New Five-Year Plans Promote Energy Industry Reform

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

Facing ongoing pollution challenges and a push to diversify energy sources, China’s energy planners kicked off 2017 by announcing an array of 13th Five-Year Plans (13FYPs). Offering quantifiable short-term goals for limiting reliance on coal in favor of oil and gas, these plans collectively focus on emissions cuts, renewable energy development, and improved energy industry efficiency, while encouraging technology solutions such as data centers.

As China outlines its upcoming policy direction for traditional, renewable, and efficient energy, as well as pollution control, USCBC has highlighted key FYP themes and targets, which shed light on new energy sector trends that offer opportunities for member companies.

13th Five-Year Plan for Energy Development

ChinaGreatHall
China’s energy planners have announced a slew of sector-specific plans to guide energy development during the 13th Five-Year Plan period

In January, the National Development and Reform Commission (NDRC) and National Energy Administration (NEA) announced the 13th Five-Year Plan for Energy Development, a guideline for promoting an “energy revolution” in China. The plan highlights the following themes:

Structural adjustments support oil, gas, renewable energy consumption:   Total energy consumption by 2020 should be within 5 billion tons of coal equivalent. Growing by 2.5 percent annually, this 13FYP rate is 1.1 percent lower than that of the 12FYP period. Structural adjustments to the sector will include greater emphasis on oil and gas in place of coal, while renewable energy will begin to gradually replace fossil fuels. Companies in the oil and gas space should focus on this section of the plan.

Development through innovation:   Science and technology innovation will promote clean and intelligent energy, propelling new industries and business. Gradually shifting from traditional high energy-consuming industries to service industries and household consumption, energy consumption growth will focus on modern manufacturing, big data centers, and new energy, offering opportunities to companies with expertise in energy efficiency.

WUJING THERMAL PLANT
China is emphasizing smart grid development as it diversifies its energy landscape

Diversified energy sources:   Major energy projects will include development and commercialization of smart grids, distributed energy resources, low-speed wind power, solar energy materials, and biomass and geothermal energy. China intends for these energy sources and systems to be a predominant fuel source for economic growth in towns and rural regions; however, success depends on implementation.

Cooperation in other markets:   China will increase cooperation with other countries on energy technology, equipment, engineering services, and capacity development by encouraging Chinese companies to participate in foreign electricity projects. China will also pursue investment, construction, and operation of overseas power grids and new energy projects. This could provide opportunities for US companies to partner with Chinese counterparts seeking to collaborate in markets beyond the United States and China.

ChinaDeepWaterOil
Through fiscally supportive policies, China is launching pilot projects in an array of energy sectors, including deep-water oil and gas drilling

Fiscally supportive policies and projects:   Chinese energy reform will rely on various other supportive policies that include energy resource pricing mechanisms, monetary and tax incentives, financing support, and methods for evaluation and supervision. The development of an energy market access negative list will encourage companies and other market players to invest in the Chinese energy sector. Pilot projects will include developing and drilling non-traditional oil and gas, deep-water oil and gas, and natural uranium resources.

Other industry-specific plans

In addition to the 13FYP for Energy Development—which serves as a broad industry blueprint and action plan—China announced a range of sub-industry FYPs that offer strategies to reduce carbon emissions. The following chart outlines 14 of these plans:

Sub-Industry 13FYP Highlights
Electricity Development
  • Sets overall electricity percentage targets for coal (55 percent), hydropower (17 percent), wind (10.5 percent), solar (5.5 percent), gas (5.5 percent), and nuclear (2.9 percent), as well as for electricity and transmission and distribution networks.
  • Achieve 770 million kilowatts (kW) of non-fossil energy power and 50 million kW of gas power installed capacity.
  • China to establish market for electricity spot trading, a system that ensures immediate power delivery and value.
Coal Industry Development
  • Reduce average coal consumption of new coal-fired generating units to less than 300 grams of standard coal per kWh
  • Accelerate coal energy system upgrades,promote sustainable development, achieve low emissions, retrofit to save 420 million kW, implement energy-saving mechanisms to save 340 million kW, and achieve 300,000 units of ultra-low emissions.
  • Eliminate 800 million tons per year of inefficient or polluting industrial capacity, known as “backward production capacity.”
Intensive Coal Processing
  • Achieve annual coal liquefaction capacity of 13 million tons, gasification capacity of 17 billion cubic meters, and low-rank coal utilization capacity of 15 million tons.
  • Upgrade large-scale coal gasification, hydrogenation liquefaction, low-temperature Fischer Tropsch synthesis, Methanol to olefin technology, low-rank coal pyrolysis, medium and low temperature coal tar deep processing, methanation, and coal-to-aromatics technologies.
  • Improve energy efficiency, reducing total energy consumption.
Coal-Bed Methane Exploration and Development
  • Build three to four coal-bed methane (CBM) industrial bases.
  • Develop 40 billion cubic meters of drainage volume—noticeably outpacing 12FYP period goals.
  • Increase coal-mine gas usage volume from 4.8 billion cubic meters to 7 billion cubic meters.
Shale Gas Development
  • Achieve 30 billion cubic meters of shale gas production volume.
  • Release supportive policies such as subsidies, review processes for international cooperation, and management mechanisms.
Natural Gas Development
  • Increase regular gas reserves by three cubic meters; total reserve should reach 16 trillion cubic meters.
  • Achieve a supply capacity of 360 billion cubic meters.
  • Construct 40,000 km of new natural gas pipelines, achieving a total of 1.04 million km.
  • Promote natural gas market reform that improves legal and policy systems and establishes comprehensive supervision.
Petroleum Development
  • Increase geological reserves by one billion tons per year.
  • Achieve more than 200 million tons of petroleum production to ensure 590 million tons of domestic consumption.
  • Construct 5,000 km of new crude oil pipelines and increase oil transportation capacity by 1,200 million tons per year.
  • Build 12,000 km of refined oil pipelines and increase transportation capacity by 900,000 tons per year.
Nuclear Industry Development
  • Achieve 880 million kW of nuclear power capacity.
  • Improve nuclear safety and emergency systems, increase security capacities, ensure uranium and nuclear fuel supplies, and strengthen spent fuel and radioactive waste management.
  • Conduct research and development in floating nuclear power plants.
Renewable Energy Sources Development
  • Increase hydropower capacity by 60 million kW and investment by 500 billion RMB ($70 billion).
  • Increase wind power capacity by 80 million kW and investment by 700 billion RMB ($100 billion).
  • Increase solar power capacity by 500 million kW and investment by 1 trillion RMB ($143 billion).
  • Increase renewable energy (including biomass power generation, solar energy water heaters, and geothermal energy) investment by 2.5 trillion RMB ($357 billion)—a 39 percent increase from the 12FYP period.
Solar Energy Development
  • Expand solar use by cutting costs and improving technology.
  • Focus on development of distributed photovoltaics (PV) and PV plus application.
  • Strengthen international cooperation in solar energy technology and equipment manufacturing.
Wind Power Development
  • Shift development focus from promotion of large-scale base construction to low-wind-speed regions, such as east and south.
  • Add 80 million kW of national wind power capacity including 42 million kW of eastern and southern region land-based capacity.
Hydropower Development
  • Emphasize pumped storage and add 60 million kW of hydropower production.
  • Expand West-East Electricity Transmission Project capacity.
  • Achieve 100 million kW of hydropower generation.
Biomass Energy Development
  • Increase production of alternatives to fossil fuels from 35.4 million tons per year (2015) to 58 million tons per year.
  • Establish 160 pilot counties for biological gas and agriculture recycling, with particular emphasis on Central, East, and Northeast China.
Marine Renewable Energy Development
  • Construct demonstration bases for MW-level power grids, 500kW-level wave energy, and kW-level tidal energy.
  • Achieve total marine renewable capacity over 50,000kW.
  • Establish five independent marine power systems that complement wind and solar power.
  • Expand the application of marine energy.

Changing landscape

The themes and targets listed in China’s various energy industry 13FYPs reveal goals to improve nationwide sector efficiency, as well as newly-emerging commercial opportunities:

ChinaSolarPanels
China is promoting increased consumption of renewables, including solar energy, in efforts to gradually transition away from over dependence on coal

Increased clean and low-carbon energy consumption; emphasis on natural gas: Adjustments to energy industry structures will enable China to develop clean and low-carbon energy. During the current five-year period, China will increase non-fossil fuel consumption to more than 15 percent, raise natural gas consumption to 10 percent, and reduce coal consumption to less than 58 percent. The 2016 China Natural Gas Development Report indicates that natural gas will be China’s primary future energy source. NDRC and NEA have released several policies during the past six months regarding pricing, control, and management of natural gas, establishing further legal basis for natural gas industry reform. Recent State Council measures also outline new opportunities for foreign companies to participate in natural gas drilling and exploration, although implementation timelines are conspicuously absent.

Gradual transfer of wind and PV power to eastern and central China:   Declining traditional energy consumption, coupled with persisting distribution limitations, are creating a regional supply and demand imbalance. China’s major wind and photovoltaic (PV) energy plants are predominantly in northern and western China, requiring long-distance power transmission that risks degradation en route to Eastern and Central China. Chinese energy planners are making structural adjustments to overcome these challenges, as new policies seek to meet traditional energy consumption demand with renewables. The government announced that 58 percent of new wind power installations and 56 percent of new PV power installations will be in Eastern and Central China, with PV development emphasizing the distributed system and local consumption.

Reforms focused on electricity, oil and gas:   Greater emphasis on renewables will also require China to carefully control coal sector development to avoid overcapacity. China’s petroleum development and natural gas development FYPs outline reforms to the system of oil and gas exploration and development, as well as the expansion of pilot projects. China will seek to open up downstream business opportunities for oil and gas exploration, development, imports, and exports, providing improved access to pipeline networks and other infrastructure development. These highlighted oil and gas industry reform plans will offer future investment opportunities.

ChinaInternetPlusSmartEnergy
China’s “Internet Plus Smart Energy” campaign aims to improve energy efficiency by integrating cloud computing, big data, and the internet of things with energy production, transmission, storage, and consumption

Internet Plus smart energy:   China has also announced the planned development of an internet-based energy strategy. Outlining the Guidance on Promoting Internet Plus Smart Energy Development in 2016, NDRC will create smart energy infrastructure through development of a multi-energy micro-grid network and big data services. This Internet Plus Smart Energy plan will integrate cloud computing, big data, and the internet of things with energy production, transmission, storage, and consumption to create a more efficient system. The central government has announced various pilot projects for the next five years that develop these technologies. China has yet to announce detailed regulations on this plan, however, NEA’s Chief Economist, Li Ye, has predicted the creation of a large investment fund to finance development. The plan will offer new opportunities for distributed energy, micro-grids, energy storage, big data services, comprehensive service providers, and other related fields.

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