Sino-Singapore Tianjin Eco-city in 2012 (Source: http://www.tianjinecocity.gov.sg/)

SSTEC aims to offer green building certification based on more stringent standards than anywhere else in the country, including the national standards. It has already set up a Green Building Evaluation Committee (GBEC) to supervise building quality.

But in terms of energy efficiency, SSTEC’s GBEC still lacks the clearly defined requirements found in comprehensive international standards like the Leadership in Energy and Environmental Design (LEED) certification. According to a World Bank report, the GBEC provides standards only for the building envelope and central heating, unlike LEED, which covers a broad range of energy systems including lighting, air conditioning, water heating, and appliances. While the ambition in this eco-city project is commendable, the oversights in SSTEC’s efficiency standards reflect a lack of comprehensiveness in green building standards across China, as the GBEC is already the country’s most advanced and comprehensive building standard.

In addition to Tianjin, three other municipalities (Beijing, Shanghai, and Chongqing) and China’s eastern coastal provinces will promote green building standards, according to the Twelfth Five-Year Plan for Green Buildings issued earlier this year. Starting in 2015, at least 50 percent of new real estate projects nationwide will need to comply with the new standards. The effects on energy savings may be questionable, however, given that the standards could be met too easily. For example, residential buildings will need to achieve only two of the six requirements under the “Energy Saving and Utilization” criteria to get one star, the lowest green building certification.

Targeting Large Public Buildings

Unlike residential buildings, large public buildings with more than 20,000 square meters of gross floor area are required to meet the green building standards starting in early 2014, regardless of when they were built. Just meeting the criteria for green building certification does not necessarily mean that the buildings will reduce energy consumption, however. Poor management and unrestricted energy demand have an impact on the efficiency of a building and can keep its energy consumption high.

According to a study by the China Ministry of Housing and Urban-Rural Development, China’s large-scale public buildings account for less than 4 percent of the national urban building area, but accounted for more than 20 percent of the total national building energy consumption in 2004.

To reduce the energy consumption of large public buildings, the government established an innovative energy conservation scrutiny system in 2007 that includes energy consumption statistics, an inspection process, energy audits, and a certification system. The effectiveness of the system is questionable, however, as there are no reports on whether the Eleventh Five-Year Plan (which ended in 2010) actually reached its goal of decreasing the energy consumption of large public buildings by 20 percent.

Climate Effects on Heating

The energy consumption of buildings is heavily influenced by climatic conditions, with heating being the single largest source of building energy use in cold regions. About 550 million people (42 percent of China’s total population) live in China’s cold and severe-cold zones, occupying 43 percent of the national urban residential and commercial building stock.

Energy consumption for heating in those areas accounts for 45 percent of the total energy consumption of buildings in urban areas. Due to poor thermal insulation and low heating system efficiency, the energy used for heating in these areas is 2–4 times greater than in similar climates in Northern Europe. One of the targets of the Twelfth Five-Year Plan is to upgrade heat-metering and energy efficiency for more than 400 million square meters of existing residential buildings in northern regions by 2015. By the end of 2012, 220 million square meters had been upgraded, achieving an average energy savings equivalent to saving 2.2 million tons of coal in each heating season.

In order to promote building energy efficiency and green building construction, the central government provides economic incentives to local governments, residents, and real estate developers. For example, the central government gave 5.3 billion Yuan (US $860 million) in 2012 to local governments to fund the upgrade of heat-metering and energy efficiency of existing residential buildings in northern heating areas.

The indoor temperature of these upgraded buildings increased by 3 to 6 degrees Celsius. For individuals, the government plans to provide subsidies to residents who purchase properties with green building certifications, offering 45 Yuan (US $7.30) and 80 Yuan (US $13) per square meter for two- and three-star green buildings, respectively. Given that the average housing price in China’s largest cities reached 10,098 Yuan (US $1,638) per square meter in April 2013, however, the subsidy is likely too small to motivate people to buy green building properties.

Emissions Trading to Promote Efficiency

China’s pilot carbon emissions trading programs, which aim to be fully functional by the end of 2013, might force large commercial buildings to improve their energy efficiency. The effectiveness of such pilot programs depends on the total quota set on the building sector. At the initial stage, it is believed that the quota will be allocated for free to enterprises to maintain growth of the nation’s economy, which is heavily boosted by the real estate sector.

The good news is that 15 hotels, 15 shopping malls, and nine large commercial buildings have been selected as carbon emission trading pilot enterprises in Shanghai, accounting for 20 percent of the total enterprises included in the city-level trading plan. Enrolling these large, energy-intensive buildings in the emissions trading pilot will target some of the more culpable buildings for energy efficiency improvements. If the pilot programs are a success, large buildings such as these shopping malls will likely be targeted in a national emissions trading scheme.

Although the Chinese government saved the equivalent of 65 million tons of coal by the end of 2012 by introducing mandatory building energy efficiency codes, there is still a long way to go to improve the energy efficiency of China’s buildings. As noted in a previous blog post, the Chinese government needs in particular to address the effectiveness and efficiency of the policy implementation process associated with green buildings and eco-city development.

In recent years, certain EU member states have gone beyond what is required under the Directive to set even more ambitious national goals. Denmark, for instance, is now targeting 100 percent renewable energy across their entire energy supply by 2050. These efforts should be applauded and their lessons replicated around the world. However, these successes should not obscure the very serious gap that is emerging between current policies and mechanisms and the significant challenges still facing the European renewable energy sector.

A recent European Commission report has outlined the challenging road ahead for member states as they continue down the path towards their 2020 commitments. The Commission’s report sends a mixed message. On one hand, all but 2 countries – Latvia and Malta – met their first interim final energy targets defined under the Directive. In fact, 13 countries even outperformed the target by over 2 percent.

