GREEN GROWTH: FROM RELIGION TO REALITY - Sustainia

Chapter 7Despite the limited impact renewables will have onChina’s domestic energy mix, China’s domestic greenindustries are booming. China’s green firms enjoy manyadvantages: a large domestic market with potentialfor scale, cheap labor, an extensive electronics supplychain; as well as price supports, state-subsidized loans,and cooperation from local governments. China's windturbine and solar cell producers are already some of themost competitive in the world. China's solar industryhas enjoyed an annual growth rate of more than 100%for the past five years, and produced more than half ofthe world's photovoltaic cells in 2010 (SEMI, PV Groupand CPIA 2011, 6). Several of the world's leading solarequipment companies, such as Suntech Power, YingliGreen Energy and JA Solar, are headquartered in China.Similarly, China was the world's largest producer of windturbines in 2009 (Bradsher 2010), led by the state-ownedSinovel, the second largest wind turbine manufacturer inthe world in 2011 (Xinhua 2011). Industry experts arefinding that Chinese solar firms are contributing to thefalling prices of photovoltaic cells (SEMI, PV Group andCPIA 2011). The manufacturing scale advantage of Chinesegreen industries has the potential to lower globalequipment prices and hence reduce the costs of renewableenergy installations around the world.Yet China’s green industries are not the only onesbenefitting from China’s investment in renewable energy.Many foreign technology firms are also winningcontracts to provide equipment and services in China. In2009, American firm First Solar signed a memorandumof understanding with the Chinese government to builda sprawling, 2GW solar power field in Inner Mongolia(Daily 2009). In 2010, General Electric signed contractsto supply 88 wind turbines to HECIC New Energy Co.,Ltd, one of China’s leading wind energy developers, forthree new projects in Hebei and Shanxi Provinces (GeneralElectrics 2010). These are only two of many examplesof the many foreign firms participating in Chinesedomestic market for clean energy. Experience, learning,and scale gained from playing in the large Chinese marketcould also help these firms grow and bring costs down.Given the Chinese government’s long-term commitmentto renewables, it should be able to reach its 15%non-fossil fuel target by 2020, but the impact on total carbonemissions will likely be marginal.3.4 Ultra-high voltage transmission gridOne of the most important enablers of the continualgrowth of non-fossil fuel energy will be the ultra-highvoltage (UHV) transmission grid currently under construction.Grid connectivity and long-distance transmissionhave been two of the greatest obstacles to expandingrenewable energy in China. The majority of China's hydroelectric,wind and solar energy resources are locatedin western and northern regions, far away from the regionswhere energy demand is the greatest (State Grid2010). As might be expected, the regions where renewableopportunities are the greatest are also those in whichgrid networks are the weakest (GWEC 2011).6 Lack oftransmission capacity in part explains why a shocking30% of China’s wind generation capacity is not connectedto a power grid of any kind (Xinhua 2010b).To overcome the transmission bottleneck, the StateGrid, China’s largest transmission and distribution company,is building a new UHV transmission grid that isscheduled to be completed by 2020. By 2015, there willbe seven long distance, alternate current UHV transmissionlines, as well as eleven 800kV direct current UHVtransmission lines. Together these lines are capable oftransmitting electricity across a distance of more thantwo thousand kilometers, linking renewable energy resourcesin northern and western China to load centersin the east (State Grid 2010, 28; Zhang 2010b). The newUHV transmission grid will enhance the expansion of renewableenergy by providing access to new markets andstrengthening the grid's capacity to accept intermittentrenewable power. State Grid predicts that in 2015 thegrid will be able to accommodate three times more cleanenergy sources compared to 2005 (2010, 53). Less talkedabout, however, is the fact that this same UHV transmissiongrid will also expand the transmission capacity andreach of coal-fired electricity plants.3.5 Electricity pricing reformUnlike the market liberalization that occurred in otherareas of the Chinese economy, much of the energy sectorremains under heavy state control. While prices for petroleumand natural gas have been allowed to move moreor less with global prices, the government continues totightly control electricity prices for residential and someindustrial users. Electricity subsidies distort the marketand may prove to be one of the greatest obstacles to reducingenergy use and overall energy intensity in China.The price of energy inputs and retail energy prices areset by China's National Development and Reform Commission(NDRC), the main agency in charge of nationaleconomic policy. The NDRC has always been reluctantto raise utility rates, despite the fact that market-basedcoal prices have climbed precipitously due to China’sexploding energy demand. The average price of coal atQinhuangdao port, a major coal terminal in China, increasedfrom roughly US$60 per metric ton in early 2005to US$160 per metric ton at the height of energy pricesin 2008 (Morse and He 2010, 7). During the same period,there were only one or two modest electricity ratehikes per year, and not a single adjustment exceeded 5%.Chinese power producers and grid companies have beensqueezed between rising coal prices and state-controlledretail prices, often suffering huge losses. Rather than allowingelectricity prices to rise, the NDRC and othergovernment agencies have supported state-owned utilitiesand grid companies by helping them negotiate forlower coal prices, or in some cases, by offering governmenthand-outs to compensate for losses.Another problem with subsidized electricity prices isthat they may encourage residential and industrial usersto consume more energy than they otherwise wouldunder market-driven prices. This makes lowering emis-6 For example, the province of InnerMongolia, where the majorityof China’s wind resources is located,has an independent regionalpower grid and is not connected tothe rest of China. Consumers inInner Mongolia alone do not providesufficient demand to digestall the wind energy, and distantdemand from other parts of Chinacannot be satisfied with this supplydue to the lack of transmissioninfrastructure. Thus despite thatwind energy from Inner Mongoliais already cheaper than thermalelectricity produced in eastern andsouthern China, this cheap, cleanenergy cannot reach consumersand generation capacity is oftenforced to remain idle (Xin 2010).80