Facing China's Coal Future - IEA

© OECD/IEA 2012 Facing China’s Coal Future
Prospects and Challenges for Carbon Capture and Storage
Domestic financing options in China
China’s energy and industrial companies and capital markets, like those in the rest of the world,
to date are unable to fully support the additional costs and risks of large‐scale CCS
demonstrations. The Chinese government has made modest CCS RD&D commitments and has
considerable financial resources to support clean energy investments. However, in the context of
current economic, strategic and developmental priorities, China is taking a cautious approach. At
the same time, the Chinese government has made it clear that potential domestic financing
sources (described below) will need to be highly leveraged with international collaboration and
financing mechanisms, (Wan Gang, CSLF Ministerial). International know‐how and technology
transfer are also critically important and should accompany any financial support.
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The state budget and related measures
The energy sector is a strategic priority in China, and the government has set ambitious targets to
improve efficiency of its coal fleet, further develop nuclear and renewable energy, and enhance
energy efficiency. In 2009, China was first in the world in clean energy investment with
USD 34.6 billion, nearly double the US total of USD 18.9 billion (Pew Charitable Trusts, 2010).
Because most of China’s energy and large industrial companies are state‐owned enterprises, the
government is able to significantly influence the adoption of certain technologies through its
central planning, policies and state budgets. Clean energy policies are largely driven by the
central government and enacted through various national, provincial and local government
programmes.
In addition to state budget support for CCUS RD&D, incentives or subsidies offered for renewable
energy (i.e. subsidies, tax incentives, low‐interest or interest‐free loans, pricing mechanisms such
as power purchase agreements or feed‐in tariffs, etc.) could be tailored for CCUS. There is no
official indication that the Chinese government has considered using incentive tools available for
renewable energy, for example, to promote CCS; however, it is worthwhile to highlight key
elements of their approach to renewables.
The Renewable Energy Law of 2005 was the key piece of recent legislation that mandated
minimum deployment levels (i.e. gigawatts of capacity by a target date). It supported these goals
with the establishment of a renewable energy subsidy raised by charging a fee to all electricity
users in China of about USD 0.029 per kilowatt‐hour (kWh). The fee, originally based on the
incremental difference between coal and renewable energy (USD 0.044 to USD 0.059 per kWh),
goes to electricity grid operators that must buy renewable power from project developers. Thus,
the cost of renewable energy development and deployment in excess of conventional coal‐fired
power is passed on to all customers as a surcharge to retail power prices. In 2009, the Renewable
Energy Law was amended to require electricity grid companies to buy all the electricity produced
by renewable energy generators. The national government provides incentives for grid
companies to connect to renewable energy projects, and those who do not comply face
significant fines (Campbell, 2010).
To further highlight the opportunity for CCUS under a similar renewable energy policy, a 400 MW
IGCC facility with CCUS would require a tariff of USD 0.112/kWh to achieve a market financial
return. (ADB, 2011) (Table 5). The required tariff is 23% higher than tariffs currently available for
wind power in China (approximately USD 0.09/kWh).