October 12, 2018 / 5:28 AM / a year ago

Chinese solar projects facing closure amid subsidy backlog: government report

FILE PHOTO: Wind turbines and solar panels are seen at a wind and solar energy storage and transmission power station from State Grid Corporation of China, in Zhangjiakou of Hebei province, China, March 18, 2016. REUTERS/Jason Lee/File Photo

SHANGHAI/BEIJING (Reuters) - Solar power projects in the northwest Chinese region of Ningxia are struggling to maintain operations and face “bankruptcy risks” because of long subsidy payment delays, according to an investigation by regulators.

The warning follows rapid growth in China’s solar sector, which has led to a subsidy backlog of 120 billion yuan ($17.4 billion), with prices for solar power varying wildly from region to region.

China wants to bring down renewable energy costs to allow wind and solar projects to compete subsidy-free with coal-fired power. It has already capped the number of new projects this year in a bid to ease its subsidy burden and help the sector focus on efficient supply.

The National Energy Administration’s (NEA’s) bureau in charge of northwest China said the payment backlog had forced many Ningxia projects to take high-interest loans to stay afloat, with some unable to afford basic maintenance.

Government-approved solar projects are entitled to a subsidy for each kilowatt-hour they sell to the grid, but the surge in new capacity has left the finance ministry struggling to make the payments on time.

“Local authorities in Ningxia should further control the capacity of renewable projects and strengthen supervision of subsidy distribution... in order to prevent widespread bankruptcy in the industry,” said the report.

Some Chinese regions have already achieved “grid-price parity”, and according to draft rules published earlier this year, the government will work to provide more support for subsidy-free projects.

However, wind and solar projects in western regions like Ningxia and Xinjiang still find it difficult to compete with cheaper coal, even though grid firms are legally obliged to source as much power from renewable sources as they can.

The regulator admitted solar and wind power generation and transmission projects in Ningxia were “very expensive”, with data earlier this week showing the grid in Ningxia paid just 255.5 yuan per megawatt-hour (MWh) for coal-fired power last year, compared to 871.6 yuan for solar.

Reporting by David Stanway and Muyu Xu; editing by Richard Pullin

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