Unfortunately, while promising, the current rate of deployment seen to date is not sufficient to meet the 2020 goals. The EU targets as currently designed call for a strong uptick in deployment rates through the end of the decade.

As a result, a number of EU countries appear to be at risk of falling behind the goals set in their National Renewable Energy Action Plans (NREAPs). As written, the plans call for an EU-27 wide renewable share of 33.9 percent in electricity, 21.4 percent in heating and cooling, and 11.7 percent in transportation by 2020, culminating in an overall 20.7 percent share of renewable energy in Europe.

While system-wide renewable energy developments were still on track to achieve short-term goals identified under the 2009 Renewables Directive, many countries are falling behind their own indicative sectoral targets set independently of the Directive in a number of key sectors. This hints at significant challenges facing the overall renewable energy sector and underscores the Commission’s assessment that the 2020 goals are at serious risk.  Fifteen Member States missed their indicative targets for electricity from renewable sources while 22 Member States missed their transportation targets. The future of the biofuels target itself is currently up for significant debate as many seek to limit the volume of first generation biofuels produced in Europe. Though no targets exist for heating and cooling, analysis of the sector suggests that the renewable share may, in fact, decline rather than increase over the near term. The Commission’s technology deployment projections also point to expected underperformance. The onshore and offshore wind, biomass, solar photovoltaic, and biofuels sectors may all fall short of the national goals set for 2020. The Commission warns that even the currently over-performing solar PV sector is at risk of falling behind by 2020 due to an unstable investment climate created by recent policy uncertainty.

It is important to note that because of the long investment lead time, estimated at eight to ten years, a weak investment climate today will impact production well into the future. From development through installation, a typical offshore wind project currently sees a project lead time of 6.5-9.5 years, highlighting the urgency of quickly establishing an enabling framework to allow additional new capacity to be operational by 2020. Overall, many of the observed shortfalls in the sector can be linked to a number of barriers to renewable energies that have proven more difficult than expected to remove.

Administrative challenges and a slow uptake in infrastructure developments pose a significant constraint to project developers, further slowing and discouraging the investment necessary to meet the 2020 goals. The lack of grid and storage developments must be addressed as greater shares of renewables are integrated into these networks. Of great concern is the admission that current policies and support schemes do not appear sufficient to meet national targets.

This comes at a challenging time for policy makers. While the Commissions’ recommendations suggest that additional policy support is needed in many EU countries, the opposite is quite often coming true in practice. Due to a number of factors, policy reductions are hitting the European renewable energy sector. Over the past few years a number of support schemes have been weakened across the continent, including particularly damaging retroactive cuts to feed-in tariffs in Greece and Spain. Another troubling development has seen taxes or grid access fees on renewable power recently introduced in Belgium, Bulgaria, Greece, and Spain.

This policy uncertainty caused by these retroactive changes and unplanned reductions coupled with the low price of credits under the EU Emissions Trading System (ETS) has proven challenging to renewable energy developers and investors. It appears the combination of these factors is not sending the necessary market signals to fully encourage clean energy development. Though new capacity additions remained strong, total investments on the continent dropped by over US $30 billion to US $75.8 billion in 2012 as traditionally strong players such as Germany, Spain, and the United Kingdom all saw investments decline. Bloomberg New Energy Finance has estimated that a cumulative US $400 billion will be necessary to meet the 2020 goals.

Though not intrinsically linked with declining renewable energy investments, many of these same countries are witnessing other troubling trends as well. While Europe as a whole saw an increase of 0.6 percent in the renewable share of electricity consumption, 12 member states saw their domestic share decline between 2010 and 2011, mainly due to significant hydropower reductions. The continent as a whole witnessed a “marked increase” in coal generation, with significant growth of 8 percent in Germany, 65 percent in Spain, and 35 percent in the United Kingdom. For the 2020 targets to be met, both of these trends must be reversed.

This is not a time for defeatism but rather a time for reflection and reform. Great potential still exists and the EU 2020 targets are still within reach if the appropriate measures are adopted. European policy makers should take this opportunity to reaffirm their commitments to the development and deployment of renewable energy technologies by enacting well designed renewable energy support mechanisms to overcome the unique barriers in Europe.

Solar portable lamp companies, such as Little Sun, must navigate informal economies and limited distribution infrastructure to market and sell their products to customers who benefit from the environmental, social, and health improvements that these lamps can provide. (Source: Little Sun)

But although Kenya’s economy lacks many of the market and political institutions that facilitate business operations in the industrialized world, there is significant potential for businesses to support rapid economic growth and generate social impact. A variety of successful solar portable lamp businesses have reframed Kenya’s lack of institutions (let’s call them institutional voids) as opportunities for economic growth.

In 2010, two Harvard Business School professors published the book Winning in Emerging Markets: A Roadmap for Strategy and Execution, highlighting the opportunities and challenges of operating a business in a developing country. They also released a toolkit for identifying and dealing with a country’s institutional voids, raising the following questions that are pertinent to running a solar portable lamp company in Kenya:

1. Do large retail chains exist in the country? Do they reach all consumers or only wealthy/urban ones?
2. Do consumers use credit cards, or does cash dominate transactions? Can consumers get credit to make purchases?
3. Is there a deep network of suppliers? How strong are the logistics and transportation infrastructures?

Successful solar portable lamp companies in Kenya are using a variety of strategies to address these challenges and to mitigate, avoid, and leverage the institutional voids that would otherwise deter or limit business operations. 

Overcoming retail barriers

In Kenya, as in most developing countries, the customers who most demand solar portable lamps are rural residents who are underserved by the traditional power grid. Because transporting and distributing products in rural areas is more costly and rural consumers have limited access to urban retail outlets, there is a general lack of formal retail products in these areas. Consequently, rural customers’ demands are predominantly met by independent sellers operating through channels in the informal retail sector.

