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CAN CLEAN RENEWABLES INCREASE THEIR SHARE OF CHINA’S RAPIDLY EXPANDING ENERGY SECTOR, AND IF SO, WHEN?
Aerial View of the Three Gorges Dam
With output up to 17.5 gigawatts
China’s Three Gorges Dam is the most powerful
hydroelectric power complex ever built.
Editor’s Note: As we reported in China, Canals & Coal, if the Chinese wish to develop their economy to the level of the major industrialized nations, they will have to build as many power plants and water diversion projects as they possibly can, and that is exactly what they are doing. The question is just how much of this energy and water will be green, and the prognosis is daunting.
In this assessment of China’s renewable energy initiatives, the unprecedented attention the Chinese government is giving to green energy is only half the story. It is true they now intend to derive 15% of their energy from renewable sources by 2020, but 15% isn’t very much, and within this total is hydroelectric power, and in any case the 15% target may be ambitious.
If one correlates energy production to GNP, even assuming China achieves western levels of energy intensity (units of energy per dollar of GNP), China is going to have to increase their energy production from 50 quadrillion BTU’s per year to over 250 quads. This means that while production of renewable energy in China is set to increase by staggering amounts, the amount of fossil fuel derived energy consumption in China, in absolute terms, is going to quintuple in the next few decades.
This is the message the anti-CO2 crowd doesn’t get. Even if the billion people in the developed world stopped emitting all their CO2 tomorrow, and they won’t, there are over a billion people in China, and another billion people in India, and another few billion elsewhere in the world, who are going to burn quantities of CO2 in the coming decades that easily surpass what the global north burns today. More realistic solutions to global warming, such as releasing benign aerosols in the Arctic spring and summer, had better be considered. It is inspiring to imagine how innovation and global investment will help China and India accelerate their adoption of green energy technology, but a close reading of this report underscores the challenges and complexity of this calling. – Ed “Redwood” Ring
China’s Renewable Energy – Can clean renewables increase their share of China’s rapidly expanding energy sector?
by Gordon Feller, January 30, 2007
A Clear Day in Shanghai
A clear day in Shanghai.
China’s government plans for renewable energy generation to meet 15% of the country’s growing energy needs by 2020.
Renewable energy and energy efficiency look set for a boost as Beijing authorities have now outlined plans to diversify their energy resources in the face of continued price rises, pollution concerns and China’s unquenchable fuel and electricity demands.
In its “alternative oil strategy,” which is part of the China’s 2006-2010 Five-Year Plan, Beijing has called for a doubling in renewable energy generation to 15% of the country’s needs by 2020.
The target is in line with a new renewable energy law requiring grid operators to purchase resources from renewable energy producers. The law, which came into effect in January, also offers financial incentives to foster renewable energy development, including discounted lending and a range of tax breaks.
Tsinghua University Logo
Of the main renewables, wind power is tipped to have the most potential. Professor Wang Weichang, an energy expert at Tsinghua University in Beijing, predicted wind was on course to supplant hydro as the country’s second-largest electricity source, behind coal. Wang said China has the ability to generate up to 100 gigawatts, or 20% of current national capacity.
Beijing also plans to use other alternative energy sources as part of a drive to cut coal dependence from 73% of total generation today to 68% by 2010 and 60% by 2020. Vast investments in new technologies to turn coal into synthetic oil have been announced, and ethanol production will be boosted to create hybrid fuel by mixing it with regular gasoline. With China nearing a deal with Australia on uranium supply, nuclear power is also in the picture, with generation expected to rise 400% by 2020.
But a report released last month by consultants at Capgemini suggests China has underestimated future demand, putting its target at risk. The report estimated an additional 280GW of electricity will be required by 2020 on top of the 950GW already planned, meaning coal-fired power plants would still provide 71% of China’s electricity needs by 2010 and 65% by 2020.
