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China tells grid to pay overdue renewables subsidies

China has ordered its grid companies to pay developers outstanding subsidies owed for renewable energy generated two years ago.

Payment of the subsidies – a fixed amount allocated on top of the regular tariff for coal power-generated electricity – has ground to a halt in some provinces since October 2010, contributing significantly to mounting receivables at China’s major wind farm operators.

In a statement dated 26 November and posted online this week, the National Development and Reform Commission (NDRC), China’s chief economic policymaking body, requires that grid companies pay subsidies for the period from October 2010- April 2011 within 10 working days.

It is not clear when the rest of the money owed to developers will be paid.

Grid companies have been required to pay a subsidy for wind power since 2006, collecting a surcharge from consumers within their area to finance the subsidy payment.

However, this has led to many provinces having a surplus of funds while others such as Inner Mongolia, Hebei and Gansu are increasingly in deficit, as renewable energy generation from installed wind farms far outweighs the consumption baseload from which they can collect the surcharge.

Developers are currently owed around 23bn yuan ($3.7bn) in outstanding subsidies, according to an estimate by Beijing-based consultancy Azure International.

The new release of funds will amount to about 4bn yuan, says Azure, with Longyuan, China’s largest wind developer, expected to pocket a quarter of the total.

However, the government’s move only offers some short-term relief, says Sebastian Meyer, Azure’s director of research.

“This is just the tip of the iceberg. We still don’t know how the rest of the shortfall will be resolved.”

The problem has exacerbated an already tight cashflow situation for China’s wind developers over the past year, with financing more expensive and returns from operating projects lower than expected due to grid curtailment.

Meyer believes that about two thirds of the growth in receivables at Longyuan, Huaneng and Datang in the first half of this year could be attributed to a lack of payment of subsidies for projects recently built by the companies in deficit provinces.

The shortfall in subsidies is likely to be impacting suppliers too.

At a conference in Beijing last month, Hu Guodong, deputy general manager at Datang Renewable, blamed the delay in subsidy payments for the firm’s withholding of payment to suppliers.

“Only half of the electricity sold has been paid for. The other half hasn’t received a penny for two consecutive years. We don’t have any surplus money,” he said.

Under a new system currently being implemented for subsidy payments in 2012, grid companies will receive funds directly from the ministry of finance based on estimated power generation. They will then be paid subsidies each month, instead of in batches several months at a time as under the previous system.

It is thought that some funds have already been allocated to provincial authorities for the new system but developers have not yet been paid.