Wind power concession bidding to adopt the mid-price model

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The expert evaluation phase for the fifth round of wind power concession bidding has been completed; it is now awaiting the final approval from the leading authority, the **National Development and Reform Commission**, for the enterprises recommended as winners. 　　On January 14, a reporter from this newspaper learned of this news from the Wind Energy Equipment Branch of the China Agricultural Machinery Association. A total of 26 companies participated in the bidding for the 4 projects in this round. Qi Guangsheng, secretary-general of the branch, told reporters: “The bidders in this round are mainly state-owned power generation companies; private enterprises and foreign-funded companies did not participate in the bidding independently.” ” 　　Of particular interest to the outside world is the fact that this bidding process abandons the previous \"lowest bid wins\" approach and adopts a \"mid-price\" model instead. “The main difference from the first four times is that the person who bids closer to the **average price earns a higher score. ”said Shi Pengfei, a professor-level senior engineer in new energy projects at China Hydropower Engineering Consulting Group. 　　Bidding for wind power concession projects began in 2003, and as bidders competed to offer lower prices in order to secure wind power resources, the prices of these concession projects ended up being lower than the approved prices for regular projects. Power generation groups compete for concession projects in order to meet the **mandatory renewable energy generation quotas. 　　Shi Pengfei said that adopting mid-price bidding this time is beneficial for improving the mechanism for determining the on-grid price of wind power. Many wind power experts believe that irrational bidding is detrimental to the formation of grid connection prices for wind power and also contributes to an overheated development of the wind power industry. 　　Currently, the electricity pricing for wind power in China is determined through two methods: bidding and approval. It is worth noting that Guangdong Province has recently taken the lead in adopting a benchmark price for wind power, thus setting a precedent for **a fixed electricity price for wind power**. 　　New bidding policies: The fifth round of wind power concession bidding projects includes four projects – the Beiqinghe Wind Farm in Inner Mongolia, the Wulan Yiligen Wind Farm in Inner Mongolia, the Yudaokou Wind Farm in Hebei, and the Changma Wind Farm in Yumen, Gansu – with a total installed capacity of 950,000 kilowatts. The bidding for this round officially commenced on November 30 of last year. 　　The reporter was informed that in this bidding process, the weight assigned to electricity price remains at 25%. However, under the scoring system, the bid prices of all bidders who passed the preliminary evaluation are considered; the highest and lowest prices are excluded, and then the average bid price is calculated. The bidder with the lower average bid price receives a higher score. 　　Qi Guangsheng said, “Adopting this method for bidding prevents a situation of vicious price competition.” Although it isn’t yet the most reasonable price, it is higher than in previous years. ”Shi Pengfei also believes that although the winning bid price remains relatively low, it is beginning to return to a more reasonable level. 　　“The bidding price serves as an important basis for determining the future feed-in tariff for wind power. However, bidders often aim to secure projects in order to gain access to high-quality resources, rather than focusing on the investment returns from those projects; such irrational bidding leads to bid prices that are far from reasonable levels. This is not only detrimental to the reasonable pricing of wind power in the future, but also harmful to the development of the entire wind power industry. ”Shi Pengfei pointed out. 　　The five rounds of wind power concession bidding held to date have involved a total of 15 projects, with a combined installed capacity of 3.3 million kilowatts. However, in the first four phases, the price of the franchise projects was significantly lower than the approval price for regular projects due to a \"price war\". 　　According to Shi Pengfei, the first and second phases of wind power concession projects stipulated that the bidder offering the lowest guaranteed feed-in tariff would win the bid. However, the actual feed-in tariffs awarded were far below a reasonable level; in some cases, extremely low prices such as 0.382 yuan per kilowatt-hour (including taxes) were offered to win the bid. In the second round of tendering for concession projects in 2004, the Beijing International New Energy Bid Consortium won the bid for the Huitengxile wind farm project in Inner Mongolia at a low price. 　　