energy paper deng pan&wang (1)

Renewable Energy in China: A Report on the Current Status and

Policies towards Renewable Energy Development in China

Prepared by:

Yaxi Deng Zhifen Pan Xinyi Wang

PPHA 36921 Final Project

06/11/2014 Harris School of Public Policy

Deng, Pan & Wang PPHA 36921 Renewable Energy in China

Renewable Energy in China: A Report on the Current Status and Policies towards

Renewable Energy Development in China

Introduction

Increased smoggy days looming over various regions in China have become a major

concern to the general public and have raised an alarm amongst the capital’s decision makers.

Due to the most recent smog incidents that occurred earlier this winter, poor air quality has

alerted officials across the country, and there is strong call for the central government to take

action to control air pollution problems. As Chinese Premier Mr. Li Keqiang said during the

most recent National People’s Congress: “We will declare war against pollution and fight it with

the same determination we battled poverty” (New York Times, 2014). As a step to fight air

pollution, the government has pledged to decrease the share of coal in the energy mix, making

renewable energy sources highly sought after. It is perceived that cleaner and greener renewable

energy sources will be playing an increasingly significant role in the future of China’s energy

development.

In this report, we will begin with an overview of energy in China including energy

production and policies. Then we will proceed with more detailed description of the renewable

energy sources and related policies including wind, solar, hydropower, biomass, and geothermal

power. More emphasis will be put on wind and solar energy since we believe these are less of a

“public bad”, causing less controversial issues and having the greatest potential for further

development.

Overview

Since China adopted the policy of reform and opening up in the late 1970s, its energy

industry has made great advances. China is now the world's largest energy producer. It has built

up a comprehensive energy supply system comprising coal, electricity, petroleum, natural gas,

and new and renewable energy resources. Its universal energy service and civil energy use

conditions have markedly improved. Its thriving energy industry provides a guarantee for the

country to reduce poverty, improve the people's livelihood and maintain long-term, steady and

rapid economic development.


However, China's energy development still faces many challenges. The country's energy

resource endowment is not high and its per-capita share of coal, petroleum and natural gas is

low. Its energy consumption has grown too quickly in recent years, increasing the strain on

energy supply. In order to curb excessive consumption of energy resources and achieve the

comprehensive, balanced and sustainable development of the economy, society and ecology,

China keeps strengthening its efforts in energy conservation and emission reduction, and strives

to raise the efficiency of energy utilization. As a result, energy consumption per unit of GDP has

been decreasing year by year. China will continue to take the Scientific Outlook on Development

as its guiding principle, and work hard to transform its development pattern, giving prominence

to building a resource-conserving and environment-friendly society. It relies on scientific,

technological and system innovation to raise efficiency in all aspects of energy utilization,

further develops new and renewable energy resources, and promotes the clean and efficient

development and utilization of fossil energy resources. The country endeavors to build a modern

energy industry which is secure, stable, economical and clean, in order to provide a solid

guarantee for building a moderately prosperous society in all respects and make greater

contributions to the world's economic development.

As the largest developing country in the world, China is facing with many tasks of

developing its economy. The basic contents of China's energy policies are: "giving priority to

conservation, relying on domestic resources, encouraging diverse development, protecting the

environment, promoting scientific and technological innovation, deepening reform, expanding

international cooperation, and improving the people's livelihood." The state strives to advance

the transformation of its energy production and utilization modes, and build a modern energy

industrial system which features secure, stable, economical and clean development, so as to

support sustainable economic and social development with sustainable energy development.

To achieve this goal, the government has promised not only to give priority to the

development of renewables, but also adopt appropriate market mechanisms and financial

incentives to increase capital for the development of the resources while also encouraging more

local governmental participation. In addition, national science institutions need to enhance

research on technologies for using renewable energy resources and continue international

cooperation to share technology and research efforts. The role of technology leadership and


technology transfer will continue to play an important role in policy thinking, perhaps becoming

an event more dominant role than before. China wishes to develop and enhance its own

technologies will reducing dependence on foreign technology and aid.