To reach a rural customer base, a solar portable lamp company must learn to navigate Kenya’s informal retail channels. One company, Greenlight Planet, does this by outsourcing its physical logistics chain. The company relies on partnerships with social enterprises, standard retail companies, nongovernmental groups, and government institutions to distribute products to users through already existing informal channels.

“The physical logistics chain in Africa is more like one with the sales chain, where our partners buy our products in bulk and then also deliver them to local retailers, [microfinance institution] branches, etc,” says Laurens Friso, Global Partnership Advisor for Greenlight Planet in East Africa. “It’s not organized from our perspective.”

The outsourcing of the physical logistics chain allows Greenlight Planet to avoid the institutional void created by a lack of a formal retail market for solar lamps in rural Kenya.

Overcoming credit barriers

Credit is limited in rural areas of Kenya, and solar lamp customers do not have access to the traditional financing available to wealthier, urban customers and enterprises. In 2009, only 6.2 percent of rural Kenyans purchased goods on credit, but the volume of transaction services over the past three years has increased dramatically because of M-Pesa. M-Pesa is an informal and revolutionary mobile banking system that allows users to pay bills, transfer money, and purchase air time using mobile phones.

Because credit is limited in rural areas and mobile phone use and banking is accessible, a successful solar company must either develop a) a product that is affordable without credit, or b) an M-PESA-type financing scheme that improves the customer base’s willingness to pay for the product.

Little Sun, a solar company that sells a small solar task lamp of the same name, has succeeded on the affordability front. With a wholesale price of 790 Kenyan shillings (US$9) and a retail price of 990 Kenyan shillings ($12), the Little Sun is one of the simpler and cheaper products on the market. It has a light output of 25 lumens (equivalent to about a $7 flashlight) and is used primarily to light small areas for studying or eating, although it has no mobile phone charging compatibility.

By designing a low-cost but efficient product, Little Sun has overcome the institutional void repreented by the lack of credit by creating an affordable product for rural consumers.

Overcoming infrastructure barriers

In 2010, the World Bank Development Research Group compared the infrastructure levels of different developing countries using a set of four aggregate indicators and ranking them on a scale from 0 to 1. In terms of hard infrastructure, Kenya ranked 0.35 for Physical Infrastructure and 0.43 for Information and Communications Technology (ICT). In terms of soft infrastructure, it ranked a very low 0.18 for its Business Environment and 0.55 for its Border and Transport Efficiency.

According to these indicators, Kenya’s lack of trade infrastructure severely hampers supply chains. Successful solar lamp companies can navigate this challenge by developing partnerships with local organizations and companies that have a clearer sense of the barriers and how to negotiate them, thereby minimizing cost and time inefficiencies.

One Degree Solar has done exactly that. By developing a customer service practice based on short message service (SMS) with an in-country partner, the company has improved the accountability of the customer service product market. Customers are able to text One Degree Solar headquarters when they need help with their products. Through an in-country partnership, One Degree Solar was able to leverage the rural penetration of ICT in Kenya to mitigate the lack of trade infrastructure and its impact on the solar lamp supply chain.

The above examples of ways to overcome common institutional voids create a clear picture of the business potential in Kenya and other emerging markets. Through innovative customer service practices, cost-effective product designs, and partnership with local companies and organizations, solar portable lamp companies are not only navigating institutional voids, but using them to create discrete market niches for and brand trust in their products. Given the status of energy access in Kenya and other developing countries, there is incredible opportunity for generating both revenue and social impact.

Claire Remington is an intern with the Climate & Energy Program at Worldwatch Institute. 

Source: Michael Liebreich BNEF Summit Keynote, 23 April 2013

In 2012, according to Bloomberg New Energy Finance, $269 billion flowed into the clean energy sector worldwide—a big number by any standard.  Total global investment in renewable generating capacity now lags total investment in coal, oil, and gas generation combined by only 25 percent. With that much money you could purchase Google or Microsoft outright.

While clean energy investment in 2012 was down 11 percent from 2011, it is still 44 percent above the 2009 figure and 230 percent higher than it was in 2005.  Moreover, virtually all of the decline stems from the sharply falling prices for solar and wind equipment—a trend that in the long run will accelerate growth. While clean energy growth has understandably slowed from the extraordinary double-digit rates of the past decade, this remains one of the world’s largest and most dynamic industrial sectors.

The one dark cloud that hovered over both conferences (the Cleantech Investor Summit in Palm Springs and the Bloomberg New Energy Finance Summit in New York) was the United States, where declining government support and the uncertainty generated by a dysfunctional Congress led to a sharp decline in financing in 2012.  While the falling investment figures do presage a slowdown inU.S. clean energy growth in the next two years, it is still notable that theU.S. added more renewable capacity than any other single country last year.

Excluding theUnited States, global investment in renewable energy would have increased significantly in 2012. China, for example, is continuing to power global markets, with investment up a robust 20 percent to $65 billion in 2012.Chinais also playing a big role in driving down the cost of renewables while spurring robust growth in other emerging market countries such asIndiaandSouth Africa.

Japan’s clean energy investment was meanwhile up a remarkable 75 percent in 2012, driven by the government’s response to the post-Fukushima collapse of the country’s nuclear industry. And while Germany’s investment declined last year, renewable power generation continued to soar, reaching 24 percent of electricity production, up from 4 percent in 2000.

So, despite all the recent media focus on the rise of shale gas and unconventional oil inNorth America, the bigger energy story is a global one: New technologies and hundreds of billions of dollars of investment capital are steadily laying the foundation for a low-carbon global economy.