Qi Guangsheng believes: “This kind of vicious competition results in winning bid prices that are significantly lower than the cost price.” ”None of the bidders used wind energy assessment data as the basis for their bids, resulting in bids that deviated from a rational level. The most obvious example is the Rudong project, for which tenders were held for two consecutive years under almost identical wind energy resources and other conditions; yet the bid prices submitted by Huarui Company in 2003 and 2004 differed by 0.16 yuan/kWh, representing a surge of 40%. 　　““The rule of low prices” forced the National Development and Reform Commission to change the bidding scheme. In the third and fourth rounds of bidding, the weight given to price evaluation was reduced, but the effect was not significant. The weight of electricity price in the third phase in the project evaluation is adjusted to 40%, and it further decreases to 25% in the fifth phase. According to public information, except that the fourth Bayin project was won by the bidder with the second-lowest bid, the winners of the other four projects were still those who offered the lowest on-grid electricity price. 　　It is reported that another important adjustment in the tender plan for the fifth phase relates to the specific regulations regarding wind turbine manufacturers’ participation in the bidding process. For the same model it produces, supply agreements can be signed with no more than three bidders for the same project. In previous bidding rounds, the supply agreements had to be one-to-one and exclusive. 　　Wind turbine overheating 　　Why do companies prefer to incur losses in order to win concession bidding projects? Shi Pengfei told reporters, “This is the simplest way to enter the wind power sector and increase its installed capacity; what matters is the future prospects of wind power.” ” 　　It is understood that projects awarded through concession bidding have a larger installed capacity than ordinary projects, and **the preliminary work for such projects has been completed prior to project approval. Qi Guangsheng pointed out: “For companies, this allows them to avoid many detours; by doing the preliminary work properly, obtaining projects in this way can help prevent a lot of troubles.” ” 　　At the same time, both of the aforementioned experts pointed out the deeper reasons behind energy companies competing for wind power: power companies are all working to build up their capacity in order to meet their quotas for renewable energy generation. 　　As early as January 2006, the **Regulations on the Management of Renewable Energy Power Generation issued by the National Development and Reform Commission stated: \"Power generation enterprises should actively invest in the construction of renewable energy power generation projects and fulfill their obligations regarding the quotas for renewable energy power generation as stipulated.\" ”However, the specific quota targets have yet to be established. 　　Shi Pengfei told reporters that **there is an intention to require an installed capacity of over 5 million kilowatts, with renewable energy quotas for power generation investors reaching 3% in 2010, excluding hydropower, and 8% by 2020. “Since the development of biomass power generation is not progressing smoothly at present, major power generation companies are betting on wind power for these targets. ” 　　Experts point out that for power generation companies in various countries, the losses incurred due to wind power can be made up for by coal-fired power projects. At the same time, Shi Pengfei said, “The five major power generation groups are also under pressure to grow and become stronger. Although these groups were established in 2002 as part of the electricity sector reforms aimed at breaking up monopolies, the State-owned Assets Supervision and Administration Commission requires state-owned enterprises in various industries to strive to rank among the top three, which is why these power generation groups are actively increasing their wind power capacity.” ” 　　On January 9, HuanDian Group and its subsidiaries reached an agreement: China HuanDian, HuanDian International (9.71,-0.17,-1.72%, Stock Bar), HuanDian Energy (6.81,-0.09,-1.30%, Stock Bar), Guizhou Hydropower, and HuanDian Engineering agreed to sign a capital increase agreement, aiming to invest a total of 152 million yuan in HuanDian New Energy Company. Upon the completion of the capital increase, HuanDian Group will inject 254 million yuan into HuanDian New Energy, holding 51% of its shares and thereby expanding its wind power business. 　　**They support the development of wind power, but both Shi Pengfei and Qi Guangsheng believe that the current pace of development in this sector is irrational and \"clearly overheated\". Public data shows that the installed capacity of wind power has been growing at a rate of over 100% for two consecutive years; by the end of 2007, the total installed capacity had exceeded 5 million kilowatt-hours, thus meeting the wind power installation target set for 2010 three years ahead of schedule. 　　