China confirms global leadership in renewable energies

The coughing engine that won’t stop

Driven by its increasing demand for electricity, security of supply concerns and the need to reduce the emission of greenhouse gasses, renewable energy has become an engine of global proportions in China. It doesn’t run smoothly but it’s not about to stop. The political top acknowledges the huge potential and strategic value of renewables. However, inefficiencies in the energy system are of such scale that rigorous reform is urgently required to avoid further damage. Everything points at less government intervention and much more efficient regulation. “China needs an integrated and open electrical power market if we want to develop new energy extensively.”

(c) The Tokyo Times
Let’s first roam through a map of impressive figures to paint the right picture. China is already the biggest electricity market globally, overtaking the US in 2010. Capacity doubled in less than 10 years to reach 1,1 TW in 2011 and is expected to reach 2, 4 TW by 2030. It was producing roughly 4700 TWh or 22% of the world’s electricity versus the USA’s 20% and Japan with 5% ranking third.

Coal accounts for 65% of Chinese electricity mix. It’s the energy backbone of the country and electric power is the biggest coal consumer. Realistically, a rigorous decline in coal consumption cannot be expected. China has huge coal reserves and with energy security in mind, government will prioritize domestic resources. To this end it’s strengthening the coal industry by consolidating and modernising its 11.000 coal companies and encouraging the vertical integration of coal and power enterprises. According to some estimates, China will burn 35% more coal by 2020 than it did in 2010.

Renewables in the fast seat

Its dependency on fossil fuels cements China as the highest emitter of greenhouse gasses. Government has pledged to reduce emissions by ‘greening’ the energy mix and other means. An ambitious Five Year Plan for 2011-2015 highlights sustainability as key for economic growth. Plans for the energy sector include a minimum investment of USD 830 billion in the power industry with gas fired power plants, renewables, and transmission network as key investment targets. China is also promoting the development of renewable energy technologies and industries so that essential renewable energy equipment can be produced at home.

The leaders in Beijing decreed that by 2015, 15% of energy output should come from non-fossil energy sources including nuclear. China has the biggest nuclear energy program in the world. By the end of 2010, the installed capacity of nuclear energy reached 10,8 GW or just 1% of installed capacity. But China has 28 plants and a total capacity of 34 GW under construction. Nuclear will rise further, although more cautiously after Japan’s atomic stroke at Fukushima in 2011.

According to Solidiance, an Asia focused consultancy, China’s investments in renewables have already grown at 80% per annum since 2004.

Wind, solar and biomass are set to increase further, confirming China’s global leadership in renewable energies
As a result, a quarter of global renewable capacity is installed in China. The Chinese overtook the US as the greatest investor in clean energy for the first time in 2009. Investments exploded from USD 1,5 billion in 2004 to 49 billion in 2010. In 2012, China was again the biggest investor in clean energy with a record 68 billion dollar according to Bloomberg, a quarter of what was invested in the sector worldwide. That confirms China’s global leadership in renewable energies.

Only this year 2013, the country plans to add 49 GW of clean power: 18 GW from wind, 10 GW of solar and last 21 GW being hydro. Hydroelectric power in China is the biggest worldwide, the country is home to 20% of global output. Its China’s most developed source of green power and the country’s second source of electricity. Hydro accounts for 22% of installed capacity in 2011 and 18% of national output. But growth is losing steam. Although 120 GW of new hydro power should be under construction by 2015, hydro’s increase is plateauing. Suitable sites for dams are more and more difficult to find. That leaves other renewables to help China to live up to its green ambitions.

China has become the world’s biggest wind power with 26% of what is globally installed. Wind accounted for 4,5% of installed power generation capacity in 2011. Output was 73 TWh in 2011, 1,5% of total power generation. Wind has already had a true bonanza for a decade and is now catching its breath for another sprint. The Chinese say there is no excessive construction of wind power in their country. Compared to Denmark, wind’s share in total Chinese power generation is low, so there is plenty growth potential of up to 250 GW or even more. Government target is to have totally installed 100 GW by 2015, with an aggressively growing share of off shore wind.