Chris Flavin is President Emeritus at Worldwatch Institute. 

LAC-CORE president, Carlos St. James, speaking at the 3rd Annual REFF-LAC conference. (Photo credit: Mark Konold)

Presenters included project developers, financiers, and government officials, all of whom had experiences to share about what’s working in the region. In some places, like Chile and Peru, project tendering is working to advance renewable energy deployment. In the Caribbean, mechanisms such as net metering and feed-in tariffs are still the preferred approach to fostering renewables development. Many presenters stressed that the key to continued success in the region is the political will that creates an environment conducive to successful renewable energy investment. They also highlighted how projects become more attractive the less they have to rely on subsidies or other support mechanisms.

Worldwatch, based on its extensive work in the Caribbean and Central America, was asked to provide insight at the conference on which technologies are working well in various countries. I had a chance to show that in both regions, renewable energy technologies are working wherever there is a resource to match—provided that a suitable environment for investment and project success exists. Large-scale hydropower plays a very large role in the electricity generation of most Central American countries, sometimes as much as 35 percent or more. And although renewables comprise only 8 percent of current electricity generation in the Caribbean, there is room for significant improvement, especially as geothermal resources are explored in places like Nevis and Grenada.

Despite strong solar, wind, and biomass resources, however, governments are still trying to meet sharply rising energy demand with increased fossil fuel-fired generation. For example, even though the Dominican Republic recently celebrated the opening of the second phase of its Los Cocos wind farm and has made significant progress in securing a developer for a 30 MW solar plant in Monte Plata, the country recently announced plans for a new coal-fired power plant 10 times the size of the solar plant. A second coal plant is to follow in the near future, both of which are being built to replace soon-to-be-retired diesel-fired generation. Carbon War Room President José María Figueres summarized this approach as, “taking us into the 21st century using energy technology that has run out of steam 200 years after the invention of the first steam engine.”

Worldwatch has already demonstrated that a very favorable solar resource exists in the Dominican Republic, and the costs of solar equipment worldwide continue to fall. Yet large-scale investment continues to elude the D.R. Unreasonable payback limits (seven years), shifting incentives for renewable energy, and poor government finances help contribute to a poor investment climate.

To maintain the region’s positive momentum, countries should be taking a cue from Aruba. On the second day of the conference, Jocelyne Croes, Minister Plenipotentiary for Aruba and Representative for the Government of Aruba at the Dutch Embassy in the United States, described Aruba’s recent partnership with Carbon War Room to transition the island to 100 percent renewable energy. Wind, solar, and ocean resources will play a central role in shifting the fossil fuel-dependent economy to one that is no longer affected by fluctuating oil prices or degradation of the natural environment, and that enjoys the economic benefits of increased investment and a technically trained workforce.

Aruba’s effort illustrates what ACORE President Vice-Admiral Dennis V. McGinn (USN-Retired) calls “a triple bottom line” of energy, economic, and environmental security, and is exactly the kind of bold, forward-thinking that Latin American and Caribbean countries should be adopting to successfully address their growing energy needs. It‘s also the kind of signal that investors look for as they try to bring innovative renewable energy solutions to market.

As with the first two REFF-LAC conferences, this week’s event was a great chance to survey progress made and to match investors with opportunities in Latin America and the Caribbean. LAC-CORE president Carlos St. James compared the renewable energy world to walking in a fog. Sometimes that fog lifts and you see the landscape as it is and in which direction you are going to go. REFF-LAC is that break in the fog and provided all participants with that necessary glimpse to keep moving in the right direction.

Mark Konold is a Project Manager for Worldwatch’s Climate & Energy Program.

Supported by the International Climate Initiative of the German Government, Worldwatch currently works onSustainable Energy Roadmaps for the Dominican Republic, Haiti, and Jamaica.

Solar portable lamp companies must find innovative ways of restoring consumer confidence in their products after a flood of cheap, faulty models created a distrust of the technology (Source: OneDegreeSolar).

Small solar portable lamp companies are learning how to navigate the relatively unstructured business environments of developing countries, but a lack of consumer confidence in the unfamiliar technology is a serious deterrent to scalability. Confidence has been eroded further by the presence of low-quality lamps that mimic higher-quality products. To increase sales and improve both the social and environmental impact of solar portable lamps, companies must develop a dependable product and brand that is appealing to customers both familiar and unfamiliar with solar technology.

Gaurav Manchanda, an Indian-born entrepreneur and founder of One Degree Solar, found a new way to restore consumer confidence in a low-cost lamp that meets the standards of the Lighting Africa project. He developed a short messaging service (SMS) technology that both provides customer service and allows the company to monitor the social and environmental impacts of every lamp sold.

The use of mobile phone technology has skyrocketed in East Africa, and Manchanda’s development of a customer service practice that utilizes this unique market characteristic allows his product to penetrate markets previously characterized by uncertainty. Manchanda’s interest in tracking the social and environmental impact is based on his background in development work, but is also reflective of this market as a whole. Companies that operate in the solar portable lamp market are typically social enterprises interested in the triple bottom line of economic profit, social impact, and environmental health.

Manchanda realized that high-quality customer service is a competitive advantage and a way to generate confidence in relatively new and unfamiliar products among customers with very little purchasing power. With the help of an in-country partner, he developed an SMS platform hosted by Safaricom and Airtel that allows his company to send bulk text messages to purchasers of One Degree Solar products.

Retailers and resellers are trained to collect the serial and phone numbers of a customer’s mobile device, which are automatically transmitted to the One Degree Solar headquarters in Nairobi. One Degree Solar sends out SMS surveys on the first day of purchase and one month later, asking questions such as, “Do you need any help with your product?” and “How much money did you spend on kerosene last week?” The high-quality customer service improves consumer confidence and sales for several reasons: 1) the connection to manufacturers and repair persons in regions otherwise characterized by isolation is invaluable, 2) the reliability and benefits of the SMS service spreads by word of mouth, and 3) the service provides an assurance of the product’s dependability and long-term performance.