Shi Pengfei pointed out that one manifestation of the overheating in the wind power sector is the reckless approval of projects; some of these projects do not undergo sufficient preliminary work, nor is there adequate coordination with the power grid. “Before the Shanghai Donghai Bridge Offshore Wind Farm was approved for development, there wasn’t even a single wind monitoring tower there. ”“In some places, **enterprises only focus on installed capacity, without considering whether electricity can be generated in the future or how much electricity can be produced. ” 　　Secondly, it poses a severe challenge to fan equipment. “The prototype was put into mass production without undergoing rigorous testing, and many wind farms will surely pay the price for this in two or three years. ”Qi Guangsheng also pointed out: \"Some products already have orders before they have even been installed; they haven’t gone through a gradual process of improvement, and this is detrimental to the development of wind power equipment in our country.\" ” 　　Disputes over pricing mechanisms The mechanism for determining wind power prices has been a focus of attention in the wind power industry in recent years, and the debate between bidding-based pricing and fixed pricing has persisted for many years. Qi Guangsheng believes that \"from the perspective of industry development, it’s not very good to use bidding to determine wind power prices; it would be better to adopt a fixed price system.\" ” 　　Currently, the electricity pricing for wind power in China is determined through two methods: bidding and approval. Shi Pengfei pointed out: “**The aim is to use bidding to determine prices as a reference for setting wind power electricity rates in the future, but at present, even for wind farms with identical conditions, there are significant differences in the bidding prices, and it’s not clear which projects should be subject to bidding.**” ”It is understood that relevant policies stipulate that projects with a capacity of over 50,000 kilowatts require approval from the **Development and Reform Commission, while other projects are approved by local authorities**. 　　The <2007 Wind Power Development Report> also states: “Price differences resulting from variations in resource conditions are normal, but those caused by factors in the price formation mechanism tend to become the focus of criticism.” ”For example, the prices of the 3 wind farms built and operating on South Australia Island during the same period varied, with a difference as high as 0.28 yuan. 　　Shi Pengfei told reporters, “A fixed electricity price is more conducive to the development of the industry, but it also requires a process to be established. Moreover, since resources vary from place to place, different prices can be applied according to the conditions in each region.” ”Qi Guangsheng also believes that even if a fixed electricity price is implemented, there should be differences between the south and the north. 　　Amidst the debates over wind power prices, Guangdong Province took the lead in implementing a benchmark price for wind power starting from December 1, 2007, thus pioneering the concept of a **fixed price for wind power**. The current provisional rate is 0.689 yuan per kilowatt-hour (including taxes). The original grid connection prices that are higher than this standard remain unchanged, while for projects subject to bidding, the prices determined through the bidding process shall apply. 　　Shi Pengfei believes that \"this price is relatively reasonable considering the wind power resources available in Guangdong Province; it is basically an increase of 0.25 yuan on top of the benchmark electricity price for local coal-fired power plants, which is equivalent to the surcharge policy for biomass power generation stipulated by the National Development and Reform Commission.\" ” 　　Dou Zeyun, an analyst in the power sector at Ping An Securities, told our reporter: “The establishment of a benchmark price for wind power in Guangdong will ensure reasonable profits for the industry, which in turn will help attract more investors to participate in such investments.” ” 　　In accordance with the \"Interim Measures for the Management of Prices and Cost Allocation for Renewable Energy Power Generation,\" the portion of wind power prices that is higher than the benchmark grid price for locally operated coal-fired units equipped with desulfurization systems is covered by the renewable energy price surcharge, with the additional cost shared across the country. The surcharge for renewable energy electricity prices is levied on the sales price at a rate of 0.001 yuan per kilowatt-hour.