This is good news for energy efficiency proponents, as a reduction in demand will help the government meet its targets. Beijing has said it is looking to relax its tightly controlled energy-pricing system to encourage conservation and energy efficiency plans have also been put in place. The construction ministry announced pans to increase energy-efficient floor space by 2.16 billion square meters by 2010, saving 101 million tonnes of coal.
China is increasing international cooperation with the world’s heavyweight energy producers to address growing demands. The country’s top oil refiner, Sinopec, signed a memorandum of understanding last month with India’s second biggest state-run oil company, Hindustan Petroleum Corp, for energy projects in China, India and other countries. Meanwhile, China National Petroleum Corp (CNPC) was also expected to sign a gas supply agreement with the world’s biggest gas producer, Russia’s monopolist Gazprom. In the US, the chairman of the Senate Foreign Relations Committee said there needed to be greater international co-ordination on energy issues, especially with China and India, to address concerns about growing global competition for energy resources.
The powerful National Development and Reform Commission said that filling of China’s strategic oil reserves at its 16-tank Zhenhai facility in the eastern province of Zhejiang was on schedule to begin by the end of this year. It is the first of four strategic oil reserves to be completed. Reserve facilities in Daishan, Zhejiang province, Huangdao, in Shandong province southeast of Beijing, and Xingang, in northeastern Liaoning province, are due to be completed in 2007 and 2008. Beijing plans to stockpile up to 100 million barrels of petroleum, or the equivalent of almost a month’s national consumption, to cushion against possible disruptions to supplies coming from abroad.
The country’s power-generating capacity will reach a record high this year when new generators producing an additional 75 million kilowatts come on line in 2006. But China Electricity Council secretary-general Wang Yonggan said shortages would still persist in the first half of 2006. Power shortages affected seven provinces at the end of 2005, down from 26 at the beginning of the year, as China’s power supply increased by 66.02 million kW to more than 500 million kW.
China’s rapidly growing economy is pushing energy consumption to new highs as the increasingly affluent populous plugs in and turns on more appliances than ever, adding to the high-voltage factory hum that has long characterized the country’s modernization efforts.
The chief means of meeting this insatiable demand is the domestic coal reserve, which accounts for 74% of China’s 360-gigawatt total annual power output. Oil is a distant second on 13.5%, followed by domestic hydro-power at 8.2%, nuclear energy at 1.1% and natural gas at 0.3%.
But coal presents several problems. Around 70% of the country’s coal is transported by rail from the coal-rich north to the energy-hungry coastal regions. While China accounts for 24% of global rail traffic, it only has 6% of the world’s rail tracks, resulting in bottlenecks in the transport network followed by regional power shortages. Despite US$248 billion being committed to rail expansion over the next 15 years, historical underinvestment means there is much ground to be made up.
A potentially more serious concern is environmental pollution and the related healthcare and clean-up costs, which are adding ever more weight to calls for a diversification away from coal.
Although China’s thirst for fuel means that consumption will still increase in absolute terms, there are plans to reduce coal’s contribution to the power supply to around 60% by 2020, with increased output from gas, nuclear and renewable options.
To this end, official muscle has been put behind alternative power sources. China’s Renewable Energy Law, which came into effect in January, decreed 20% of total national energy consumption should come from renewable sources by 2020.
China is set to spend US$200 billion over the next 15 years to achieve this goal, which would make it the world’s largest consumer of renewable energy.
In solar power, China already leads the world, with a total of 52 million square meters of solar energy heating panels in China representing 40% of the global total. Wind power appears to have incredible growth prospects. Installed capacity was just 1.3GW in 2005, but China aims to increase that to a world-leading 30GW by 2020. Potential installed capacity stands at 250GW onshore and 750GW offshore.
Nuclear power, and the foreign players queuing up to build the 30 new atomic power stations planned over the next 15 years, could also win big as China targets a 400% increase in capacity by 2020.
However, alternative energy sources do not yet produce nearly enough power to replace fossil fuels. It is generally thought within China’s expert community that not only do these sources provide negligible power, but the power they do produce is still prohibitively expensive.
While renewables may be the holy grail for China, oil is increasingly becoming the focus of its geopolitical maneuvrings.