Manchanda’s prior work experiences with the Clinton Foundation and the Ministry of Health in Liberia involved the use of Palm Pilots to collect data from rural health clinics and hospitals. The project revealed to him the importance of data collection, as well as the relationship between data quality and the quality of the reporter. He explained:

“There are going to be situations where respondents have an inclination to give an answer you want to hear, and this can be the case in aid and development projects, especially when leading questions are asked. We’re getting our responses from a paying customer and not a beneficiary or recipient, and we think our numbers are going to be more accurate as a result. That sense of ownership is critical for us and for development as a whole.”

For solar portable companies to grow, it is essential that they share information with private and public investors to demonstrate their social impact and the potential returns on investment. Although it’s easy for solar portable lamp companies to say that their products have impact— decreased expenditure on kerosene lighting, improved literacy rates and productivity due to increased hours of lighting, and health benefits—it can be more difficult to quantify and prove that impact.

One Degree Solar’s customer service SMSs allow the company to communicate directly with customers. For example, the company can ask how the product is being used and monitor kerosene usage and expenditures over time (and then calculate subsequent health improvements attributed to decreased kerosene usage).

In addition to tracking kerosene expenditure over time, Manchanda anticipates further survey questions that investigate improved literacy rates:

“We imagine that a few months after customers buy the system, we’ll start asking questions about whether they have any children and what the children are reading. We’re hoping that with the data we collect, we can approach an Education Minister and say, ‘We have all of these families with lighting at home in x regions who have children in a given age group, and they don’t have anything to read at home.’ Sharing that information with NGOs that give books would make the work we all do more cost effective and impactful.”

Even though information sharing is a priority, One Degree Solar is still a business striving to out-do competitors. One Degree Solar provides a high-quality customer service because it’s good for business.

Manchanda says, “We do pay money per message, we do pay for staff time for developing the service, for training our resellers, and those expenses could be seen as money we could save and put to something else, but we’re spending the money and resources on developing customer service that we would appreciate in the West.”

One Degree Solar’s investment in developing an innovative customer service practice provides the foundation for the company’s scalability by 1) generating information and data for future investors, and 2) improving the marketability of a solar portable lamp in a young consumer product market.

Over the next few years, consumer product markets are expected to evolve rapidly in developing countries. Energy customers will develop higher demands, and companies will compete to provide higher-quality products and services for less, improving energy access and meeting development goals.

Do you know of other social entrepreneurs who have changed market landscapes in developing countries through innovative business models? Please feel free to share in the comments section below!

Claire Remington is an intern with the Climate & Energy program at Worldwatch Institute. 

The niche for large-scale wind-to-heat

Figure 1. China’s installed wind power generation capacity, and average operation hours of the turbines from different sources (click image to enlarge graph).

According to the Chinese Wind Energy Association (CWEA), China’s total installed capacity of wind power jumped to 75.3 gigawatt (GW) by the end of 2012, while the annual installed capacity was 13 GW, nearly 27percent lower than that of 2011 (See Figure 1). This may reflect bottlenecks, such as growing wind curtailment, faced by the industry.

Since 2010, the operating hours of wind turbines have been decreasing (See Figure 1). Combined with growing generation capacity, wind curtailment in 2012 reached 20,000 gigawatt hours(GWh), nearly doubled the curtailed production of 2011.

Jilin Province is a region with one of the highest curtailment rates. Winter nights see high wind speed but low electricity demand, and the local grid’s flexibility for peak electricity management is limited. As a result, wind farms in Jilin Province, which have a total generation capacity of 3.3 GW, were generating for only 1,420 hours in 2012. This was much lower than the industry-adopted economic minimum of 1,900 hours.

Meanwhile, burdens created by coal-burning are becoming less bearable. It is estimated that 70 percent of residential area in northern China has central heating systems. Half of this heat comes from heat-power cogeneration (which is mainly coal-fired), and the other half comes from the direct combustion of fossil fuels. These coal-intensive approaches consume 160 million tons of coal equivalent each year, which translates to 108.8 million tons of carbon emissions.

The atmospheric pollutants generated from burning coal threaten human health, especially during winters when the demand for heating is at the highest. Adding insult to (literal) injury, many coal-fired heating stations are constantly losing money because the price for heat is relatively low. According to China National Renewable Energy Center (CNREC), if the profit of wind power companies could be increased by reducing wind curtailment, it would be possible to compensate for the loss in power generation and heating services.

Utilizing curtailed wind for heating could therefore mitigate some pollution impacts and be economically beneficial. As Mr. Lishan Shi, Deputy General of the New and Renewable Energy Department under NEA, said, “wind-to-heat is a key that can open two locks”.

From pilot projects to scaling up

Wind-to-heat pilot projects have been carried out by major power companies in the Inner Mongolia and the Northeastern regions. In 2011, Datang Group, one of China’s “Big Five” state-owned power companies, launched an experimental project in Taonan, a county-level city in Baicheng, Jilin Province (See Figure 2).

Figure 2. Map of Baicheng, Jilin Province, showing the city of Taonan (Source: Google Maps)

The project coupled the Datang Taonan Heating Stations with the Datang Jilin Xiangyang Wind Farm. During the off-peak hours in the heating season, electricity generated from the 200 megawatt (MW) of wind capacity is used to heat the water in nine heat storage boilers (each is designed to hold 150 tons of water), which then provide heat to 163,000 m² of residential area, or roughly 1,630 households. The 27 GWh of wind power saved at Taonan from curtailment and converted to heat during one season is equivalent to 9,000 tons of coal equivalent, which means an emission reduction of 5,000 tons of carbon dioxide and 150 tons of sulfur dioxide.

