China Policy: A Defining Decade for the Would-Be Leader

Despite the turbulence in Western financial institutions last year, the West remains the world’s most important source of capital allocation for economic development.

China’s penchant for over-allocation of capital, resulting in capacity development far exceeding a level that markets can absorb, is beginning to concern policy-makers in China with respect to the renewable energy sector. Side by side with excessive capacity are bottlenecks in inputs and distribution which inhibits growth and will cause any number of wasteful investments in the renewable energy sector. And, the failure of the Chinese leadership to recognize that co-operation with the West will be more advantageous for China long term, may cause trade frictions and restraints.

As China enters its fifth year since the Renewable Energy Law of the PRC went into effect, opportunities and challenges co-exist (as the Chinese often say). In its push to develop a new energy infrastructure and in the process dominate the renewable energy industries that will define economic growth in the 21st century, how China takes on those opportunities and meets those challenges should come into sharp focus in 2010.

The amendments to the Renewable Energy Law of the PRC, which were promulgated at the 12th Meeting of the Standing Committee of the 11th National People’s Congress in December 2009 and are poised to go into effect on 1 April 2010, demonstrate that the Chinese are determined to forge ahead, with or without concrete agreements with the West, to perfect its emerging renewable energy system. The amendments put in place mechanisms to address at least some of the deficiencies outlined above; two key aspects serve to simultaneously accelerate and control the development of the renewable energy industry in China. First, the amendments call for a more comprehensive planning system at national and local levels. The objective of the planning process is to ensure capital is effectively deployed to develop an appropriate level of renewable energy resources at a pace commensurate with well-modulated growth.

The second important feature added to the Renewable Energy Law is government control over access to transmission for the growing pie of renewable energy and the price to be paid for renewable energy by China’s electric utilities. The revisions to Articles 14, 20 and 24 in particular create the ‘leverage of the pocketbook’ which, if effectively carried out by the government, will incentivize further development of renewables and act as an anvil to drop on those who fail to fall in line with China’s increasingly ambitious renewable energy programme.