Once a net exporter of oil, China imported 47.3% of its crude in the first half of 2006. Oil will fall as a proportion of total energy consumption with greater efficiency in coal delivery and the growing emphasis on renewables and nuclear power. But – just like coal – actual oil demand will continue to rise, principally through imports.
The US Department of Energy predicts China’s crude imports will represent 75% of national oil consumption by 2025, and domestic oil producers are busy buying foreign assets to meet this need. Beijing’s diplomatic tentacles have spread to Africa, Asia, Australia, the Middle East and the Americas in search of the black stuff.
China National Petroleum Corp (CNPC) acquired PetroKazakhstan for US$4.2 billion, teamed up with an Indian group to buy a stake in Syrian oil assets and secured drilling rights in Sudan in a joint bid with China Petrochemical Corp. It has also struck exploration and supply deals in Venezuela and Peru, and took a 4% stake in Rosneft for US$500 million when the Russian oil giant went public in July.
China Petrochemical has also snared a slice of the Russian pie by forming a 25.1% owned joint venture last year with Rosneft to explore the eastern seaboard of Russia for oil and natural gas. Not to be outdone, China National Offshore Oil Corp (CNOOC) paid US$2.7 billion in April for a 45% stake in a Nigerian oil field.
Escalating consumption has made conservation measures commonplace in China. Factor in an energy market that is becoming ever more volatile in the current geopolitical landscape and the only certainty for China is that as demand keeps rising so will the priority attached to securing energy resources.
But such acquisitions will not be used exclusively to serve the home market, unless Beijing further deregulates energy pricing. China’s retail prices remain among the lowest in the world as authorities seek to protect vulnerable sectors.
Sinopec, the listed arm of China Petrochemical, received a one-off state handout of US$1.17 billion in January to compensate for losses incurred due to caps on domestic oil-product prices. This was a sweetener to stop the company from putting profits before domestic needs – last year’s diesel and gasoline shortages in southern China and Shanghai were created by Sinopec re-exporting refined products to Korea and Japan to maximize profits.
Unless there is a substantial rise in domestic prices, companies will continue to siphon off some of their newly acquired foreign oil assets to use as a source of foreign exchange.
For every tonne that is traded, swapped or sold abroad, another question mark will be placed against China’s energy security.
What is the future of China’s use of fuel ethanol? It is already used in five provinces and Beijing seems ready to bankroll a nationwide roll-out. But is biofuel a viable alternative to gasoline?
China’s oil demands are already the stuff of legend. Urbanization, industrialization and a six-fold increase in private vehicle ownership over a decade have left the country dependant on foreign sources for 40% of its oil. This figure is expected to pass 60% in 2010 and 76% in 2020 as imports go from 4.6 million to 8.5 million barrels per day.
The price is not just financial – the International Energy Agency predicts China will account for 18% of global carbon dioxide emissions by 2025, up from 12% in 2000.
Beijing is taking action. Measures outlined in the 11th Five-Year Plan for 2006-2010 won’t end the dependency on foreign oil and dirty coal, but they should see wind, water, sunlight and nuclear power keeping the lights on for significantly more people than before. Those same people could also be filling their gas tanks with ethanol fuels.
“China needs to import a lot of oil so the government is looking at alternative fuels,” said Christine Pu, energy and chemicals analyst at Deutsche Securities Asia. “The advantage of ethanol is it’s good for the environment.”
Launched in 2000, China’s fuel ethanol industry is still in its infancy. According to GTZ, a German company that advises on energy management on behalf of the German government, total bio-ethanol production is around 4 million tonnes. Three quarters of it is edible ethanol and the remainder fuel ethanol.
“At present it’s largely limited to research institutions and there has yet to be much spillover from the labs into the marketplace,” said Frank Haugwitz of GTZ-China. By the end of 2005, Heilongjiang, Jilin, Liaoning, Henan and Anhui Provinces were wholly dependant on 10% ethanol-90% gasoline fuels (E10), with certain regions in Hubei, Shandong, Hebei and Jiangsu following suit. Studies have shown that using E10 reduces carbon dioxide emissions by up to 3.9%.