Vigorously developing new and renewable energy is a key strategic measure for

promoting the multiple and clean development of energy, and fostering emerging industries of

strategic importance. It is also an urgent need in the protection of the environment, response to

climate change and achievement of sustainable development. Through unswerving efforts in

developing new and renewable energy sources, China endeavors to increase the shares of non-

fossil fuels in primary energy consumption and installed generating capacity to 11.4 percent and

30 percent, respectively, by the end of the 12th Five-Year Plan (China’s Energy Policy, 2012).

We will provide a detailed description of each of the renewable energy categories in the sections

below.

Current Renewable Energy Sources and Policies

Wind

China is endowed with huge potential for developing wind energy. Wind energy

nowadays is the third largest energy source of China, right after coal and hydropower. The major

advantages for developing wind energy market in China are: First, wind energy is clean, without

producing emissions; and using wind energy as substitute can meet carbon emission reduction

goals in China. Secondly, wind energy is more cost effective compared with traditional energy

resources. The demand for electricity is increasing in China and the costs from non-renewable

energies have risen. As the wind industry grows and the production costs fall, wind energy is

becoming more and more competitive than non-renewable energy sources. According to joint

research from Harvard University and Qing Hua University, wind energy can replace 23% of

coal-generated electricity, and would eliminate 9.4 percent of the country’s annual emissions.

Last year, wind supplied 12.2 GW of installed capacity, which accounts for about 0.4% of

China’s total electricity supply (Block, 2013). The 12th five-year plan has a target of installing

100GW of wind energy capacity by 2015 and 200 GW by 2020.

From a global perspective, China has been recognized as the world’s leader in Wind

Energy Market. Currently, China ranks fourth in the world in terms of installed capacity and in


year 2012, China ranks first in annual installed capacity among the world. From year 2013,

China speeds up the development on wind energy, as the U.S. and Europe slowed down. China

built 16,100 MW new turbines in year 2013, accounts for almost half of the new capacities added

worldwide, and is now with total installed capacity of 91,424 MW and China’s wind turbine

manufacturing industry is also highly ranked amongst global producers (Marcacci, 2014).

In terms of geographical distribution for potential wind energy resources, the north and

western areas, called “Three North Regions” is with the greatest potential wind resources,

including provinces of Heilongjiang, Jilin, Liaoning, Hebei, Inner Mongolia and Xinjiang. North

and northwest of China have vast land for onshore wind energy development. South-east costal

regions also have plentiful wind energy resources, represented by Shanghai, Jiangsu, Zhejiang,

Fujian, Guangxi, Guangdong and Hainan. (Xia & Song, 2009) However, an economic problem is

associated with the onshore wind energy development: the lands needed for onshore wind energy

are located on north and North West of China, where it is also with relatively less population and

less demand for wind energy. Regions in south and south-east China have dense population. The

demand for electricity from wind power is relatively higher in south and east coastal regions.

Thus, the wind energy developed in northern and western onshore land areas needs to be

transmitted to south and east coastal areas to satisfy the local demand. The transmission from

west to east is associated with costs and inefficiency. In south-east coastal areas such as Jiangsu,

Fujian and Guangdong…etc., there is great offshore wind energy resources, but the offshore

wind energy resources has not yet been developed as much as onshore wind resources in north

and west China.

The Chinese government had implemented varies of policy mechanisms to boost the

wind energy industry of China through cost reduction and market expansion. Major policies

regarding the wind energy development of China include: tax reductions, subsidies, and low cost

loans from State-Owned banks and national industry policies…etc. Major policies have been

implemented include: the Renewable Energy law in 2005, which offer national funds for

renewable energy development and discounted lending for renewable energy projects; the

regional Feed In Tariff for wind power that has been implemented since 2006; the National Debt

Wind Power Program, which supports the building of wind farms using “national debt and

favorable interest subsidy conditions” (Xia & Song, 2009). Government Subsidies and Tax

reductions enabled the cost reduction in the development of wind energy projects. In addition,


the Wind Power Concession Project incentivized domestic and foreign investors to invest in

larger scale (more than 100 MW) wind power project. By developing larger scale wind farms,

the price of wind power reduced and the market for wind power further increased. (Xia & Song,

2009)

