, electricity generation from renewable sources should reach 3.3tn kWh/year (2020: 2.21tn kWh). Additionally, electricity from renewable sources should account for >50% of incremental electricity generation. Generation from wind and solar sources should double from 2020 levels.
Target 3: By 2025, renewable sources should account for c.33% of electricity consumption (2020: 28.8%). In particular, non-hydro (i.e. wind, solar, nuclear) should account for c.18% of total electricity consumption (2020: 11.4%).
Target 4: By 2025, non-electricity capacity of renewable sources should reach 60m tce. These non-electricity sources include geothermal, biomass, and solar thermal.
Our view:
The latest development plan reiterates China’s commitment to energy transition. The demand backdrop remains highly supportive for all players along the renewable value chain.
For solar, LONGi’s (601012.CH) module and wafer sales stands to benefit from continued robust installations. LONGi also has a strong R&D capability which is aligned with the government’s latest policy direction. We currently rate LONGi BUY with TP of Rmb 91.
Flat Glass’ (FGG, 6865.HK) main solar glass product is a key component within modules also stands to benefit from sustained demand. We currently rate FGG H-share/A-share BUY/HOLD with TP of HK$45/Rmb53.
China Longyuan Power’s (CLYP 916.HK) capacity expansion plan is well aligned with the latest policy directive. The company plans to grow total capacity by 30GW in the 14th FYP, more than doubling from c.26.7GW as at Dec-21. CLYP’s core wind power business should provide a defensive revenue stream amid volatile markets. We currently rate CLYP BUY with HK$22 TP.
Further reading:
Besides outlining the above targets, the latest development plan also outlined key action points.
Continue to develop large scale renewable projects.
The government plans to continue developing large scale renewable energy generation bases in desert and/or arid areas. The first batch of 100GW of bases in desert areas (i.e. Xinjiang, Gansu, Qinghai) have currently commenced construction. Offshore wind was also reiterated, with key bases in Shandong, Yangtze Delta, Fujian, and Guangdong. Distributed solar was also reiterated. The latest action plan emphasizes broader applications of distributed solar including installations on rooftop, farmland, fishponds, and highways, among others.
Accelerate development of energy storage and smart grid solutions.
The latest action plan re-iterated the need for energy storage. Specific pumped hydro pilot programs were mentioned. Other storage solutions include concentrated solar power and electro chemical (batteries), and hydrogen applications. Grid related guidance aims to upgrade existing infrastructure and invest in digital solutions to ensure steady delivery of electricity.
Encourage innovation in the renewable sector.
The new action plan will strengthen research and development of key renewable technologies. For wind, resources will be focused on larger blade sizes and applications at high altitudes. For solar, research will continue on lowering cost and increasing efficiency of PV cells. For storage, various electrochemical solutions such as lithium and sodium batteries were mentioned. Innovations in civil engineering were also mentioned for surveying and construction of large-scale pumped hydro, deep sea offshore wind, and geothermal, among others.
Streamline regulation to encourage marketization of renewable energy.
The new action plan will streamline regulations and delegate authority on renewable energy development to local governments. New policies will also seek to refine the price mechanism for electricity generated from renewable sources.
Strengthen international cooperation in the renewable sector.
China will seek to strengthen relations with other countries on energy policy via the Belt and Road Initiative (BRI). Key collaboration areas include power generation, storage, and hydrogen. China will also seek to participate in developing the latest standards and certifications for renewable energy infrastructure.