China Guarantees a Market for Renewable Energy

China is trying out an interesting new rule that privileges energy sources like solar and wind power over coal. The country has modified existing law to require that utilities buy all the available power from renewable energy developments.

The new law is more than a bureaucratic formality: it's an attempted antidote to habitual under-planning. Some completed wind farms weren't even hooked up to the grid last year, and the waits have continued this year. It's also tempting for Chinese utilities to buy from existing coal plants at the expense of renewables.

Now, any utility company that fails to buy power from a renewable energy development in its territory will be fined.

As the Motley Fool points out, domestic wind companies like A-Power Energy Generation Systems stand to benefit from the rule. Solar power isn't as development-ready, but aggressive companies like First Solar, which is already planning a huge solar farm for Inner Mongolia, could also use the rule to their advantage.

The real winner, though, may be China's distribution grid. Forced to quickly connect remote developments with urban centers, the utilities will in the process have the chance to build an interconnected super-grid that pools the country's wind resources.

There's good reason to put money into a national grid -- with current wind generation fragmented, new coal plants have had to be built just to deal with wind's intermittency problems. The government's strong central planning abilities suggest that it could easily help push such a project.

It's a grand experiment, of sorts; in the United States, lawmakers are considering pushing renewables from the opposite direction, by requiring utilities to use more as part of their power mix. It may turn out that the Chinese plan, aimed at creating an assured market for those best qualified to build solar and wind plants, will turn out to be the superior option.