From now on, the Chinese government will focus more on expanding wind farms to

offshore areas, in order to ease the long distance, west-to-east electricity transmission problem

generated by onshore wind energy production. To achieve its wind capacity installment goal and

carbon emission abatement target by 2020, technologies in the industry need to be further

advanced to improve the efficiency of wind energy industry. The “land-based and near offshore”

resources are in the focus of being developed. The Energy Research Institute of National

Development and Reform Commission (NDRC) has made recommendations for future policy

goals after the 2020 goal has been reached. In accordance with the recommended policies, far

offshore wind demo projects need to start after year 2020 and by the year of 2050, policy makers

need to better integrate the wind power into the national power system; there will be co-

developments of land-based, near offshore and far offshore wind projects. This indicates Chinese

policy makers nowadays have no plan of ever halt the expanding of wind energy market in

China. Moreover, the feed-in-tariff for top-end grid connection need to adjust with more installed

capacities added to provinces and to offshore areas. In addition, considering the transmission

distance of the power grid connecting to wind farms, it will grant a subsidy of CNY 0.01/kwh to

CNY 0.03/kwh to cover the costs of “long distance transmission of wind power” (Shi et al.,

2011). By providing with the subsidy for long distance transmission of wind power, it also made

the development of wind energy more cost effective, and reduced the cost in the production of

wind energy.

Solar

Solar energy has been a rapidly developing market in China since it announced the China

Solar Subsidy Plan in 2008 (Heechan, 2009). It has been reported that the country has added at

least 12 gigawatts of solar capacity in 2013 alone, which is 50 percent more than any country has

ever been able to build in a single year (Plumer, 2014). The major areas with demonstration

projects of large-scale solar energy plants are in Tibet, Qinghai, Inner Mongolia, the Erdos

Heights, the flat desert along the Yellow River and the Hexi Corridor in Gansu Province (Zeng et


al, 2012). These are all places with relatively flat landscapes and receive adequate sunlight

throughout the year. According to the 12th five-year plan the annual utilization of solar energy by

2015 is estimated to equal 500,000 tons standard coal (Zeng et al, 2012).Being the world’s

largest consumer of solar energy, China produces the majority of solar water heaters in the

world. They are also a leading producer of solar PV, supplying almost 40 percent of all solar PV

worldwide (Plumer, 2014). So there is also potential of China’s solar energy industry growth in

global exports. The graph below shows the anticipated expansion of China’s solar power

systems:

Table 1. Solar Power System Anticipated Development

Power Generation Category Power Generation

(MW)

Key Areas of Work

2015 2020

Solar power plants (total) 1100 2300 Photovoltaic (PV) and solar thermal power systems.

PV power facilities 1000 2000 Construct solar power generation facilities in Qinghai,

Gansu, Xinjiang and other regions to explore the

complementary operation of solar power stations with

hydropower and wind power.

Solar thermal power facilities 100 300 Carry out solar thermal power industrial

demonstrations in the regions with rich solar resources,

water resources and available land.

Distributed PV power 1000 2700 Construct grid-connected PV power systems in roof

concentrated areas such as industrial parks and large

public facilities. Solve power shortage in Tibet,

Qinghai, Gansu Yunnan and other remote areas.

Total 2100 5000

Source: China Electricity Council, 2012.


Nevertheless, the development of the Chinese solar energy industry is not without

difficulties. The main problem is that China focuses on silicon-based solar cells which also

generate a series of environmental pollution problems. The more desired thin-film solar cell

technology is still largely in the R&D stage; therefore large scale installation still needs more

time. Once set-up at a large scale, the thin-film solar cells will be more cost effective, can be

installed more easily and are more aesthetically attractive, so it is considered that the solar

energy market still has a promising future.

As for incentives to boost the solar industry, the Chinese government has required grid

companies to build solar friendly networks and emphasized the need for financing the solar

manufacturers and encouraging mergers and acquisitions among solar companies (China

Economic Review, 2013).