GTZ has calculated that a nationwide roll-out of E10 could see fuel ethanol demand reach 8.5 million tonnes per year by 2020.
The government appears ready to meet its goal. Four bio-ethanol plants, with production capacities ranging from 200,000-500,000 million tonnes per year, are under development. In the Jilin Fuel Ethanol plant, China already possesses what is believed to be the world’s largest fuel ethanol facility with a capacity of 600,000 tonnes per annum.
The vice-minister for finance said in July that China is committed to a long-term bio-fuel development program, noted Professor Liu Dehua of Tsinghua University’s chemical engineering department, who has been involved in China’s fuel ethanol program since its inception.
“By 2020, liquid bio-fuel production will be 20 million tonnes a year – comprising 15 million tonnes of ethanol and 5 million tonnes of bio-diesel.”
China has also cast its net wide in search of the key to success with fuel ethanol. Professor Liu has been to Brazil twice – most recently in April, accompanying officials from the National Development and Reform Commission and the Ministry of Science and Technology – to study a system under which all vehicles must run on fuel comprising at least 20% ethanol.
China’s 11th Five Year Plan
Never before has the environment
been such a high priority.
“China wants to learn from Brazil’s experiences in promoting fuel ethanol production and find out what impact using ethanol has on the environment,” said Liu. The officials were also keen to see Brazil’s flex-fuel vehicles that run on varying combinations of gasoline and ethanol.
Thirty years ago, Brazil faced some of the energy challenges that now confront China. It imported 75% of its oil in 1975 and received a series of economic body blows as the price of oil fluctuated during the course of the decade.
The development of fuel ethanol has greatly reduced this vulnerability.
However, experts warn against viewing the two countries as being at separate points on the same developmental path.
“Brazil used to import a lot of crude oil as China does now,” said Deutsche Securities Asia’s Pu. “But the big difference is that Brazil is a large producer of sugar cane while China uses corn for its ethanol.”
The situation is complicated by the high priority China attaches to food security. If it’s a choice between corn for food and corn for ethanol, the food need wins hands down. Three of the four large scale ethanol facilities under development will use sugar-based energy crops or sorghum – not only does this resolve the food-or-energy dilemma, but ethanol can be created more efficiently from these crops.
Based on their extensive work in China’s energy economy, Germany’s premier technical cooperation organization, GTZ, identified potential planting areas in southern provinces such as Guangdong and Guangxi, where the climate is more conducive to growing sugar and sorghum.
“China has multiple choices,” said Professor Liu. “It wants to diversify and can grown corn in the north and sugar cane in the south.”
Mount Tianshan in the highlands of Xinjiang. Will China
preserve the breathtaking beauty of her vast country
as she becomes the world’s leading energy producer?
But the mounting pressure being placed on China’s deteriorating farmland by the growing food demands of an increasingly affluent population means that land use is a sensitive issue. China will be a net grain exporter this year on the back of bumper crops but in the long-term, imports will grow and grow. Despite the food supply pressures, Liu believes farmers will benefit from the fuel ethanol development whether they diversify into sorghum and sugar or stick with corn.
“When the government first started the ethanol program, the price of oil was not high and the attention given to the pollution situation was not great. The reason ethanol production was important was the impact it would have on farmers’ incomes.”
For Beijing-based independent energy analyst Jim Brock, fuel ethanol in China can serve the same purpose it does in the US as far as farmers are concerned – a means of insurance.
Surplus corn that decays before it can be transported elsewhere, or grain that fails to make the grade for human consumption or cattle feed suddenly has an end-use.
“There is not really any conflict between food supply and energy supply,” he said. “In almost all cases, the production value for food is much more. It all comes down to having a supply valve so the corn that cannot be used for food is used for energy.”
