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.
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."
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.
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.
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."