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The New Global Leader in Renewable Energy

Since 2010, China has been the largest consumer of energy in the world. As the country continues to develop, a rising middle class, more vehicles, urbanization and industry all require increased energy usage.

The South China Morning Post reported that“the direct cost of pollution accounted for 2.5 per cent of total economic output in 2010, but if damage to the ecosystem — including forests, wetlands and grasslands - was included, the losses added up to 1.54 trillion yuan, or 3.5 percent of that year's gross domestic product."

China's leadership has recognized the need to address this issue.  According to Reuters, at Premier Li Keqiang's first press conference, he said, "we shouldn't pursue economic growth at the expense of the environment. Such growth won't satisfy the people."

The advancement of viable clean energy solutions will reduce carbon emissions and China's reliance on foreign countries for energy.  It will also enable China's existing industries to continue growing while at the same time creating a new, innovative industry with higher-paying jobs.  Globally, this will impact consumers, businesses, investors and the environment. 

Energy Situation

KPMG estimates that approximately 90 percent of China's energy comes from fossil fuels, with the largest source being coal. Reliance on coal is not sustainable.  Coal production is water intensive and this will further stress China's already-depleting water resources.

At a September 2009 UN Summit, Hu Jintao, China's President at the time, said China's goal was to have renewable energy sources account for 15 percent of its energy by 2020.  In 2012, renewables accounted for approximately 9 percent.  According to data from the U.S. Department of Energy, 11 percent of the U.S.'s 2012 energy production came from renewables.

China has already made progress towards its 15 percent goal.  Today, it has the most wind and hydro resources and is the the largest manufacturer of solar panels in the world.  According to a PEW report, in 2012, China's clean energy sector attracted more than $65 billion ofinvestment — 30 percent of the G20 total.  This capital was primarily allocated to wind and solar technologies.

Kangxi Grassland, about one hour outside of downtown Beijing

Combined, hydro and wind account for more than 95 percent of China's renewable energy sources today.  Although China's solar capacity has a much lower base than wind and hydro, it is expected to grow seven fold and reach 50 gigawatt (GW) by 2020.  

Sherry Zhang, research analyst at The China Greentech Initiative (CGTI), a Beijing-based collaborative platform of 100 plus companies and governments that identifies, develops and promotes greentech solutions and projects, said: "solar in particular will be the most promising [renewable energy] over the next one to three years." 

The improving economics of solar are bettering its prospects.  Dr. Mark Thurber, Associate Director of the Program on Energy and Sustainable Development at Stanford University, said "the decreases in solar costs are driven largely by China.  A lot of these are the result of economies of scale and refinement of the manufacturing process, although a glut of supply has also played a role."

Biomass production is also expected to increase significantly and reach 30 GW in 2020.  CGTI data show that in 2010 biomass accounted for 1% of China's total primary energy source.  

China's Goals

China is taking a multipronged approach to addressing its energy shortage. According to Xinhua, China's official press agency, in March 2012, Wen Jiabao, former Premier of the State Council, said: "we will optimize the energy structure, promote clean and efficient use of traditional energy, safely and effectively develop nuclear power, actively develop hydroelectric power, tackle key problems more quickly in the exploration and development of shale gas, and increase the share of new energy and renewable energy in total energy consumption."

The Chinese government has introduced a multitude of measures to support the progress of renewables.  Zhang said, "China has named 'new energy' — including solar, wind and bioenergy — as one of the seven new strategic industries.  China hopes this can transform the economy from heavy industrialization to a more value-added clean manufacturing capability."

Given that the renewable energy sector is capital intensive, the Chinese government has offered subsidies and low or zero interest loans in this space.  

Talking about how to foster industry growth, Nathaniel Bullard, Director of Content at Bloomberg New Energy Finance, a data and news company covering the energy sector, said: "it has mostly to do with the level of commitment that leads to scale.  A huge advantage is enormous scale that allows manufacturers to get costs low.  Government commitment and a stable demand scenario [are conducive growth factors]."

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Innovation & Investment

China's leadership in the renewable energy space is an example of its transition from a predominantly manufacturing economy to a more knowledge- and technology-based economy.  Not only has China introduced new policies, but it is also investing heavily in new technologies.  According to data from Bloomberg, China will invest as much as $294 billion in renewable energy as part of its current five-year pan.  

