China’s National Energy Administration (NEA) recently released its latest energy outlook, which highlights the progress made in 2010 and foresees a busy 2011. While development of new and renewable energy sources is the focus of China’s long-term energy plan, the Chinese government is still struggling to figure out exactly how fast those sectors should grow. Learning from previous experiences, China’s top decision makers are taking a more practical – and in our opinion, more rational – approach to creating a low-carbon economy.
In less than a month, China will release its next five year plan. The plan will set a new target for cutting energy consumption per unit of GDP (i.e. “energy intensity”) and China’s first -ever target for reducing carbon dioxide emissions per unit of GDP (i.e. “carbon intensity”). As the nation’s chief energy policymaker, the NEA’s movement has been closely watched by both domestic and foreign stakeholders, especially those in the new and renewable energy industry. Given the unprecedented growth of China’s emerging new energy division in the past five years (see our recent publication for more detail), it’s no wonder that everyone expects the new and renewable energy sector to grow even faster in the future.
However, the NEA’s 2011 Energy Outlook (released on January 28th, 2011 and available only in Chinese) didn’t push the new and renewable energy enthusiasm as far as expected. The Outlook provided estimates for new installed capacity for hydro, nuclear, wind, and solar power in 2011, for instance, but these were presented as predictions rather than development goals. It’s not clear that the government is sending strong positive signals to the industry. Moreover, the Outlook simply mentioned that the Renewable Energy Development Plan for the 12th Five-Year Period “will be implemented in full” without revealing any details. It’s now an open question whether the previously widely-rumored development goals (see previous news coverage here) will indeed be included in the final released version.
In the policymaking world, it’s well-known that nothing is certain until it’s written and formally declared. In the case of China’s new and renewable energy development policies, however, even formally declared policies could remain uncertain. In the 2007 Medium and Long Term Renewable Energy Development Plan, the 2020 goal was “to increase the share of renewable energy in total energy consumption to 15 percent.” The 15 percent figure has since been widely cited as the universal development goal for China’s renewable energy; few likely noticed that the underlying meaning of that goal was altered later. In September 2009, when President Hu announced China’s commitment to address climate change in his speech at the United Nation Climate Summit, he mentioned the 15 percent goal. Many believed that he was simply reiterating the same figure set in 2007. In fact, in President Hu’s original words in Chinese and correctly translated transcripts, China’s 2020 energy goal became to “increase the share of non-fossil fuels in primary energy consumption to around 15 percent.”
You don’t need to be an energy expert to identify the difference in wording. But what does this change really mean in terms of the extent of China’s ambition on new and renewable energy development? Simply put, as the scope of non-fossil fuels is larger than renewable energy, the altered 15 percent goal actually means that renewable energy would account less in energy mix by 2020 than previously expected.
Such toned-down ambition may result from problems emerging due to the rapid growth of renewable energy. Of all the limitations that hindered China’s faster renewable deployment, grid capacity is the most prominent. This is especially the case with wind power generation. By doubling wind capacity additions in four consecutive years since 2005, China surpassed the U.S. to become the world leader in total installed capacity. Yet the U.S. remains the leader in grid-connected capacity. According to the newly released 2010 China Wind Power Outlook, China had installed a total of 41.8 gigawatts (GW) of wind capacity by the end of 2010, but only 31.1 GW (74.3 percent), based on the NEA’s estimation, has been connected to the grid. In regions with abundant wind resources but weak grid capacity, such as the Inner Mongolia Autonomous Region, as much as one third of installed wind capacity produces no electricity.
To remove this bottleneck, the Chinese government has, on one hand, continued to invest heavily in grid infrastructure. According to the Chinese Electricity Council (CEC)’s investment plan, a total of 2.55 trillion RMB (about 390 billion USD) will be spent on grid construction by 2015. Aiming for at least three west-east and three north-south long-distance lines across the country, the goal is to build up an ultra-high-voltage transmission network that could fully absorb the electricity generated by non-fossil fuels. On the other hand, Chinese government has shown interest in restraining its over-heated renewable sectors. In September 2009 the central government issued an order (see here in Chinese) in an attempt to prevent redundant production capacity and repetitive investment in wind and solar equipment manufacturing sectors. Although the NEA’s estimation of 14 GW of newly installed wind capacity in 2011 seems rather impressive, it actually marks the first time since 2005 that the expansion of China’s wind capacity will slow.
In view of all these practical considerations, the shift in China’s energy development goal from a renewable-only focus to a broader emphasis on non-fossil energy development does not mean that the Chinese government is abandoning its low-carbon growth path. Instead, shaping the growth of the renewables sector in a more controlled and efficient way indicates that China’s top decision makers have become more cognizant of the various elements necessary for effective utilization of renewable energy. We will keep a close eye on whether this practical and rational approach will be reflected in detail in the 12th Five-Year Plan.