|Civil law||Mandarin and many other languages and regional dialects|
|POPULATION||INCOME||GNI PER CAPITA (PPP TERMS)|
|1.34 billion||Upper middle||$8,390|
Since 1949, the world's most populous country has been governed by the Communist Party of China (CCP). China has experienced rapid economic growth since Deng Xiaoping and Hu Yaobang's post-Mao economic reforms (gaige kaifang) that commenced in the late 1970s. Asis widely known, China is now predicted to become the world's biggest economy by the end of this decade. While China's economic liberalisation has seen an unprecedented rise in living standards, a number of environmental, income disparity, geopolitical and energy security challenges have arisen. To address these issues, the CCP's 12th Five Year Plan (2011-2015) has vowed to stimulate domestic demand and invest significantly in renewable energy, while the new Chinese leadership, headed by Xi Jinping and Li Keqiang, have sought to stamp out corruption and promote sustainable development under Xi's mantra of "the Chinese dream".
ELECTRICITY INDUSTRY OVERVIEW
- China is the world's largest energy producer and now also the largest energy consumer of any nation.
- While data is difficult to verify in a country as expansive as China, it was estimated that in 2011, China's electricity capacity was 1,055GW (predominantly fossil fuel-based), while electricity generation was approximately 4,700TWh.
- Some experts believe China's generating capacity will increase by 250% from present levels by 2020.
- Surprisingly, in 2012, demand for electricity fell by nearly 50%, however this is expected to be an anomaly as China's mass urbanisation and industrialisation continues.
- China is the largest producer and consumer of coal in the world. Unlike Australia for instance, much of China's coal is consumed domestically, which contributes significantly to air pollution problems. China's energy market also relies heavily on domestic and imported oil as well as natural gas.
- In 2006, there were 11.5 million households without electricity. Through the "Electricity for Every Household" program, around 520,000 additional homes have since been provided with electricity.
- China's energy sector is overseen by a vast bureaucracy across a number of organisations and levels of government. The National Development and Reform Commission (NDRC), the Commission of Economy and the Office of the National Energy Leadership Group implement central government policy. A number of other bodies have been established in the past few years, such as the National Energy Agency (NEA) and the National Energy Commission.
- The State Electricity Regulatory Commission (SERC)is the main regulatory body in the energy sector. It undertakes a number of functions in relation to market inspection, price inspection, security inspection, customer service inspection and permits for operation. SERC's powers are subject to the NDRC and the National Energy Administrator.
- At the 2013 National People's Congress, State Councillor Ma Kai announced the Government's intention to merge the NEA and SERC.
- China's power sector has already undergone significant reforms. In 2002, the CCP launched a series of rules and regulations levying pollutant discharge fees and setting emission standards of air pollution for thermal power plants. Additionally, the State Power Corporation was divided into 11 new corporations, resulting in some competition in the energy generation sector, however state-owned enterprises continue to dominate the sector.
Generation, distribution and transmission
- There are five state-owned power generation companies: China Guodian Corporation, China Huaneng Group, China Datang Corporation, Huadian Corporation and China Power Investment Corporation.
- More than 90% of the total installed generating capacities are state-owned.
- 99% of the assets in the distribution and transmission sectors are owned by the Central Government.
- More than 80% of electricity is supplied by the State Grid Corporation of China (SGCC) and the China Southern Power Grid (CSPG).
- Since the 2002 reforms, the SGCC and CSPG operate the grids.
- Currently, China has six regional power grids. The 12th Five Year Plan has flagged the possibility of a unified and smart grid system to operate nationwide by 2020.
- The Electric Power Law 1996 (EPL) applies to the construction, production, supply and utilisation of electric power.
- The EPL aims to:
- protect and develop the electricity industry;
- protect the interests of investors and users/consumers;
- ensure safe and reliable operation of electricity; and
- facilitate healthy development of the industry.
- The EPL mostly uses generic language, such as the need to:
- incorporate electric power development into the national and social development;
- promote safe production of electricity;
- promote the "hook-up" between power-producing enterprises and electric networks (reserving priority in utilisation to the investor);
- require contracts between suppliers and users of electricity;
- require unified pricing of electricity; and
- adopt preferential policies for rural electrification.
- The Energy Conservation Law 1998 has a broad ambit to promote energy efficiency and has led to over 164 "energy savings standards" across China.
- Other important legislative instruments include the:
- Electricity Regulation 2005;
- Electricity Pricing Reform 2005; and
- Electricity Supply Regulation 1996.
RENEWABLES INDUSTRY OVERVIEW
- China is the global leader in renewable energy in almost every sense: from total capacity, to current and future expenditure, to energy and emission targets and renewable technology production.
- China has a total capacity of 152GW of grid-connected renewable energy.