Encouraged by the preliminary results, the NEA plans to scale up the success in Baicheng by assigning wind-to-heat projects to all the major wind power companies in the region. If all of the wind power generation capacity in Jilin Province (3,997 MW by the end of 2012) could be connected to adjacent heating systems and operate in a similar way, the would-be-curtailed wind could reduce coal consumption by 160,000 tons per heating season (a period of about four to six months).

Implementation and beyond

To utilize the off-peak wind power in a larger scale, supporting policies need to catch up with the political will. Holistic planning is necessary to allow the penetration of wind power to fit into local situations. For example, the demonstrated approach requires extensive coordination between wind farms and coal-fired heating stations, and the pricing of wind-powered heating (as well as the compensation mechanism mentioned earlier) is key to wind power companies, heating stations, and customers.

It is also important to note that wind-to-heat, without further technology improvement and innovative policies, can hardly divert China from massive coal consumption. With the current approach, even with all installed wind capacities in northeastern and northern China (eight provinces including Inner Mongolia) combined, wind-to-heat would only able to reduce coal consumption by 20 million tons per season, a mere 1.2 percent of the total annual demand for coal-powered heating in the country. For the time being, China will need to explore other alternatives to existing heating infrastructures and the utilization of curtailed wind in order to reduce coal consumption in the heating sector.

Encouraging wind-to-heat is a step forward, highlighting the diversified approach China is taking to reduce coal consumption. With more projects to follow, the country seems to be exploring all available approaches to overcome barriers to the growth of the renewable energy sector and the progress towards more sustainable lifestyles.

Wanqing Zhou is an intern with the China Program at Worldwatch Institute. 

Germany has seen success with solar power, despite having about the equivalent solar resource of Alaska. The U.S. contains vast solar resources, but could use more federal policies to utilize this renewable resource. Trans-Atlantic collaboration could boost the transition to sustainable energy systems on both sides of the Pond. (Source: German-American Chambers of Commerce)

The U.S. and Germany are obligated, as two of the largest economies and historic emitters of greenhouse gas emissions in the world, to lead the global transition to cleaner power systems. Their success or failure in transforming energy systems has immense global signaling effects. Closer cooperation in this innovative sector could revamp a faltering historic partnership.

Germany’s chosen path to a clean energy future is ambitious and unprecedented amongst industrialized countries. The government passed a series of measures in 2011 to simultaneously move away from fossil fuels and phase out nuclear power. Renewable energy is to become the backbone of the country’s energy system – at least 60 percent of the nation’s primary energy consumption and 80 percent of electricity are to come from renewables in 2050. Meanwhile, the last nuclear reactor is to be shut down in 2022. (See the table below for an overview of German energy policy goals).

The country is already a leader in renewable energies. Few countries have a greater installed per capita capacity of renewables, excluding hydropower, than does Germany. Moreover, the government also envisions energy efficiency to be a key component in enabling the clean energy transition. Germany aims to reduce primary energy consumption by 50 percent by 2050 and increase energy productivity, or the GDP produced per unit of energy, by 2.1 percent per year.

The U.S. trails German ambition and lacks a federal clean energy strategy, but is nonetheless one of the most important and dynamic renewable energy markets in the world. As of the end of 2011, the U.S. led the world in installed biomass and geothermal power capacity, ranked second in total installed renewable power as well as wind power capacity, third in hydropower, and fifth in solar photovoltaic (PV) capacity. While total emissions in the U.S. have historically been higher than most other countries, no other country has seen a larger drop in energy-related greenhouse gas emissions over the past five years. Shifts from coal to natural gas in the power sector, as well as fuel efficiency improvements in the transportation sector, are the main reason for this reduction, but growing investments in renewable energies also contributed to this positive trend.

The American Recovery and Reinvestment Act of 2009 included several incentives for clean energy projects that led to a demand surge for renewable energy. Moreover, U.S. states enjoy great autonomy in regulating power markets and can therefore move ahead in the absence of a federal clean energy strategy. This has led several states to implement progressive measures such as renewable energy portfolio standards, or obligatory energy efficiency improvements that are comparable to efforts of some European countries.

The transformation of power systems is a global challenge that we need to master if the most dangerous consequences of climate change are to be avoided. Frontrunner countries need to communicate their experiences to encourage the adoption of similar strategies elsewhere. However, rather than partnering in their efforts, misconceptions and reservations on both sides of the Atlantic currently shape the U.S.-German relationship.

In the U.S., the German nuclear phase-out is equated with an alleged renaissance of coal power. However, this view fails to look beyond developments that will, in all likelihood, be short-lived. Climate and renewable energy targets leave no room for fossil fuels in the long-term and will ensure a withdrawal from coal power. Nonetheless, the government’s management of the transition is critically debated within Germany. For example, the slow progress in renewing the country’s transmission lines and finding cost-effective options for electricity storage remain a concern. Many U.S. states face similar problems.  A closer look across the Atlantic can help in finding innovative solutions.

European critics are similarly quick to conclusions and chastise the United States for its lack of a comprehensive federal clean energy strategy, disregarding successful bottom-up efforts in U.S. states. From 2007 to 2012, U.S. energy-related emissions declined 13 percent, much more than in any other industrialized country. Moreover, renewables have jumped from 6.4 percent to 9.4 percent of total energy consumption. While more U.S. ambition is still needed to adequately address the threats of climate change, Europeans should regard these fast-changing circumstances in the energy sector as an opportunity to advance common interests.

