China & Renewable Energy: The Outlook For Growth

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China’s economy has grown at double-digit rates for most of the more than thirty years since then Premier Deng Deng Xiaoping and supporters managed to bring about a revolutionary shift in the Chinese government’s strategic goals and policies.

Opening up its borders to foreign investment, industry, and commerce; adopting an export-driven model of industrial and economic development; and joining the World Trade Organization (WTO), China has become the manufacturing hub of the world. That includes the manufacture of crystalline silicon (c-Si) solar photovoltaic (PV) panels, a market that Chinese manufacturers, supported by government policy and subsidies, have come to dominate over the past decade.

However, the negative impacts and ramifications of its rapid, export-focused industrial and real estate development-driven growth and development, along with its high environmental, social, and geopolitical costs, have become increasingly evident in recent years amid a backdrop of weakness and fragility in the financial sectors and economies of its key trading partners — the US, European Union (EU), and Japan atop the list.

This confluence of factors has prompted the Chinese government to take emergency measures, and adjust and reorient its policies. Finding ways of spurring even greater adoption of renewable energy domestically has been one focal point.

Solidiance’s Report on China’s Renewable Energy Growth Outlook

Changes to its domestic strategic plan for the solar energy market serve as a case in point. Looking to soak up what’s grown to be a “huge glut of solar panels and cells” and stem the precipitous drop in prices on the world market, China’s leadership has increased its target for domestic solar power capacity 8 times over in the past couple years, from 5 gigawatts to 40 gigawatts by 2015, as CleanTechnica site director Zachary Shahan notes.

In its 12th and latest five-year plan (for 2011–2015), China’s leadership again singled out renewable energy as a key, strategic economic sector targeted to receive even greater attention and support. Aiming to provide “a snapshot of China’s renewable energy market,” consulting firm Solidiance January 8 released a white paper that “demonstrates the challenges and opportunities faced by this important industry.”

In its paper, “China’s Renewable Energy Sector: An Overview of Key Growth Sectors,” Solidiance analysts identify three main drivers propelling renewable energy’s growing importance, then move on to examine the government’s targets and strategies, which they note lie “at the root” of industry growth in China.

“The use of renewable energy is an increasingly hot topic and important issue in China. According to Solidiance’s analysis, there are 3 key drivers behind the continued interest in renewable energy in China:

1. China’s increasing demand for electricity.
2. China’s need to reduce its reliance on coal for energy production
3. China’s need to reduce its greenhouse gas emissions.

“In the face of the problems of climate change, greenhouse gas emissions and oil prices rising, the public has come to realize the importance of developing renewable energy. More and more people opt for green travel or low-carbon lifestyles and the public media has been increasing its coverage and publicity of the development of low carbon technology and renewable energy,” Solidance quotes Liu Mingliang, an analyst for the China Wind Energy Association, as saying.

China & Fossil Fuel Use: Unsustainable

The twin aspects of China’s rapid rise to global economic prominence can be captured in two statistics: over the past ten years, China has grown to become the world’s largest consumer of energy, and it has become the world’s largest producer of carbon and greenhouse gas emissions. China produced 20% of all electricity worldwide in 2010, overtaking the US for the first time to become the world’s largest producer of electricity, Solidiance analysts highlight in the report.

While GHG emissions in the US exhibited a slightly declining trend over the past decade, and those of Japan, Russia and India held steady, China’s have risen rapidly, a trend that shows signs of accelerating. Moreover, energy consumption in China has more than doubled in less than 10 years, and there’s no sign of abatement as “the Chinese government continues to invest in moving Chinese manufacturers away from low-cost manufacturing and higher up the value chain into greater value-added activities,” Solidiance analysts note.

The increasingly high costs, risks, and threats posed by ongoing reliance on coal, oil, and gas are not lost on China’s leadership. “China’s demand for energy as well as its capabilities and capacity for energy production are now positioning China to seize the opportunity to take the lead in the development of sustainable energy technologies, so as to further cement its position as an international leader in renewable energies,” according to Solidance’s report.

That said, thermal coal continues to be the source of the large majority of China’s power generation capacity, accounting for 77% of total output. Renewable energy resources, in contrast, account for 19.3% when hydropower is included. Take hydropower out of the calculation and renewable energy generation accounts for just 1.3% of China’s electricity generation, according to the BP Statistical Review of World Energy, June 2011, Solidiance highlights in its report.

“China is quickly realising that coal will no longer be able to support the growth of its economy. Considering the logistical aspects of using coal, China has to either import it or have it removed from mines which is very difficult, and as a matter of fact, China is now rapidly using up its coal capacity,” Solidiance asserts. “China is now recognising that it is unable to get more coal as quickly as it is needed, so China will have to switch to something else.

“In the future, the effectiveness of China’s industrial evolution will no longer be judged on the speed of development alone. Instead, the application of smarter, more sustainable energy sourcing techniques will serve as a stronger indicator of China’s next generation of successful growth in the coming 10-15 years.”