Hydropower

China is actively developing hydropower nowadays. The country boasts abundant

hydropower resources, hosting the Three Gorges Dam which is the world’s largest hydropower

station. Moreover, its technically exploitable hydropower resources are equal to 542 million kW,

putting the country first in the world. The following figure shows the main locations of China’s

13 largest power plants:


Source: www.powermag.com

Calculated according to power generation, less than 30 percent of China's hydropower

resources are currently utilized, leaving plenty of room for development in this regard. In order

to attain the goal of increasing non-fossil energy consumption to 15 percent of the total energy

consumption by 2020, more than half will come from hydropower development (China’s Energy

Policy, 2012). But with the development of hydropower often comes controversial issues such as

negative ecological impacts, loss of biodiversity and the damage of historical, cultural sites, and

the mass relocation of residents. These are examples of “public bads” which require government

intervention to compensate for people’s losses.

On the condition that the ecological environment is protected and resettlements of local

people affected are properly handled, China will energetically strive to develop hydropower. By

integrating hydropower development with promotion of local employment and economic

development, the Chinese government aims to "develop local resources, stimulate local


economic development, improve the local environment and benefit local people." The country

strives to improve its resettlement policies regarding local people affected by hydropower

projects, and perfect the benefit-sharing mechanism. China will strengthen ecological-protection

and environmental-impact assessment, strictly implement measures to protect the environment of

existing hydropower stations, and improve the comprehensive utilization level and eco-

environmental benefits of water resources. In accordance with rational river basin planning for

hydropower development, China will speed up the construction of large hydropower stations on

key rivers, develop medium- and small-sized hydropower stations based on local conditions, and

construct pumped-storage power stations in appropriate circumstances. The country's installed

hydropower generating capacity is expected to reach 290 million kW by 2015 (China’s Energy

Policy, 2012).

Biomass

Bioenergy is another major focus under China’s 12th five-year plan for developing

renewable energy. Biomass is an environmental friendly source of energy, without generating

emissions of pollutants. It can decrease greenhouse gases, decrease carbon and pollution and

relieve our reliance on petroleum and coal. According to the report by China Reform and

Development Commission, by year 2015 and by year 2020, the amount of electricity generated

by biomass can reach to the capacity of 13,000 and 30,000 respectively (Wang, 2013).The

challenges and bottlenecks in the development of biomass energy market in China not lie on the

technological aspects, but are associated with the high cost of using biomass energy sources. In

China, it is difficult to collect cheap non-grain raw materials for biomass energy, which is the

reason for the high cost of using biomass as energy supply. Another issue may occur when trying

to develop bioenergy at scale- there may be land-use conflicts between crops grown for food and

those grown for fuel. In order to solve the problems, according to experts from NEA, it is

fundamental to have government support for biomass industry(Yan, 2012).Since bioenergy

industry is relatively new in China, it is important for government initiate policies to support the

development of the industry so that more and more companies will enter into this industry, which

will be helpful for further R&D in the industry, to explore cheaper ways of collecting raw

materials and develop advanced technologies enabling the cost-effectiveness of producing


bioenergy. Policies such as financial subsidies from government are important in solving the

high cost problems in the producing of bioenergy.

Followed by the 12th five-year plan, the Ministry of Science and Technology of PRC has

announced plans for policy support on biomass industry (Shi, 2012). Policy supports include: 1)

Developing new kinds of high efficiency biomass products as energy sources. 2) Develop a

system of cost effective technologies for the production and utilization of bioenergy 3)

Implement financial subsidies and tax reductions for the investment, research, and development

of bioenergy 4) Ensure government support in the financing in bioenergy industry. If these new

policies can be carried out successfully in China, bioenergy industry in China will increase in

scale and the cost of using bioenergy will decrease. The ultimate purpose is to make biomass as a

substitute source of energy for coal, and ensure a sustainable way of energy usage, and attain the

target of carbon emission.

Geothermal

There are several regions abundant in geothermal resources distributed across China

(Taylor & Zheng, 1996). These are mostly hot springs which are generally most widely available

in regions that are active tectonic areas (Wang & Huang, 1990). Mainly the hot spring resources

are applied to various industrial processes, fish farming and heating. To date there have been

approximately 200 geothermal systems established and it is predicted that by 2015 the total

amount of various types of geothermal energy projects can reach 100 MW and utilization will

amount to the equivalent of 15 million tons standard coal (Zeng et al., 2012). Again, just like any

other type of renewable energy, geothermal energy also has not been utilized at a large scale.

