Chinese Energy Transition Increases Need for US Technology

This article originally appeared in China Business Review (CBR), the official magazine of the US-China Business Council (USCBC).

China’s energy planners seek to increase production, distribution, and consumption of renewable energy as a means to diversify energy supply. However, as China attempts to transition from coal to other energy sources, it struggles to utilize existing renewable capacity. This inefficiency, caused by overcapacity and grid limitations, has hindered the country’s ability to achieve renewable sector development goals.

China’s transition from coal to renewables has been slowed by energy sector overcapacity and grid inefficiencies

The National Development and Reform Commission (NDRC) and National Energy Administration (NEA) recently announced sector-specific 13th Five-Year Plans (FYPs) that emphasize the need for reduced coal use and promotion of renewable energy, echoing State Council plans for environmental protection and emissions reduction.

Move Toward Renewable Energy

NDRC plans to make renewable energy companies more self-reliant by gradually decreasing funding for “on-grid tariffs”—subsidies for newly built solar- or wind-power generators. These tariff reductions are less steep than those proposed in a September draft resolution, because Chinese solar and wind producers complained about difficulties operating with such low rates. Most producers said the final proposed rates are acceptable.

The Chinese government is reducing renewable energy subsidies to make companies more self-reliant, a trend that will make China more dependent on foreign technologies and equipment to achieve its ambitious energy sector targets

Reducing on-grid tariffs will weaken the standing of China’s domestic clean energy sector in the short term and offer a competitive advantage to foreign firms, including US companies with superior technologies and services. Additionally, the Catalog on Guiding Foreign Investment and Catalog of Encouraged Imported Technology and Products offer provisions on clean coal and renewable energy technologies, including solar cells, wind turbine bearings, biofuel gasification devices, and a wide array of new-energy power generation equipment. These catalogs portend a need for foreign renewable energy equipment and services as China strives to meet lofty clean energy sector development targets.

The electricity FYP calls for non-fossil fuel electricity production by 2020 to make up 39 percent of total energy output and 15 percent of consumption. These include specific measures to promote hydroelectric, nuclear, natural gas, and solar energy development. The plan also commits to upgrading electric grid infrastructure.

Chinese state-owned enterprise, State Grid, makes frequent use of foreign company technology and equipment, however, will prioritize domestic companies whenever possible

Based on an advantage in technology and service quality, some foreign companies have successfully sold and scaled their products in China. State Grid, a Chinese state-owned enterprise and the largest utility company in the world, frequently contracts foreign companies in efforts to improve power transmission and distribution. These opportunities are not guaranteed; State Grid will also turn to cheaper domestically manufactured infrastructure despite worse efficiency. While foreign companies are pursuing joint ventures with Chinese partners, there is still a reluctance to share technology for fear it will compromise intellectual property.

Moderating Coal Usage

The electricity FYP proposes cutting coal-generated electricity to 55 percent of total output, while the environmental protection FYP advises reducing this electricity to 58 percent of total consumption. China is simultaneously setting targets to reduce coal production overcapacity by limiting new coal mines and reducing general coal production.

These energy- and environment-focused FYPs set targets that promote the production and use of clean coal technologies; and the environmental protection FYP aims to raise the coal cleaning rate to 75 percent by 2020. Coal companies that violate emission standards or do not cut capacity will be subject to discipline by the Central Commission for Discipline Inspection or State Administration for Industry and Commerce.

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