Worldwatch is therefore launching its new ReVolt series “Transforming Transatlantic Power Systems” to strengthen the international dialogue on transitioning to clean energy systems, communicate respective efforts, and learn from best-practices.  The goal of the blog series is to regularly report on energy developments on both sides of the Atlantic, address common myths misrepresenting respective efforts, and to encourage finding solutions to common problems, such as electricity storage, smart grid infrastructure, and the role of natural gas in the transition to a carbon-free electricity sector.

Michael Weber is the Research Coordinator for the Climate & Energy team at Worldwatch Institute. 

The CDM provides a solution for financing low carbon projects in developing countries, as CDM projects can derive revenue from two sources: operational revenue, such as selling electricity or decomposition product, and selling the CERs from the project to Annex I (industrialized) countries under the Kyoto Protocol. For example, a wind power plant can sell its generated electricity to domestic grid companies while gaining extra income from selling CERs after achieving a certain amount of CO₂ emission reductions.

However, as shown by the lack of new CDM projects, the mechanism is failing. Due to oversupply of CERs, the price for each unit is falling rapidly. Two years ago, the CER price was above €12/ton of carbon dioxide equivalent (tCO2e) (US$15.46/tCO2e). At present, it is less than €0.5/tCO2e (US$0.64/tCO2e) (See Figure 1).

China is especially hard hit as it dominates the CDM market with the largest investment of CDM projects in the world ($220 billion, or 61.8 percent of total registered CDM projects globally). These Chinese CDM projects have supplied 738 million CERs, or 61.2 percent of all 1,200 million CERs issued from 2005 to present.

For many projects that provide emissions reductions in China, the CDM mechanism is a critical financing component, on top of an important driver of emissions reductions. Take, for example, the Shaanxi Fanshigou Wind Power Plant, which would only gain a 6.82 percent investment return by selling electricity to grid companies; a return that would be too low to attract investors given the average investment return in the wind power industry in China is 8 percent. However, with a CER price of €12/tCO2e (US$13.50/tCO2e), the income from selling CERs can increase the return to 9.53 percent (40 percent higher), making the project much more appealing to investors.

The income from selling CERs is even more important to trifluoromethane (HFC-23) decomposition projects. HFC-23 is a by-product of chlorodifluoromethane (HCFC-22), which is widely used as refrigerant. Due to its high global warming potential (11,700 times that of CO₂), HFC-23 CDM projects contributed nearly 10 percent of  total CO₂ emission reductions achieved by all China-based CDM projects while accounting for less than 0.5 percent of all CDM projects in the country.

These projects barely make a profit by selling decomposition product to other companies. The return on these projects mostly comes from selling CERs and is so sensitive to CER price that CDM developers around the world would not estimate investment returns in their project description documents when registering their projects under the UNFCCC. However, given the massive global warming potential of the compound, the emissions reductions achieved by these projects are crucial.

Under the current low CER price, Chinese CDM projects are having a hard time maintaining their businesses. According to Thomson Reuters Point Carbon, CER credit buyers are demanding price renegotiation or even terminating their contracts with Chinese CDM projects because the agreed upon price was much higher when they enrolled. More than ¥40 billion (US$6.44 billion) worth of CDM projects in China face default and carbon assets deflation. Credit Suisse, an investment bank, has downgraded China Longyuan Power Group, one of the biggest clean energy companies in the country, to “Neutral” due to low CER prices and the oversupply of CER in the European Union (EU) CDM market.

Excess supply is a major reason behind the low carbon price today. As more and more projects were registered with the UNFCCC, the number of CERs issued increased dramatically. Under basic economic theory, there are two options for dealing with oversupply and boosting the carbon price to restore a healthy market: reducing supply and (or) increasing demand.

The EU Commission decided to target supply as a short-term solution, by postponing the auctioning of 900 million allowances from the years 2013-2015 until 2019-2020. However, increasing demand will be the solution for the long-run, as the EU Commission plans to increase its greenhouse gas emissions reduction target and retire some allowances permanently.  CERs are also expected to be accepted in more carbon markets in the future; a full two-way link between the Australian emissions trading scheme and the EU Emissions Trading System is set to start no later than July 2018.

China itself is another emerging carbon market. Although the Chinese carbon market will not link to other markets in the near future, it will issue Chinese Certified Emission Reduction (CCER). Projects in China scheduled for CER could be transferred into CCER, thus reducing supply of CERs and helping to boost CER prices in the world market. In 2011, China’s National Development and Reform Commission (NDRC) initiated pilot programs for carbon emissions trading in two provinces and five municipal cities, with five of the programs having already published their implementation plans. GreenStream, a Nordic carbon asset management company, has executed emission reduction purchase agreements for approximately 1.2 million CCERs and plans to increase the portfolio ten-fold during 2013.

NDRC and the Chinese State Council have issued a number of important policies to strengthen planning and guidance on addressing climate change and promoting low-carbon development. Under the support of national policy, China’s carbon emission trading markets may have a bright future; China’s domestic carbon markets has the potential to absorb 600 million CER credits annually in the future, which should be enough to help initiate domestic emission trading.. There are many uncertainties on the UNFCCC end which would hopefully be cleared in the coming years of climate negotiation.

Lihuan Zhou is an intern with the China Program at Worldwatch Institute. 

"Are we done yet?” Poland has hardly been an enthusiastic actor in UNFCCC negotiations (Source: IISD.ca)

Countries are now engaged in an excruciatingly slow race to reach an agreement by 2015, which would for the first time commit both the developed and the developing world under “a protocol, another legal instrument or an agreed outcome with legal force” (ah, the beauty of UNFCCC language…), in order to meet the goal of 2 degrees warming by the end of the century, the “safe” limit that was agreed upon at the 2009 Copenhagen summit.