Technology improvements are also needed for the current geothermal energy products since the

sites often suffer from corrosion, calling for better reservoir engineering. China will spread the

technology of efficiently using geothermal energy which requires more research, planning and

better management on the condition that underground water is protected and the process is

environmentally friendly. Though it is difficult to say that geothermal energy can significantly

reduce the reliance on coal, it is still a step forwards in innovating green technology geared

towards fewer emissions.


Conclusion

Despite the dramatic progress China is making in the clean energy market, fossil fuel

continues to dominate the energy sector. How the country chooses to manage its greenhouse gas

emissions and how the Chinese can change their coal-burning habits is essential to global efforts

to mitigate climate change. With a transitioning economy, pro-environment leadership and many

political and economic incentives for renewable energy in place, coal-plant construction will

definitely slow down to make way for cleaner energy sources.

In fact, we can explain this stage of development using the Environmental Kuznets

Curve:

This curve shows the relationship between environmental quality and income per capita. . It is

intuitive that more development will bring about more pollution, and as people get richer, they

pay the price of degrading environmental quality. However, when economic development

evolves to a certain level, more development may create the demand for better environmental

quality to rise, and therefore will trigger technology innovation and other mechanisms to

decrease pollution. Pollution is a function of the scale of aggregate economic activity which can

be reduced by investing in clean technology. Many scholars predict that China is currently

approaching the threshold point of the Kuznets Curve, and believe that the government should let

the economy keep on growing until it reaches the right-hand-side of the curve where industries

Income Per Capita

Pollution


will start to spend more on environmental quality improvement. This also indicates a bright

future for renewable energy resources since the country is transitioning to a cleaner and greener

energy sector.

Not surprisingly as a country with such rapid economic growth, China is now caught up

in multiple issues including local government debt, currency, food and water resource, and

environmental crises. In terms of blending economic and environmental considerations while

closing the gap between renewables and coal, the Chinese government indeed faces the dilemma

of economic-first approaches versus more sustainable development. However like Premier Li

mentioned, the Chinese government has now “declared war” against environmental damage and

pollution, placing green development way on top of the policy agenda. Finding a path to a

greener, low-carbon economy is essential for China’s next step in development, with which its

core should be the change in energy technology innovation, institutional improvements and the

change in public attitudes towards green consumption.


References

Block, B. (2014). Wind energy could power China, study finds. Worldwatch Institute. http://www.worldwatch.org/node/6255

China’s Energy Policy White Paper. (2012). State Council Information Office of the People’s Republic of China. http://news.xinhuanet.com/politics/2012-10/24/c_113484453.htm

Heechan, K. (2009). Solar energy markets in China and India. SERI Quarterly. 2(4), pp.104-107.

Marcacci, S. (2014). 2013 Wind energy installation stall in US, surge in China. Clean Technica. http://cleantechnica.com/2014/02/06/2013-wind-energy-installations-stall-u-s-surge-china/

Plumer, B. (2014). China installed record amounts of solar power in 2013. But coal is still winning. The Washington Post. http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/30/china-installed-a-record-number-of-solar-panels-in-2013-but-coal-is-still-winning/

Shi, H. (2012). Increasing support on biomass energy policy. Sinopec News. http://www.sinopecnews.com.cn/news/content/2012-06/15/content_1186015.shtml

Taylor, A., & Zheng, L. (1996). Geothermal resources in China. BL & A Report. http://bl- a.com/ecb/PDFFiles/China1996.PDF

Wang, M. (2013). Incentives in policies encourage eco-farming. Sina Finance. http://finance.sina.com.cn/stock/hyyj/20131122/014017398475.shtml

Xia, C., & Song, Z., (2009). Wind energy in China: Current scenario and future perspectives. Renewable and Sustainable Energy Reviews. 13(8), pp.1966-1974.

Yan, Y. (2012). China targets renewables to cut energy dependence. Chemistry world. http://www.rsc.org/chemistryworld/2012/09/china-renewables-five-year-plan-biomass

Zeng, M., Lu, C., Ma, M., Peng, L., Yan, B., Na, L., & Xue, S. (2012). Renewable energy development thrives during China’s 15th five-year plan. Powermag December 2012.

http://sinosphere.blogs.nytimes.com/2014/03/05/china-declares-war-against-

pollution/?ref=environment

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