China Formulates 10-Year Plan for Green Energy Future

Green Energy Future

The Chinese government has drawn up a new and ambitious 10-year programme to support its target of making clean energy account for 15% of total energy consumption by 2020. The programme was initially drafted in 2009 by groups of researchers, scientists, and officials under the supervision of Premier Wen Jiabao and Vice-Premier Li Keqiang. Under the plans the government will invest billions of dollars in the construction of nuclear power stations, wind farms, and solar power plants, as well as research into renewable energy technologies. Zhang Guobao, head of China's National Energy Administration (NEA) said the policy would offer more opportunities for global partners and that the plan would soon be made public.

China set the 15% target for clean energy consumption in mid-2009 in the run-up to the December conference on climate change in Copenhagen (Denmark), showing the world it was prepared to make serious investments to better regulate carbon dioxide emissions. Along with the 15% target, China revised its 2020 solar power capacity target from 1.8GW to 20GW, upped its 2020 wind generation target to 100GW, and announced that it hoped to have a nuclear generation target of 86GW by 2020. Although target revisions demonstrated China's intent to revolutionise its energy mix and government officials have even said the 15% target could be exceeded, details on how the policies are to be implemented have been less clear.

Nevertheless, a number of changes over the past few months suggest that the government is now addressing problems in the sector while formulating a strategy to achieve the 2020 target. A key way of making renewable energy more attractive is the introduction of feed-in tariffs. The government has already established a feed-in tariff for wind power, replacing the previous public bidding process for projects that had led to low bids and encouraged unprofitable projects. Standardised feed-in tariff rates in the wind sector have helped to foster clear expectations on returns from projects, encouraging investment in the sector. The government has also pledged to subsidise 50% of total investment in photovoltaic generation systems and power transmission facilities for on-grid projects, and 70% for off-grid projects, reducing costs for project operators. Under the original law passed in China grid companies would be compensated for the costs of attaching a renewable generator to the grid by a government-set surcharge on end-users. Recent amendments stipulate that end-users must pay the surcharge into a Renewable Energy Development Fund rather than directly to grid companies, thereby providing the government with a large pool of funds that can support the billions of dollars needed to invest in expanding generation and transmission capacity and financing research and development (R & D).

China has also moved to amend the Mandatory Connection Policy, which required grid companies to purchase renewable energy and connect it to the national grid. Because of the difficulties in connecting renewable energy, partially due to the surge in renewable generation capacity and the costs of upgrading infrastructure, the government now requires companies to purchase a fixed share of their generation capacity from renewable generation sources of a certain quality, and there are penalties for non-compliance. Details of how the targets will be set and verified still need to be worked out, but the move indicates that the issue is starting to be addressed. The Chinese government is also shoring up international partnerships in the renewable sector to encourage research into new technologies. In November 2009 a protocol establishing the United States–China Clean Energy Research Centre was signed, which will drive forward research into energy efficiency, developing clean energy vehicles, and researching clean coal including carbon capture and storage (CCS).

Outlook and Implications

With clean energy accounting for 9.9% of China's total energy consumption in 2009 the government's 15% target by 2020 looks realistic. The government looks likely to smash its 2010 target of generating 10% of total energy consumption from clean energy resources, and the rapid pace at which clean energy has grown over the past few years suggests that China is capable of adding large amounts of new capacity in a relatively short space of time. Further measures are expected to be put in place over the coming year to help renewable energy sources grow in the domestic market. A feed-in tariff on solar power could soon be launched, supporting existing subsidies for solar power projects. The feed-in tariff would support investor certainty, encouraging development of new projects to meet the expanded targets going forward. The government is also reportedly creating a legal framework to encourage grid companies to invest in upgrading and expanding their grids, which would tackle the transmission bottleneck issue by promoting investment in more remote regions of the country, where many large renewable generation projects are located.