Fast growth also has its down side

Solar PV is entering growth. Although still dominated by Europe with roughly 70% of the world’s total capacity installed, China is already the fastest growing solar PV market globally with installed capacity jumping from 68 MW in 2005 to 3,1 GW in 2011. That is still an almost invisible share of 0.3% of Chinese installed capacity. With its export orientated solar panel industry hindered by the financial crisis, adjusted energy policies and anti-dumping measures in Europe, China’s government is now set to develop the domestic solar PV market even more quickly, providing more subsidies and incentives for private manufacturers. The official target of 21 GW by 2020 has been brought forward to 2015.

As modest as they are percentage wise within the domestic power generation, in absolute terms Chinese renewables are of a tremendous scale and moving at a breath taking speed already.

Inefficiencies in the energy system are of such scale that rigorous reform is urgently required to avoid further waste
And so are the problems that come with it. Heavy subsidization generated unsustainable growth, with the solar PV industry as a pronounced example. Flawed renewable energy practices on a local level have brought mediocre enterprises to life that hampered technological innovation. “To expand their market share, producers tended to rely on the price advantage they received from higher shares of the subsidies, rather than lowering the real costs of production or improving efficiency” according to a report of the World Watch Institute.

Although solar has attracted much attention in Europe for obvious reasons, the situation of wind power in China is far worse, if only for its scale. The development of the wind power industry has been slowed down as a result of a series of traps. Too complicated a system for subsidizing on-grid wind power is one of them. Tax policy is another. That worked out to be an incentive for local governments to force wind power companies to buy locally produced equipment, encouraging low-level manufacturing and affecting the development of a competitive industry. Then the access to the grid and transmission to the centres of demand along the Chinese coast has been hindered. The construction of wind power is concentrated in three remote and poor areas in the north of China but encounters big difficulties to branch out. Captured in the regions of origin, it stays under used. Wind power in these areas has in some periods been curtailed by more than 50%, according to the China National Renewable Energy Centre.

“Construction and exchanges of electrical power have been seriously restricted by local interests” wrote Shi Lishan earlier this year in a cover story of the China Renewable Energy Magazine. “The construction of power plants is mainly for increasing GDP, rather than meeting the demands for electrical power, leading to serious blind construction of power plants in various areas. Inter-provincial power exchange is restricted by much administrative interference and influences by interest rather than based on supply, demands and price.”

Open market required

Strong and critical wording of someone who is not just somebody. Shi Lishan is the deputy director general of the New Energy and Renewable Energy Department of NEA,

“China needs an integrated and open electrical power market to develop new energies extensively”
the National Energy Administration. NEA is the executive body of the National Energy Committee, the supreme coordinating entity in charge of China’s energy strategy and security that was set up in 2010 and is presided by China’s prime minister. Shi Lishan advocates simpler subsidy mechanisms and a fair and open market environment. “It is necessary to establish an integrated and open electrical power market with fair competition and strengthen market-based power price policy (in order to) create conditions for development of renewable energy (..) extensively.”

Beijing is trying to assess these and other issues. Since August 2011, all wind projects, including those with installed capacity less than 50 megawatts (MW), have to be reviewed and registered at the National Energy Administration before they can receive government approval or subsidies. Such restrictions are meant to contain corruption and reckless expansion at local levels and to fight the over-construction of small-scale wind power projects under 50 MW. As a result, there is a consolidation and temporarily decline in new installations in the highly competitive, biggest wind power market in the world.

According to consultant Solidiance, the Chinese urgently need to tackle infrastructure and grid policy. Many renewable projects will be stalled or remain unconnected until a costly improvement and expansion of the Chinese grid gets under way. Problem is, the electricity grid is monopolised by state owned companies and is lacking a liberal market system. That leaves a question mark behind the chances of a radical overhaul of the grid to facilitate the access of wind power and remains a challenge for the future development of all forms of renewable energy in China.

Analysts claim that the first thing China needs to do is “to lead its clean energy industry out of the swamp of overproduction and low-end manufacturing”. The recent demise of Suntech and the king of all solar panels Shi Zhengrong is an indication that markets are taking care of this.