The Sino-Italian Ecological and Energy Efficient Building (SIEEB) in Beijing

A recent study by researchers at MIT, the Santa Fe Institute, and Indiana University found that “China is now logging more energy patents per year than the European Patent Office and growing much faster than any other nation...China now comes a close second to Japan in terms of cumulative wind patents.”  China had the third-most solar patents behind Japan and the U.S.  

In an August 2013 white paper on China, Bloomberg New Energy Finance stated, "nuclear, power transmission, solar PV, smart grid, onshore wind, as well as energy efficiency across all parts of the economy are likely to be the biggest areas of investment in China over the next 20 years."

Much of China's investment in the renewable energy sector is through State-Owned Enterprises.  Talking about commercialization of renewable energy solutions, Rosie Pidcock, who manages strategic partnerships at CGTI, said, "China has the capital to acquire technologies that they might not have domestically."

Foreign companies also see opportunities in China.  In late 2012, leading an investment consortium, Morgan Stanley's infrastructure group made a second investment in Zhaoheng Hydropower, bringing the group's investment to $300 million in total. 

Capital flows both ways.  Chinese institutions are also investing outside of its borders.  According to World Resource Institute data, "China has made at least 124 investments in solar and wind industries in 33 countries over the past decade." 

Bullard said, "I think you will start to see movement of more Chinese companies becoming international companies - companies with Chinese roots and many Chinese executives.  There are likely to be many fewer companies you've never heard of."

Potential Challenges 

The industry in China does face impediments. China's windiest areas are far from from the largest urban areas and energy is lost during the transmission process.  Curtailment — where there is energy capacity, but the grid does not accept it — is another issue for wind power.  According to data from CGTI, 20 percent of China's total wind power generation in 2012 was lost to curtailment.   

Energy storage is one area where new technologies can improve efficiencies.  Thurber said, "you need power you can bring on at scale.  You want most of that to be available when you need it." 

For industry development, sufficient capital and a long-term view are required.  Bullard said, "lack of capital more than any issue with technology could slow the growth rate and keep the goals from being met."

Zhang stressed the importance of patience: "the industry is still relatively nascent stage and we need to give the market time and space to consolidate with fewer players but with more competitiveness...The Government realizes it needs to let the market develop." 

There are other challenges.  Dams required for hydropower technologies force local residents to relocate and negatively impact local ecosystems.  Changing the flow of water also impacts other countries which rely on water sources originating or flowing through China.  And if shale gas and nuclear development are more successful than projected, this will reduce the cost of energy and decrease the urgency to develop renewable energy.

Global Implications

China's renewable energy impact extends well beyond its borders.  China has signed agreements with the U.S. and various other countries, which will create opportunities for foreign companies that can provide knowledge-based services or new technologies, which China does not currently have.  Zhang said "foreign companies can be more active and engage with Chinese manufacturers and form a partnership...R&D will be enhanced through M&A or domestic internal R&D...we see more partnerships either between Chinese and foreign manufacturers or state-owned companies and private companies and more collaboration amongst stakeholders and intellectual sharing within the sector."

Combining innovative technologies with inexpensive manufacturing capabilities will create commercially-viable renewable energy products for consumers globally.  Beijing-based Changhua Wu, the Greater China Director for the Climate Group, a non-profit focused on the clean revolution, said, "in order for clean technology to be commercial, there is a cost issue and China is one of the most competitive markets with a very strong industrial base."

Thurber agreed, "the government has pushed the development of renewable technologies in part with an eye toward commercial advantage.  And in general, it is good for the world for China to be working on manufacturing renewable energy cheaply." 

China is the world's largest consumer of oil and coal.  If renewable energy does prove commercially-viable, this will reduce its demand for certain commodities, driving down global prices and making it easier for other countries to meet their energy demands.  

Future Prospects 

Going forward, Bullard expects "to see a full integration of renewable technology and smart grid sources when developing solutions.  Renewable technologies will not be seen as alternative.  They will be seen as a compliment to the system.  And at sufficient deployment, they will join the heart of the energy system."

Zhang holds a similar view: "now, different types of renewable energies are stand alone, but in the future we will see more integration of renewable energy technologies.  They could smooth out each other so together they provide a more stable and efficient energy supply."

  • Although there are challenges, the general direction of the renewable energy in China is positive.  Wu said, "for China, I'm very optimistic about all of the growth drivers coming together now.  Overall, the trend is very positive.  China can take advantage of the huge market and now is an opportunity for China to demonstrate its leadership of a clean energy future."
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