China: Timely Boost for Renewables in China

Originally published 19th August 2005

The recent passing of the 'Renewables Law' is set to turn China into a global heavyweight in the future development of the renewable energy sector.

According to estimates, China's energy consumption is expected to top 3 billion tons of standard coal by 2020. The Government has recognised that it will need to make significant progress in saving energy, optimizing the nation's energy structure and developing renewable energy to avoid environmental/ecological damage and power deficits from hampering economic and social development. However, the development of renewables in China faces a number of technical, administrative and capacity constraints.

To deal with these constraints, the Chinese Government is devising a comprehensive renewable energy strategy for making power generation from renewable energy sources competitive, on an economic basis, with coal-fired power plants in supplying electricity to large-scale power grids. The Law of Promotion of Renewable Resources Development and Exploitation (the 'Renewables Law') forms an integral part of this strategy which has three principal features :

• the introduction of a legal and regulatory framework that will encourage the development of economic renewable energy resources and a more competitive power sector in line with legislative reforms, such as the recently passed 'Renewables Law '
• to provide potential power producers with access to advanced technology and techniques that will make renewable energy more competitive; and
• to strengthen the capacity of existing companies to develop, finance, construct and operate renewable energy projects for power generation on a large scale, and further open the sector to private investors.

China undoubtedly has abundant renewable energy reserves including some 378 gigawatts (GW) of exploitable installed hydropower capacity and approximately 250 GW of exploitable wind energy. In addition, it has been estimated that China has geothermal reserves equal to 135 billion tons of standard coal and biomass reserves equivalent to 650 million tons of standard coal. A recent report jointly issued by Greenpeace, the European Wind Energy Association and the Chinese Renewable Industries Association predicts that China's wind energy reserves could surpass the total amount of China's current power generation in future decades, and that by 2020, China's electricity generated by wind energy could potentially rise to 14 per cent of global wind energy output.

In 2003, renewable energy consumption accounted for only 3 per cent of China's total energy consumption. The Renewables Law, which becomes effective on 1 January 2006, seeks to increase the proportion to 10 per cent by 2020, representing a huge increase particularly given the rapid and continuing increase in China's overall power consumption. If one takes into account that a substantial part of the target is to be achieved by the increased use of wind and solar power, the target appears even more ambitious. At present, installed wind capacity of China is approximately 567 megawatts (MW), only 0.14 per cent of the nation's total generated energy. Wind power capacity in neighbouring India nears 3000 MW. Massive expansion will, therefore, be required in this sector if the target is to be achieved.

The Renewables Law will require utilities to purchase 100 per cent of output from approved renewable energy facilities, including small hydro (under 25 MW) wind, solar, geothermal, marine and biomass, at a price set by China's National Reform and Development Commission (NDRC). The higher cost of purchasing power from renewable energy sources will be spread across all grid customers. It also offers financial incentives, such as a national fund to foster renewable energy development, and discounted lending and tax preferences for renewable energy projects. Penalties will also be imposed for failing to meet output targets.

To assist the Chinese Government in implementing its strategy the World Bank has recently approved a loan of US$87 million to China for the financing of the Renewable Energy Scale-up Program for China (CRESP). This is to be supplemented by a grant of US$40.22 million from the Global Environment Facility (GEF). The program's objective is to expand renewable electricity supply in China efficiently, cost effectively and on a large scale.

The CRESP program will further complement the Chinese Government's efforts in achieving its aims and, over its lifetime, the program is expected to assist in increasing renewable capacity to more than 20 GW; reduce carbon emissions by about 800 million tons and total suspended particulate emissions by more than 800 million tons; and reduce sulphur oxide emissions by more than 30 million tons and nitrogen oxide emissions by more than 6 million tons.

It is intended that the program will be implemented in Fujian (where it will help finance a 100 MW wind farm), Jiangsu (where it will pilot a 25 MW biomass-fired generation unit), Inner Mongolia and Zhejiang provinces. It will also provide grant funds which will support the Government's efforts to jump-start further development of projects and the transfer of up-to-date wind and biomass technology from international suppliers.

CRESP is the largest such program supported by the World Bank and GEF in recent years. However, it is the passing of the Renewables Law which best reflects the growing realisation among Chinese politicians and economists that China's runaway increase in power consumption (it is estimated that the power deficit will reach 25 GW by the summer of this year), over-reliance on energy sources such as coal and increasing environmental problems can only be addressed by a sustained and substantial commitment to developing alternative sources of energy.

The move is also designed to encourage participation in China's renewable energy market and it recognises that domestic and overseas companies will not invest in this sector unless there is a clear sign that China has the political and economic will to support major development. Already, there are tangible signs that the market is developing. In addition to the CRESP initiative, the National Development and Reform Commission has approved a third batch of wind concession projects totalling a $400 million investment in new wind energy technologies.

It would appear that China has learnt valuable lessons from countries such as the US, UK, Japan and Germany where experiences have shown that there is no simple, single solution for a country when it comes to exploiting renewable energy. The introduction of the Renewables Law will be seen as a watershed but there is still a long way to go if the ambitious targets fixed for 2020 are to be met.