China: West or East Wind, Getting the Incentives Right

With rapid development of wind power in China, the following three issues have become barriers for further scale-up: 1) concentration of wind farms in the Three-North region, which became significantly underutilized because of a limited capability of local power grids to off-take and consume wind-generated electricity and because of a lack of coordinated development of long-distance transmission lines to deliver electricity to load centers in the South and East regions; 2) increasing subsidies and, thus, a burden on final consumers; and 3) resistance of local authorities to develop new projects because the new value added tax policy reform. How to deal with these issues will have significant impact on the future development of wind in China. This note proposes a methodology to enhance a comprehensive approach by taking both generation and transmission into account in crafting the development plan and formulating the incentive policies, which may be useful in addressing these issues.