Ultimately, the rise of ethanol as a viable alternative fuel hinges on the price of oil. A GTZ price comparison earlier this year put fuel ethanol in the region of US$460 per tonne, although this included a US$175 subsidy per tonne of ethanol. Production costs can be as much as US$617 per tonne, 70% of it spent on raw materials. Gasoline was priced at US$616-654 per tonne, although this too included a state subsidy.
Deutsche Securities Asia’s Pu points to a rise in global oil prices, together with oil price liberalization in China and technological improvements in ethanol production, as factors that could drive the fuel ethanol bandwagon onwards. It would take a sizeable spike in crude prices to make fuel ethanol truly competitive; otherwise, it is a question of how much Beijing is willing to spend to find the key to cost-effective ethanol production.
“Is China willing to subsidize ethanol to the extent that it has been in Brazil and the US?” asked Brock. “My impression is no – the government is willing to incentivize but not subsidize.”
About the Author: Gordon Feller is the CEO of Urban Age Institute (www.UrbanAge.org). During the past twenty years he has authored more than 500 magazine articles, journal articles or newspaper articles on the profound changes underway in politics, economics, and ecology – with a special emphasis on sustainable development. Gordon is the editor of Urban Age Magazine, a unique quarterly which serves as a global resource and which was founded in 1990. He can be reached at GordonFeller@UrbanAge.org and he is available for speaking to your organization about the issues raised in this and his other numerous articles published in EcoWorld.
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3 Comments »
Pingback by China’s Energy Future: Greener Than You Might Think. Part 1 of 6 - Overview « China Outsider
August 5, 2009 at 7:44 pm - #
[...] regulations and now China is becoming very serious about curbing CO2 emissions. In fact, China is doing more to curb its CO2 emissions than any other counry in the [...]
Comment by algaepreneur
November 12, 2009 at 9:23 pm - #
Algae consumes CO2. With all the coal plants being built in China, algae production plants could be built on site to take their excess CO2 emissions. You may want to check out the National Algae Association for CO2 in-take amounts.
Comment by shan saeed
January 7, 2010 at 2:39 am - #
This is a wonderful piece on renewable energy. Gordon Feller, I have learned alot from your article. I posted my comments about china on CNN. I repeat from that link.
August 28th, 2009 1118 GMT
I would like to add few more in this roster….
S-Shares of Chinese companies listed on singapore stock exchange
L-Shares of Chinese companies listed on london stock exchange
T-Shares of Chinese companies listed on tokyo stock exchange
Apart from A,H whereby some companies are only listed on A and not on H….While some are only listed on H but but on A………..
However, if you analyze the chinese stock market, I think it is more open now and offering great returns to investors in general. Chinese investors are parking billions and billions of yuan eveyday in their stock market with calculated risk. Let me share something with the readers.
Petro China was set up by Goldman Sachs..Investors made a killing and made 1000% return in 4 years time. Whenever, chinese government has backed certain industry, the companies shares have soared.
Look a the Chinese power industry. In 1979, the government rigidly controlled electric power production. Only 60% of the country’s small towns and villages had electricity – leaving 400 million people in pre-industrial conditions.
For the next two decades, the government focused on a massive electric-infrastructure program. Even so, by 1998, 14,000 villages and more than 8.8 million households were still without electricity…
Jim Rogers-the commodity guru, in his book A Bull in China, calls that decision a watershed moment for China’s power industry. The five resulting companies, China Power Investment, China Huaneng Group, China Guodian, China Datang, and China Huadian were huge successes. By 2005, more than 99% of the country’s small towns and villages had electricity.
This went unreported in Wall Street Journal, New york Times and Chicago Tribune. China’s government is providing an enormous boost to its mining industry: In April 2009, the country’s Foreign-Exchange Agency announced the purchase of 16 million ounces of gold for state coffers. It wants to diversify its reserves, replacing some of its U.S. dollars with something tangible – like gold.
Invest in those shares backed by the chinese government which is the richest governments on earth and you can make a profit out of your investment….
Uni. of Chicago graduated
MBA with Honor’s Roll