By Mark Schaub, Partner, Corporate, King & Wood Shanghai

China’s first Renewable Energy Law came into effect on 1st January 2006 and serves as a basis to meet goals like reducing air pollution; protecting human health and the environment; strengthening and developing energy supply to rural areas; promoting investment and development of renewable energy; etc. The PRC Renewable Energy Law is also a framework for various provincial government agencies and local authorities which implement the law in a large number of more detailed plans, rules and regulations. After four years of rapid change and expansion of China’s renewable energy sector, the Standing Committee of the National’s People’s Congress passed amendments to the Renewable Energy Law in December 2009, which now came into effect on 1 April 2010.


The amended law aims to further promote the growth of renewable energy in China, to encourage the development of power grids and to support the power grid industry in purchasing renewable energy despite its higher generation costs.

One of the most essential rules in the PRC Renewable Energy Law is the so called “mandatory purchase and connection clause”, which requires state grid companies to purchase all power produced by renewable energy sources and also provide grid-connection services for the generation of power with renewable energy. If power grid enterprises fail to purchase renewable power in full, the national power supervisory institutions will order them to make respective corrections within a stipulated period of time. In case of refusal to make such correction, the authorities can impose a fine up to double the amount of the economic loss.

In practice, grid companies often fail to meet these “purchase and connection” requirements which were one of the major reasons for revising. One reason for the non-compliance is that the rapid development of renewable energy sources was not in line with the development of power grid companies, which often lacked ability to actually utilise the vast amounts of renewable energy produced.

The wind power sector in China, for example, has been identified as the key growth component of the country’s economy which makes China today the second largest wind power producer. Despite this, about 30 % of China’s wind power can not be used to generate electricity because it is not connected to a grid. The reasons vary from a lack of technical ability to difficulties in providing consistent connections between rural areas (where most wind farms are located) and the heavy energy consuming cities on China’s coastline. Cost is another crucial issue for power grid companies: purchasing renewable energy is more expensive than other forms of energy and requires investment to expand and strengthen facilities.

In response to these obstacles, the amended law stipulates revised rules which aim at promoting the constructional development of power grids, improving their technical capabilities and also their operational management. In addition, as an economic incentive, the revised law continues to promote investment measures and thus provides for a new and revised set-up of a renewable energy fund. To ensure compliance to the “mandatory purchase and connection clause” the law now requires that grid companies have to meet certain renewable energy quota generated relative to overall power generation. Implementing regulations which will set out more details on the requirements of such quota are yet to be drafted by the State Council.

In order to ensure an effective implementation of the law, provincial and municipal authorities are now required to report to the governmental authorities more regularly about all measures and considerations which are planned that relate to renewable energy matters and in this way create more transparency and cooperation between national and sub-national authorities.

The exact and practical impact of the amendments on the PRC Renewable Energy Law and the actual implementation via further regulations still remains to be seen. Yet, the revision and amendments of the law, which had in its original form just been enacted in 2006, shows the government’s efforts and commitment to continuously improve and expand the renewable energy sector in China.