At the core of this reform agenda is a framework for China to make the necessary shift to a new development model that can foster sustainable drivers of growth. A future sustainable growth implies the utilization of locally available renewable energy sources as well as allowing China to power its economy in the years and decades ahead. In this context the “Global Carbon Project” undertaken by leading research institutes concluded in September 2014 that this year’s global CO₂ emissions will hit a new record high, mainly due to China’s growth. Accordingly, China’s carbon emissions are expected to rise by another 4.5% to 10.4 bln tonnes in 2014: more than the United States (5.3 bln tonnes) and European Union (3.4 bln tonnes) combined. Against this background, last year China consumed approx. 3.7 bln tonnes of coal, the main source of China’s carbon dioxide emissions, which is expected to rise further to 4.1 bln by 2015.

By the end of 2013, overall China was the number one country in terms of installed renewable energy power generation capacity in general (both including and excluding hydro), and the leader in installed hydro and wind power, geothermal heat and solar water heating in particular. In 2013, China added a solar water heating capacity of 44.7 GWth, accounting for approx. 80% of the global market. Next to Germany, China is home to the second-largest installed photovoltaics power generation capacities and third after the United States in terms of biopower. Last year, China’s accumulated installed renewable power generation capacity reached 378 GW and accounted for approx. 30% of total installed power generation capacity, allowing China to generate in excess of 20% of its electricity (1 trillion kWh), equivalent to approx. 10.6% (coal equivalent) of its final energy consumption. In terms of renewable energy investments, with approx. US$ 56.3 bln, China was not only the single largest investor globally, but invested more than Europe combined.

Recent wind energy developments in China

Prevailing grid bottlenecks, which remain one of the largest challenges for China to overcome in order to increase its uptake of wind energy, saw some alleviation over the course of 2013 and 2014. Nationwide the curtailment has been reduced 25% YoY, down to 11% for all newly installed capacity. This encouraging development was due to new infrastructure being built, halting project approvals for certain provinces and the decision of developers to move new installations from Northern China towards Central and Southern China where demand is higher, grid infrastructure more developed, and a more attractive FIT exists. This geographical shift also meant that developers would tap into low-wind and high-altitude areas and have more challenges in terms of gaining access to land. Average full load hours (a turbine’s average annual production divided by its rated power) increased to 2,046 hours in 2013 — 8% higher compared to 2012. Total wind generation increased 36% YoY, thus representing 3% of China’s total generation mix. Last year, China’s newly installed capacity increased from 14.5 GW in 2012 to 16.1 GW, thus accounting for 45% of all new installations globally. China retained its pole position as the world’s largest wind power market and the country had a cumulative installed capacity of close to 92 GW. According to the 12^th Five-Year Plan (2011-2015), China aims to have at least 100 GW of grid-connected wind capacity by the end of 2015. Earlier in 2014, the National Energy Administration (NEA) declared it envisaged a minimum of 18 GW of new capacity annually.

Recent Chinese developments in photovoltaics

During 2013 and up until September 2014, the central government approved a series of regulations underlining an increasing desire to further promote the deployment of photovoltaic applications across the country. As a result, in 2013, China experienced a massive boom in solar PV development, i.e. 13 GW (2012: 5.04 GW), which is equivalent to approximately one third of global photovoltaics installations. Notably, the government has enacted regulations designed to support distributed photovoltaics, in particular commercial and industrial rooftop systems. Additionally, along with the announcement of a revised FIT, effective since January 1st, 2014, the central government confirmed that the FIT will be granted for 20 years, thus significantly enhancing investment security.

China’s current regulatory landscape results in the usual year-end-rush, e.g. Q4/2013 witnessed the construction of approx. 6.4 GW of PV power plants, representing almost 50% of total 2013 installations. Against this background, according to non-verifiable sources, out of last year’s 13 GW of installations a significant share is already experiencing severe quality issues. A recently conducted site investigation led to these (non verified) findings below.  

Recent biomass development

During the last two years, several laws and regulations have been approved reflecting the government’s intention to promote the further development of the biomass sector. The general goal of the Chinese government is to support biomass energy development, the use of new technologies and the implementation of new demonstration projects. Moreover, there is the intention to improve the market mechanism in order to actively foster the growth of biomass enterprises. In late 2012 the State Council issued the “Bio-industry Development Plan”, and as a major sector, bio-energy is expected to promote the commercial development of bio-liquid fuel, bio-gas and biomass power generation. By 2015, the plan’s forecast consumption of bio-energy is to exceed 50 million tonnes of coal equivalent (tce), which shall thus reduce CO₂ emissions by approx. 95 million tons. As well, by the end of 2015, a total of 5 GW of biomass power generation capacity shall be installed. On May 28^th, 2013, the State Forestry Administration (SFA) issued the first “National Forestry Biomass Energy Development Plan for 2011 – 2020”, elaborating guidelines, basic principles, development goals and the layout for China’s forestry biomass energy development. The plan stipulates that by 2015, forest wood energy resources will reach 5.24 million hectares, and by 2020 it will reach 9.43 million hectares. By 2015, starch forestry will reach 1.02 million hectares, and by 2020 it will reach 3.13 million hectares. The main intention of the plan is to promote the development of forestry biomass to produce liquid and solid biofuel and power generation to replace part of the fossil energy, by cultivating all kinds of forest energy sources.

European company perspectives

European companies operating in China recommend increasing transparency and promoting a level playing field, locally and nationally, for both domestic and international companies in the renewable energy sector in China. In this context, over the last six years, European wind turbine manufacturers have experienced a reduction of their market share in China from more than 25% in 2008 to around 5% in 2013. As the industry is going through a consolidation process, and new rules and regulations are being implemented, maintaining transparency towards foreign-owned companies is considered essential.

Against the background that the National Energy Administration intends to support multiple GW of photovoltaic installations annually, in order to ensure a long-term sustainable operation of high-performing solar PV systems, the establishment of an independent, third-party inspection, acceptance, verification and monitoring scheme for installed photovoltaic systems is encouraged by European companies. This would help to ensure that only high-quality components are used during construction, that installed systems comply with relevant technical standards, and monitoring data could be used for supporting efforts in optimising plant designs.

Despite the Chinese government issuing a series of laws set to improve the internal market mechanism in the biomass sector, in order to have greater transparency, competition amongst different players and fairer market access, European companies, however, argue that much more needs to be done. Among others, amending the subsidy framework, enlarging the investment scale, setting up efficient supervision and monitoring mechanisms, and promoting the stable involvement of European companies within this sector are all areas where significant improvements are required.

Frank Haugwitz

The above article contains excerpts of the “Doing Business in China Position Paper 2014/2015”  published by the European Chamber of Commerce in China in early September 2014. In its nature it is an assessment of the present situation perceived by European companies and elaborates recommendations on how the respective business environment in China could be further improved.

The author is Director / Asia Europe Clean Energy (Solar) Advisory Co. Ltd. (AECEA)

contact: Frank.Haugwitz@aecea.com.de

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