- The push for renewable energy is underscored by air quality concerns, water and food contamination concerns as well as geopolitical concerns about supply routes through the narrow Malacca Strait (as well as the Lombok and Makassar Straits). As a result, it is estimated that over the next 15 years, China will spend US$1.54 trillion on clean energy projects. Indeed, in 2012 China increased spending on renewable energy by more than 20% to US$65.1 billion, which was approximately one-quarter of total global renewable energy expenditure for 2012.
- China recently overtook the United States as the largest greenhouse gas emitter in the world and now accounts for about one-fifth of global carbon emissions. China has voluntarily committed to reducing its carbon intensity per unit of GDP by 40-45% by 2020 compared to 2005 levels, however its emissions are not expected to peak until 2025 or 2030.
- The renewable energy capacity of China is increasing faster than its coal capacity. However, coal still accounts for 70% of China's energy consumption and the overall share of electricity generated from renewable sources has increased only slightly.
- China's 12th Five Year Plan aims for non-fossil fuel energy production to reach 11.4% of total energy production by 2015. The CCP envisages that 15% of China's electricity needs will come from renewable sources by 2020.
- China has the largest total installed hydropower capacity of any country at 213GW, with an estimated potential of 500GW.
- Rural hydropower capacity is expected to reach 74GW by 2015.
- The Three Gorges Dam, located on the famous Yangtze River, includes 32 separate 700MW generators. It is regarded as the largest hydropower facility in the world.
- Mega-dam constructions have caused significant social unrest with residents opposing forced evictions and with some complaints of insufficient compensation packages. Geologists have expressed concern over building mega-dams in earthquake prone areas, while environmentalists have continually lamented the impact of dams on river ecosystems.
- The CCP has not publically backed any other large hydropower projects since the Three Gorges Dam, however it appears that mega-dams are being constructed to reach China's carbon reduction targets. Recently, western media have been given access to the dams planned on the Jinsha River (see below).
- 'Dam diplomacy' has emerged as a significant and complex geopolitical issue for China and its relations with downstream neighbours. The damming of the upper reaches of the Mekong River has unsurprisingly proved unpopular with South East Asian countries in the past. However, there is a growing number of dams within countries such as Laos, that have involved Chinese financiers and developers. The United States has weighed into the issue and supported countries of the lower Mekong in their claims for increased water flows.
- Between 2005 and 2012, China increased its wind energy capacity almost 50-fold. Current wind capacity is 63GW (the largest of any nation) and is expected to rise to 100GW by 2015.
- It is estimated that over the past few years, an average of 36 wind turbines per day have been erected in China. China experienced a 36% increase in wind power generation in 2012 alone.
- China's windiest areas, which include Inner Mongolia, Xinjiang, Gansu and Tibet, are located far from population centres and thus require extensive transmission infrastructure.
- China is targeting 21GW of installed solar power capacity by 2015, with current capacity at approximately 7GW.
- The Middle Kingdom enjoyed a dramatic 75% increase in new solar capacity in 2012.
- China accounted for approximately 25% of global solar investment in 2012 spending US$35.1 billion.
- Low interest rates and extended credit from the Chinese Development Bank, as well as other government subsidies for land, research and development, have underpinned the success of the solarindustry.
- China is the world's largest manufacturer of solar panels and has 65% of the world's operational solar heaters.
- Seven of the top 10 global solar panel makers are Chinese, contributing to an 80% drop in the price of solar PV cells over the last five years.
- As at 2010, China had 24.2MW of installed geothermal generation capacity.
- China is anticipating growth to 60MW of installed geothermal generating capacity by 2015.
- Most of China's known high-temperature resources are located in Yunnan and Tibet, however geothermal exploration has been limited mostly to these provinces.
- Biogas digesters are seen as a solution to the dumping of animal waste in waterways. There have been more than 1,600 large-scale digesters and more than 30 million household biogas digesters constructed in China.
- China's estimated installed capacity of biomass was 4GW in 2010 and is expected to reach 30GW by 2030.
CURRENT ISSUES IN THE RENEWABLES INDUSTRY
- As was emphasised by China's outgoing Premier Wen Jiabao, China must strike a balance between economic development and environmental considerations. It is clear that the new Politburo have also sought more sustainable development through climate change mitigation and immense clean energy investment. In an unusually blunt assessment, new Premier Li Keqiang acknowledged the social impetus for climate change action during a press conference at the 2013 Nation's People's Congress. He remarked: "we shouldn't pursue economic growth at the expense of the environment. Such growth won't satisfy the people".
- Accusations from the United States of anticompetitive subsidies to support solar sector growth in China led Washington to file a case with the World Trade Organisation in 2011/12. China reportedly provided US$30 billion in credit to its biggest solar manufacturers (about 20 times the United States investment). Subsequently, the US has imposed tariffs between 31% and 250% on Chinese PV cells. Recent media reports suggest that the US may remove these tariffs and has also acted as a mediator between Europe and China with the EU Commission currently considering anti-dumping taxes as high as 67.9% on Chinese PV cells.
