With the March, 2011 issuance of yet another spectacular progress report on wind power development in China and the April 2011 release by the State Grid Company of a white paper on its role in facilitating the growth of wind power in China, this is an opportune time to provide an update on how grid build-out is mobilizing to support rapid renewable energy growth in China.
As we have pointed out on numerous occasions, Chinese wind power development is proceeding at a dizzying pace: from a total of less than 500 MW of installed capacity in 2000, China has grown to have the world’s largest installed base of wind power—nearly 45,000 MW, a 73.3 percent increase over the nearly 26,000 MW of installed capacity in place as of year-end 2009! 2010 was another impressive year for wind power growth in China: for all of 2010, China built just shy of 19,000 MW, a 37.1 percent increase over the nearly 14,000 MW installed in China in 2009.
China is poised to enjoy an extended period of rapid wind energy development, in no small part because the Chinese have put in place the manufacturing, finance, planning and public policy elements to ensure the growth of this industry. Chinese wind turbine and related manufacturing has matured greatly in recent years. In 2010 alone, the “big three” wind turbine manufacturers (Sinovel, Goldwind and Dongqi) together accounted for more than 50 percent of total turbine installations in China.
Appreciating the key role that subsidies play in incentivizing the growth of clean energy, the Chinese are committed to gradually increasing the tariffs applied to wind energy, which now stand at 0.004 RMB/kWh, but which likely will double over the course of the next two years.
The Chinese government’s pursuit of “Three Gorges” sized wind projects through periodic RFPs, though controversial, has streamlined the process of wind farm development and its decision to curtail local government’s ability to approve smaller wind projects (less than 50 MW) is helping to rationalize the wind industry. Setting overall and province-specific targets for wind power growth also has been instrumental in nurturing this industry.
Li Junfeng and other renewable energy insiders believe that China will install 15000 to 20000 MW/year of new wind farms for the foreseeable future. Estimates of total installed wind power in China by 2015 range from a “low” of 90,000 MW to more than 150,000 MW, while estimates for total installed wind capacity as of 2020 run from 150,000 MW to in excess of 250,000 MW. If past is prologue, China likely will meet or exceed the highest of these estimates.
Not to be outdone, China’s grid companies are racing to connect this growing installed base of wind power to the grid so that wind power can be delivered to those parts of China where energy demand is most concentrated: coastal China. We also have noted that the galloping pace of wind power development has caused Chinese grid companies to scramble to play catch-up. This is so, not only because of the scorching pace of wind development in China, but also due to the distribution of wind farms in China.
There are nine provinces in China that already have at least 1000 MW of installed wind power. Because the overwhelming majority of the installed wind capacity is located in the vast northern swath of China that takes in Inner Mongolia, Gansu, Liaoning, Xinjiang, Heilongjiang, Ningxia and other regions of China remote from the east coast population centers, the State Grid Corporation—China’s largest—has taken the lead in developing the backbone for a national smart grid.
According to the State Grid Corporation, China’s grid companies are making great strides in connecting new renewable energy capacity to the grid. As of year-end 2010, a total of 29,560 MW of wind power was grid connected, the vast majority of which (28,260MW) was connected through the State Grid Corporation.
Grid development in service of China’s wind power expansion is one piece of a larger plan to build-out the basic structure of a robust smart grid in China by 2020. To that end, the Chinese expect to invest upwards of 2 trillion RMB (about $308 billion U.S.) during the 12th Five Year Plan Period (2011-2015) and likely another 2 trillion RMB from 2015-2020
The growth of renewable energy output in China delivered through a dynamic smart grid ultimately will be in service of China’s announced goal to reduce its carbon emissions intensity per unit of GDP by 40-45 percent by 2020. In order to achieve its goal of reducing carbon emissions intensity, China will need to achieve the goal of having renewable energy account for 15% of total energy use in China in 2020.