Given what’s at stake, and the inefficiencies inherent to the UN process, you’d think that the world’s nations would make sure that not a minute is lost in the talks. And yet, after a Qatari Presidency that left everyone with the vivid memory of conference chairman Abdullah bin Hamad al-Attiyah literally hammering out a last-minute deal, Poland has been designated to host the 19th annual Conference of the Parties (COP19) next October.

It may not be obvious, at first sight, why Poland hosting the climate talks seems like a step backwards. After all, the ambitions around COP19 are not to come up with a global agreement, but rather to make substantial advances on pressing issues in preparation of the Durban Platform deadline, fixed for 2015 (and a very likely French Presidency). But it helps to remember that the last COP on the road to the rather underachieving Copenhagen Conference in 2009 took place in Poznań, which could say something about the capacity of a Polish COP Presidency to pave the way for ambitious deal-making. These fears, of course, are not enough to dismiss Poland as a valuable host. What weighs heavier is that the country does have a history of blocking progress in climate negotiations, particularly at the European Union level.

Ever since its entry into the EU in 2004, Poland has described itself as a country that needed “more time than others” to meet the common objectives of the European 20-20-20 plan: 20 percent reduction in greenhouses gases, 20 percent share of renewables in energy consumption, and 20 percent reduction of overall energy consumption by 2020. If Poland had had its way, the 20-20-20 plan would have looked like a 14-10-10, perhaps even a 10-7-6, according to proposals made around that time.

More recently, the country also opposed the adoption of any emissions reduction roadmap beyond 2020, fought for the right to carry the surplus of emissions permits (so-called “hot air”) over the second phase of the Kyoto protocol, and has effectively stalled all attempts to “freeze” 900 million European “cap-and-trade” (EU-ETS) carbon credits, meant to drive prices up from where they are stuck today – under 5 euros per ton, far too low to provide a powerful incentive for investment in clean energy.

One of the most surprising features of this constant, fierce opposition to climate change action is that, more often than not, Poland acts alone. Yet a number of other European Union countries depend heavily on fossil fuels to fulfill their energy needs; not all of them share the immaculate environmental record of Latvia or Sweden. Why, among all of them, is Poland willing to face such diplomatic isolation to resist progress on climate action?

Part of the answer lies in the country’s outstandingly high reliance on coal, which makes up more than 90 percent of its electricity generation. Moreover, a significant portion of that fossil fuel is actually lignite, or “brown coal”, the cheapest, dirtiest kind  (which has also enjoyed increasing popularity in post-nuclear Germany).

But this unique choice can only be fully understood through the lens of Poland’s diplomatic history, and in particular its deeply rooted fear of Russia. Polish officials are afraid that overly stringent carbon regulations in Europe will force the country to increase dependence on gas imported from the Russian Federation placing Poland alongside many of its European partners, who rely on Russia for close to 40 percent of their gas imports.

For some time, shale gas provided the hope of ensuring Poland’s energy independence– in 2012, a U.S. government study, estimated that the country’s reserves could cover 200 years of its energy needs. Since then, however, estimates have been slashed by a stunning 90 percent, which quickly drove major international players like Exxon Mobil out of the country, but wasn’t enough to discourage domestic firms like the state-owned PGNiG from trying their luck – and reportedly obtaining the first shale gas flow last week. Poland sees in shale gas, nuclear power, and some timid steps towards renewable energy and energy efficiency, the pathway to reconciling its appetite for cheap energy while complying with the EU push for ambitious climate action.

A shale gas drilling area in northern Poland. Is the country closing the door on progressive climate policy? (Source: pulitzcenter.org)

That pathway is, however, a particularly uncertain one. Controversial studies have ignited a debate about the climate impact of “fugitive methane” from hydraulic fracturing, highlighting the possibility that shale gale could be even tougher on climate than coal. The lack of preexisting infrastructure in Poland could also limit its possibilities of recreating the American shale gas boom. The country’s promising renewable energy potential remains constrained by inappropriate support mechanisms, and the country was referred two weeks ago for failing to comply with EU standards on renewables.

If Poland is serious about doing more than minimum service towards a low carbon energy mix, it cannot afford to stall the progress of the EU-ETS and the second phase of the Kyoto Protocol much longer. Without proper institutional framing, and political momentum, which will help put a realistic price on carbon emissions and reflect the cost of pollution on society, clean energies won’t be price-competitive with lignite fast enough.

Providing effective institutional framing, and creating political momentum, is precisely what is expected of Poland as the President of the climate talks. So far, Polish officials have demonstrated some good will, but a worrying lack of ambition  – “I want the meeting in Poland to be a good introduction to the negotiating process”, said Environment Minister Martin Korolec.

COP19 cannot be an introduction to a process that was started in 1992, with insufficient results: it must be a critical step towards a solid agreement in 2015, which would provide a much-needed globally binding incentive to climate action at the national and local levels. Already this year, it is vital to achieve progress on fast-start financing of the Green Climate Fund, the advancement of the Durban Platform, and all the other questions that did not receive a definitive answer in Doha.

“What this conference does is bring the world’s attention to the host country and encourage that country to actually step up to the plate and do more”, UNFCCC head Christiana Figueres said in late November after Poland was chosen to host. This was right after the chaotic closing of COP18 and a year of a rather unconvincing Qatari Presidency. Time for wishful thinking is running out. If it is sincere about its will to make the Warsaw talks a success, Poland must start working as hard as it can to gather support for a global agreement, and clean up its own act. And, by the way, would it be possible to find another location than a football stadium? Thanks.

Antoine Ebel is a former intern with Worldwatch Institute’s Climate and Energy team, a regular contributor to ReVolt, and the President of CliMates, an international student think-tank striving to research and promote innovative solutions to climate change.