China has Big Plans for Clean Energy
By Mykael Goodsell-SooTho
China has become a major player in clean energy technology — industrial capacity coupled with sound policymaking will support its growing influence in global markets for years to come. If the U.S. and other countries are to remain competitive, they must massively expand their commitment to clean energy innovation.
On Wednesday, President Trump’s 12 day visit to the Asia Pacific region will bring him to China, where energy trade between our countries is set to be a focal point of discussion. It’s no secret that within recent years China’s investment in clean energy technology has greatly outpaced the U.S., and a close look at its energy policy reveals that this trend is likely to continue. China has been particularly bold in its Five Year Plans (FYP) for energy development because of the energy sector’s importance in supporting economic growth and combatting climate change. During the years I spent in China studying the country’s energy policies and industries, I’ve witnessed how — unlike most of the proclamations that governments make on a daily basis — these FYPs can have sweeping impacts. If you can read beyond the standard propaganda, these plans offer valuable insights into China’s priorities and how it is positioning itself on the global stage. Here a few items that stood out to me in the 13th and most recent Energy Development FYP, which covers 2015–2020.
1. Stay Focused
China has established an advantage in clean energy by following a clear set of objectives across multiple consecutive FYP — many of the fundamental principles in the 13th FYP have carried over from the previous plans, including: “clean, low-carbon, green development”, “indigenous innovation”, and “energy efficiency and coordinated development”. Maintaining these long-term goals gives China a consistent and focused energy development strategy (by comparison, consider the U.S.’s shift from “energy independence” to “clean energy innovation” to “dominance” and “reliability” in a matter of a decade). By setting fixed energy goals, China has been able to continuously refine its approaches and capitalize on previous efforts. For example, keeping in mind “clean, low-carbon, green development” Chinese policymakers have been continuously monitoring non-fossil energy consumption as a benchmark — it is projected to reach 15 percent of the country’s overall energy consumption in 2020, up from 8.6 percent in 2010. This target, along with the country’s commitment to reach a carbon emissions peak at or before 2030 have been established as legally binding.
2. Keep the Benefits at Home
While most developing countries would look to simply purchase foreign technologies to meet some of their energy development goals, China is executing a plan to develop the relevant technologies, expertise, and supply chains within its own borders, and it is willing to use a variety of tactics to do so. “Indigenous innovation” has been a common theme since at least the 9th national FYP (1995–2000), and the indigenization of China’s wind turbine industry is a clear example of how the concept works in practice. In 2005, a government mandate was established that required all wind turbines in China to have at least 70 percent domestic content. Foreign turbine manufacturers, eager to remain in this burgeoning market, agreed to sign away some or all of their intellectually property to domestic partners, and at the same time a huge number Chinese turbine component manufacturing companies sprang up to take advantage of the new policy. Within 4 years, the market share of Chinese wind turbines in the country rose from 25 percent to 86 percent, and now China has a robust domestic industry and complete supply chain.
China is executing a plan to develop the relevant technologies, expertise, and supply chains within its own borders
But even in its 12th FYP, where China doubled-down on indigenous innovation, its policy leaders acknowledged that it wouldn’t be able to coopt all the necessary resources from foreign partners for all of the sectors it wished to develop. That FYP called for greater investment in human capital and domestic R&D infrastructure to sustain a truly indigenous energy operation in the future. The 13th FYP asserts that significant progress has been made in these areas, and recent long term plans developed by the National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) identify specific energy-related engineering feats China plans to overcome in the next decade. For example, by 2025, China hopes to become a world-class manufacturer of key nuclear grade components for advanced light water reactors, and recent reports indicate that some of its indigenously designed Hualong-One reactors under construction use up to 90% locally sourced parts.
3. Get it Connected
We all know about China’s dominance in technologies like wind and solar, and Third Way has already written about the country’s potential to dominate the nuclear industry in years to come. One area we might not be paying enough attention to is China’s ambition to be a global leader in smart grid technology. One of the hottest buzz words in China’s tech sector is “互联网＋”, which roughly translates to “Internet Plus.” Essentially, “Internet Plus” means using social media technologies and big data analytics to make industries they’re applied to more efficient. China has already begun transforming its transportation and health sectors with this approach, and it has the smart grid industry in its sights next.
One area we might not be paying enough attention to is China’s ambition to be a global leader in smart grid technology.
The 13th FYP identifies specific advanced grid infrastructure which must be made compatible with “Internet Plus”, including transformer stations, sensors, monitoring devices, and electricity metering and adjusting devices, all deployed in an integrated system. In August of this year, the NEA commenced a nationwide smart grid demonstration program which allocated 40 billion yuan (roughly $6 billion USD) to the construction of 55 first-of-a-kind smart grid projects throughout China. China’s focus on wind, solar, and nuclear technology innovation have allowed it to become a major player in those fields, and its emerging focus on smart-grid technologies signals its intent to dominate that field in the near future.
4. Be Revolutionary
Whereas the 12th FYP sought a “multi-directional” energy strategy which took a somewhat siloed approach to the development of coal, natural gas, renewables, nuclear, and other energy technologies, the 13th FYP emphasizes a need for an energy “revolution” that takes a more aggressive, coordinated approach, with even greater emphasis on clean energy and energy efficient technologies. It’s noteworthy that authors of the 13th FYP thought it necessary to describe this energy goal as a “revolution,” given how politically- and emotionally-charged that word is in China. This is a change since the 12th FYP, and clearly indicates that its commitment to clean energy has intensified.
The 13th FYP emphasizes a need for an energy “revolution” that takes a more aggressive, coordinated approach, with even greater emphasis on clean energy and energy efficient technologies.
However, China will not succeed in its revolution simply by continuing to build infrastructure at breakneck speed. For instance, much of the country’s deployed wind and solar capacity is located in the sparsely populated North West, and electricity generated there never makes it to coastal population centers because of inadequate transmission infrastructure and cross-provincial political disputes. Moreover, improvements in efficiency have caused energy demand to grow at a slower pace than anticipated, yet some provinces have been reluctant to slow the growth of coal plants seen as economic drivers. The 13th FYP seems to acknowledge the need for a more orderly revolution, putting higher value on a systems approach to development and things like smart grid for better integration. But they’ll need to solve some of the political challenges with provincial and local leaders if they want an efficient transformation.
If China can continue to leverage the financial and industrial resources needed to implement its energy policy, there is almost no question that it will continue to dominate in certain fields of clean energy technology. As it follows through on its commitment to develop indigenous innovation capacity, it will become more and more difficult for the U.S. and other countries to compete with China in clean energy markets, unless they are willing to invest heavily to expand their own domestic capabilities.
Mykael Goodsell-SooTho is a fellow for clean energy at Third Way. He studied U.S.-China energy relations at the Hopkins-Nanjing Center and was an analyst at the Nicobar Group, a Shanghai-based consulting firm specializing in market entry strategy and business development for international companies operating in the Chinese nuclear energy industry.