Realizing Pledges to Reduce Carbon, Greenhouse Gas Emissions: A Vexing Problem

Pressed by international organizations such as the United Nations to reduce its carbon dioxide (CO2) emissions, then Premier Wen Jiabao at the 2009 UN Framework Convention on Climate Change (UNFCCC) conference of parties, as part of the Copenhagen Accord, pledged China would reduce its CO2 emissions 40%-45% from 2005 levels by 2020.

Clearly, a drastic shift in energy resource use is required if China has any chance of delivering on its commitment. Renewable energy sources currently account for around 9% of China’s overall energy supply mix. The government has targeted a goal of reaching 15% by 2020, according to Solidiance.

While there are those that have serious doubts of seeing any such dramatic change, Solidiance notes that “China’s investment in renewables has grown at around 80% per annum since 2004, clearly demonstrating China’s commitment to pursuing global leadership in renewable energies and building a sustainable support structure for the continued growth and development of its national economy.”

China’s 2006 Renewable Energy Law — the first state-supported renewable energy mandate — continues to serve as the foundation for growth in renewable energy development and adoption, Solidiance analysts state. The 2006 Renewable Energy law promotes construction of renewable energy facilities and puts pressure on grid operators to purchase their output, the excess costs being picked up by imposing a surcharge on all consumers.

The Chinese government raised this surcharge 100% in December 2011, from 0.04 RMB per kWh to 0.08 RMB per kWh, which led to a subsidy fund balance of some RMB 50 billion, “all of which is used to further develop the use of renewable energy in China,” according to Solidiance analysts.

China – Installed Solar Power Capacity

China – Installed Wind Power Capacity

Infrastructure, Sustainable Growth & Development

The lack of adequate power transmission and distribution infrastructure continues to pose significant obstacles to realizing the government’s renewable energy ambitions. China’s not alone in this regard, as fellow CleanTechnia correspondent Silvio Marcacci notes in this synopsis of a Greentech Media report.

The lack of infrastructure to bring electricity generated from renewable sources online at faster rates has plagued corresponding efforts in the US and EU, with grid interconnection slowing down and threatening Germany and the EU’s chances of meeting their offshore wind power targets, for instance.

As stated in China’s latest five-year plan, sustainability is the buzzword for the development of China’s economic growth model out to 2015, with the focus of investment placed on clean energy, energy conservation, and clean energy cars, Solidiance highlights in its report.

In line with these three primary goals, the Chinese government has set targets of reducing energy use by 15% per unit of GDP, and reducing CO2 emissions by 17%. The government has also set an investment target of RMB 5.3 trillion (~US$ 830 billion) for the power industry, “with hydro power, wind, solar, biomass and grid developments as key targets.”

How to drive rapid growth of renewable energy capacity while meeting its economic growth targets poses a vexing problem for China’s leadership. Shutting down factories during peak season, as the government did to help meet energy and CO2 emission reduction targets during the 11th Five Year Plan period 2006–2010, “suggests a lack of systematic planning of how to develop renewable energy systems along with the relevant supporting industries as part of the government’s push to reduce China’s carbon dioxide emissions in line with their self-imposed targets,” Solidiance analysts note.

Quoted in the report, a senior US diplomat at the US Embassy in Beijing takes a similar view. “The Five Year Plan is a strategic plan of where the government wants to go, but they don’t specify how they will get there.

“The 12th Five Year Plan has been out there for a year or so, but is not in a position of serious implementation. They are only now beginning to look at it from an industrial level and trying to figure out how they can get to where they want to go, they are only now finalising the ‘how’ part of their strategy.”

A national renewable energy roadmap that provides a more granular and dynamic assessment of the stages of development of China’s key renewable energy sectors could benefit China’s shift to a sustainable energy-based economy immensely. In its report, Solidiance assesses the stages of development of each of China’s four principal renewable energy sectors:

1. Hydro – Approaching Decline: With fewer suitable locations for the installation of hydro power, the industry is experiencing a ‘final push’ before the final slowdown. The well-established industry is past its peak and now moving towards decline.
2. Wind – Approaching Maturity: With well-established distribution channels and product standards maturing, the industry is seeing slowed growth after a period of rapid expansion, with recovery rates uncertain.
3. Solar PV – Entering Growth: With a large number of competitors in the market, industry players are seeking to differentiate themselves, regularly creating product innovations and receiving increased levels of investment.
4. Biofuels – Introduction Stage: With technical issues still being resolved, industry players are now beginning to show an interest in the sector. The infant industry is being investigated for future investment, with rapid future growth expected.

There’s a wealth of additional information and detail on each of these four sectors in Solidiance’s report, the results of which we’ll examine in subsequent posts.

All graphics courtesy of Solidiance, “China’s Renewable Energy Sector: An Overview of Key Growth Sectors.”