Taking into consideration the growth in energy demand through 2020, it is estimated that total installed renewable energy generating capacity in 2020 in China must reach approximately 500,000 MW or 32-35 percent of the then total power generating capacity in China. As of the end of 2010, renewable energy accounted for 9.6 percent of total energy use in China and Beijing’s goal is for that percentage to increase to 11.4 percent by the end of the 12th Five Year Plan period (2015).
If the ambitious plans of the Chinese are realized, the State Grid Corporation estimates that it will be able to handle as much as 411,000 MW of clean energy by 2020, an increase of 320,000 MW over 2005 capacity; this would be equivalent to a reduction in carbon dioxide emissions of 1 billion MT.
The April 2011 State Grid Corporation White Paper is revealing in many ways. Though the white paper formally is a product of the State Grid Corporation, it once again underscores the high degree of coordination among national, provincial and local governments, grid companies, power generators, industry associations and turbine and other equipment manufacturers. Representatives of all of these stakeholders (almost all of whom, unfortunately, were Chinese companies) attended the meeting where the White Paper was released underscoring the symbiotic relationship they have with each other.
The Chinese model of wind power development is characterized by large scale, large capacity, high voltage power that is transmitted over long distances and this necessitates a level of cooperation among power generation, transmission, distribution and others that plays to China’s strengths in planning and coordination.
Through the end of March 2011, the State Grid Corporation had connected more than 33000 MW of wind power to their grid. And as of year-end 2010 had invested nearly 42 billion RMB to build more than 23,000 km of power lines to serve China’s growing wind generating capacity. To better appreciate the pace of grid connectivity of wind power in China, consider this: as of the end of 2010, the State Grid Corporation had connected a total of 28,260 MW of wind power; so that in one quarter alone the State Grid Corporation had increased grid connectivity to wind power in China by more than 15 percent. In addition to the large build out of power lines, the State Grid Corporation also reported that it has finished building 25 transformers having 37.7 million KVA of capacity.
And while the quantity and pace of grid development is eye-catching, the State Grid Corporation also has been building out a grid that is smart and flexible. These features include greatly expanding the amount of high-voltage power lines (supported by a growing domestic manufacturing industry), building out grids that span multiple provinces, deploying wind power connectivity testing and optimization mechanisms, enhancing pre-construction engineering work during the planning of wind farms, formulating technical standards for high voltage power lines and other technologies and the development of platforms for information and statistical analysis and power forecasting.
To address the intermediacy issue associated with wind farms, the State Grid Corporation also has launched planning and construction of pumped storage reservoirs. And at the same time, the State Grid Corporation has formulated the world’s most complete set of smart grid technical standards.
As is true with renewable energy generation, the Chinese strongly believe that the build-out of their smart grid will be a tremendous economic development opportunity: some are comparing the market opportunity with the build-out of the web. The Chinese note with approval that there will be a 48 percent per annum growth in sales of smart meters, so that by 2014 or so smart meters will be sold at the rate of 50 million meters/year, up from just several million meters/year as of 2008.
Similarly, spurred on by the development of the smart grid, Chinese car industry experts are predicting that China will have upwards of 30 million electric vehicles in operation by 2020. The electric vehicle industry alone will create an expected 15 trillion RMB in economic activity, and the IT industry also will have an additional 1 trillion RMB in economic opportunities from the build-out of the Chinese smart grid. In all, over the next 30 years, the construction of a Chinese smart grid is a 40 trillion RMB ($6.15 trillion) economic opportunity.
Last year we said, “Though the development of wind generating capacity continues to outpace the build out of a modern power grid in China and that gap is widening, a race between generating capacity and grid capacity is the type of problem most nations should relish.” It’s now clear that grid capacity growth in China is beginning to keep pace with renewable energy development and that both have hit their stride.
Lou Schwartz, a lawyer and China specialist who focuses his work on the energy and metals sectors in the People's Republic of China, is a frequent contributor to Renewable Energy World. Through China Strategies, LLC, Lou provides clients research and analysis, due diligence, merger and acquisition, private equity investment and other support for trade and investment in China's burgeoning energy and metals industries. He can be reached at firstname.lastname@example.org.