- Much of China's potential renewables capacity has not been met to date due to the challenges of connecting renewable sources with grids. This problem has been exacerbated as there is now an excess of solar PV cells and wind turbines.
- The CCP will introduce regional and city based emissions trading schemes in Beijing, Tianjin, Shanghai, Chongqing and Shenzhen, as well as provincewide schemes in Hubei and Guangdong. Shanghai and Shenzhen have announced their schemes will commence mid-year. These pilot schemes, which cover approximately one-fifth of China's population, will be used to establish a nationwide trading scheme after 2015.
- The energy sector is currently facing a scandal of its own involving Liu Tienan. In March 2013, Liu was removed from his position as Director of the NEA, but has continued on in his role as Deputy Director of the far-reaching NDRC. Liu is alleged to have embezzled US$200million and is currently awaiting formal charges.
- The Renewable Energy Law 2006 (REL)includes provisions regarding price regulation, differentiated pricing, special funds and tax relief. Importantly, state-owned grid operators are required to purchase all grid-connected activity generated from approved renewable generators in accordance with the REL. For wind, the price is based on bid prices from government tenders, while for biomass and solar, prices are calculated on cost price with a "reasonable profit". In turn, the grid enterprise can cross-subsidise by charging customers a higher price.
- The National Climate Change Program, launched in 2007, sets out a number of greenhouse gas mitigation, educational and institutional mechanisms to combat climate change in China. It was the country's first major climate change policy initiative.
GOVERNMENT INCENTIVE PROGRAMS
- The Golden Sun program is targeted at solar energy producers. The program subsidises 50% of grid- connected solar investments and 70% of off-grid solar PV power investments.
- For wind energy producers, there is an immediate value-added tax rebate of 50% applied to the sale of self-manufactured electric wind power.
- The NDRC has also introduced a feed-in tariff for biomass, wind, solar and hydropower, with the most generous tariffs for solar energy generators.
- There are a number of general incentives offered under the REL, such as preferential loans, tax benefits and funding from the Renewable Energy Development Fund for renewable projects.
- The Xiluodu and Xiangjiaba hydropower stations on the Jinsha River are currently under construction. Once completed, the dams will have a combined capacity of nearly 20GW. These dams are the largest hydropower facilities to be built since the Three Gorges Dam (22GW) and have created thousands of jobs. Opponents of the dams have lamented the relocation of hundreds of thousands of people and indeed Jinsha River damming projects have become a sensitive issue, particularly in Yunnan and Sichuan where the dams are located. There are reportedly "dozens" of other proposed dams on the Jinsha River which has led environmentalists to warn of a potential "dead river system". Besides environmental and geological impacts of mega-dams, renewable energy in China receives widespread public support, particularly because it alleviates air pollution.
- China Investment Corporation and China Energy Conservation Investment Corporation are two notable state-owned enterprises investing heavily in renewable energy in China.
- Currently, there are six 10GW wind farms under construction in Gansu, Inner Mongolia, Hebei, Jilin and Xinjiang.
- The largest rooftop solar power station in the world is located in Weihai City in China's Shandong province.
- Himin Solar Energy Group, one of the world's biggest producers of solar water heaters is constructing "Solar Valley" in Dezhou, which is China's clean-tech version of Silicon Valley. Himin Solar is headed by "the Sun King" – Huang Ming.
- Beijing Jingyuntong Technology Co Ltd raised RMB2.5 billion (US$394 million) via an Initial Public Offering on the Shanghai Stock Exchange, for the purpose of a silicon industrial park in Beijing.
- Suntech Power Holdings, which was valued at US$9 billion in 2007, is believed to be the largest solar energy company in the world. However, like other solar energy companies, its profits have fallen in recent years due to the oversupply of solar panels on the global market.
- The Catalogue for Guidance of Foreign Investment, revised for a fifth time by the NDRC in 2011, requires foreign investment be made in a manner that is consistent with Chinese policy and in a way that will promote the development of China. Importantly, alternative energy and energy efficient technology investment are in the "encouraged" category. This is in-line with China's emphasis on renewables in the 12th Five Year Plan. However, there are still barriers for foreign investment, such as the need to create joint ventures with Chinese companies.
RELEVANT INTERNATIONAL TREATIES
- China ratified the United Nations Framework Convention on Climate Change (UNFCCC) in 1993 and ratified the Kyoto Protocol in 2002.
- In a 2013 report, the independent, Australia-based Climate Commission, surmised that both China and the US were on track to meet their commitments to tackle climate change. This came in the wake of an "historic" agreement for ministerial-level cooperation on climate change in April between the world's two largest economies who
- together account for over one-third of total emissions.
- Whether the US and/or China will take the lead at the next UNFCCC talks in Bonn remains to be seen. At the recent 2012 Doha climate talks, UNFCCC Executive Secretary, Christiana Figueres, tentatively noted China's current leadership in tackling climate change.
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