Transition to Renewable Energy

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Adopting a new approach to market pricing and the development of competitive markets for power generation has been adopted in a few selected regions which included the creation of three different tariff systems for generation, transmission and distribution.

The main focus of these reforms was to supply the needs of the fast growing industry sector, although a significant increase of power demand in domestic households was also noted. The reforms targeted promotion of the existing coal market with a focus on price reduction and financial efficiency. All five big state power corporations did have a limited investment in hydro plants during the first years of the 21^st century, but a promotional framework for renewable energy was still missing. To sum up China‟s energy strategy in the years since the beginning of the reforms it is clear that the main focus has been towards simply increasing the production of energy.

1.2. Transition to Renewable Energy

This paper focuses on China‟s efforts to create a significant and sustainable renewable energy market with a specific focus on its solar energy market and industry. As we have seen above, the rapid development process which the country has undertaken has left little room for young

advanced technologies to penetrate the market. 2004 however, saw the beginning of a gradual shift with environmental policy giving higher attention to energy efficiency and energy conservation.

Starting that year the development of various forms of renewable energy has been receiving growing attention and significant efforts have been made towards promoting various new technologies.

The main reasons for which China has developed real interest in renewable energy falls under three main categories: energy security and optimization of the energy mix, environmental concerns and social and economical development goals for rural areas.

1.2.1. Energy Security and the Optimization of the Energy Mix

As mentioned above China has created a reliance on imported energy during the 90s when

becoming a net importer of oil and gas. This situation has forced the country to spread its economic and diplomatic presence to wherever there is untapped supply. It has also led Beijing to pursue close diplomatic ties with countries that in many cases hold foreign policies that rival most developed countries. (Zha, 2006) Chinese companies have only a short history of dealing with the

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political risks of venturing into foreign markets and in some cases have been rejected and blocked from participating in development of oil fields.

As the world has experienced two oil crises within the last 50 years, the significance of developing a more self reliant energy market has become a priority. The list of possible reasons for the 2003-8 oil crises includes political tension in the Middle East as well as reports showing a decline in petroleum reserves and oil peak speculations. Middle Eastern countries have been and will likely continue to be China‟s largest source of energy. China‟s eagerness to develop relations with Middle Eastern countries has been the trigger for political conflicts with some EU countries and The US.

An example for the challenges presented to China by maintaining good relations with its

international oil suppliers is its relations with Iran, China‟s third biggest oil supplier, as its nuclear aspirations causing political tension between China and the US. (Liu et al, 2010)

Since the first major oil crises in 1973 governments have been continuously trying to assess the exact amount of exploitable petroleum reserves in order to estimate the maximum rate of global petroleum extraction. Based on the Hubbert peak theory (1956), once that point is reached

petroleum production is expected to go into a constant stage of decrease. In 2010 the International Energy Association acknowledged that conventional crude oil production has peaked in 2006 and that gas production is expected to peak around 2035. (IEA, 2010¹) With that in mind, countries around the world are preparing themselves for an efficient transition into a new energy consumption era.

Li and Woodrow have depicted (2010) the path China has gone through, from self reliance to market dependence. They claim that the new stage in its policy making calculations is the transition to green energy: “China‟s deep sense of its energy insecurity and vulnerability is changing its development policy towards clean and renewable energy... (it) is trying to rely primarily on

domestic resources while strengthen mutually beneficial international energy cooperation.” (pg 18)

1.2.2. Environmental Concerns and Climate Change

In July 2007 a report by the PLB Netherlands Environmental Assessment Agency declared that China has for the first time surpassed the USA to become the world‟s largest emitter of greenhouse gases. In the last two decades it has become a scientific consensus that global warming is an

occurring phenomenon that is caused mostly by increased global greenhouse gas emissions, inflicted by human activities such as burning of fossil fuel and deforestation. Although the direct results of the world‟s climate crises are difficult to assess, likely effects are expected to be the rise

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of the sea level, flooding of many coastal cities, more frequent extreme weather events and the expansion of desertification processes.

Figure 1.2 World’s Five Largest CO2 Emitters (thousand metric tons of CO2) Source: United Nations Statistics Division (2011)

http://mdgs.un.org/unsd/mdg/SeriesDetail.aspx?srid=749&crid= last visited on March 4, 2011

As shown in figure 1.2 China‟s CO2 emissions have almost doubled within a span of five years, jumping from 3,684 metric tons CDIAC in 2002 to 6,538 in 2007 and 7,706 in 2009. China holds about a quarter of global CO2 emissions and has been accounted for two thirds of the 2007 global carbon emission increase of 3.1%. (PLB, 2008) The EIA 2010 forecast and analysis has predicted that China‟s share of the total global emissions is expected to continue increasing and reach 31% by the end of 2035. (EIA database)

With climate change receiving unprecedented attention in recent years China has been experiencing growing criticism from the international community concerning the environmental price claimed by its rapid economic growth. Much of that criticism addresses the extent to which China should take measures to reduce its CO2 emissions. It has been shown that economic development in the past two centuries has gone hand in hand with the deterioration of the ecological system as a result of environmental unfriendly technologies. It is therefore a great challenge for China and other developing economies to ensure similar rates of GDP growth along with transition to greener technologies. It is important to mention in this context that although China is the world‟s largest emitter, its emission per capita still measures below the world average.

Chinese leadership is aware of this environmental challenge and in 2007 the National Development and Reform Committee (NDRC) has came up with a national climate change program. The paper

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provides key policies and measures to be approached directly by the government. The optimization of the energy mix by developing renewable energy is of course listed under efforts to mitigate climate change but interesting enough it came only second behind efforts to improve traditional energy efficiency. Through the discussion on solar energy markets in China this paper will treat the challenges of transition from existing technologies of energy production to new advanced

technologies.

1.2.3. Social and Economic Development Goals for Rural Areas

China, more than any other country, represents the trend of urbanization and expansion of urban industrial service sector in the expense of rural areas. China‟s rural society is estimated at around 55%

of the total population, a rapid decrease from an estimated 98% in the early days of the PRC. It has been indicated by Chinese leaders that the rising gap between mostly rich urban and mostly poor rural citizens is one of the most serious challenges for modern china today. Whereas a small number of coastal provinces and the special development zones in south eastern China can be mostly

attributed to China‟s growth rate, many regions have lagged behind.

In order to initiate a more rapid development of rural hinterland, the central government has taken three leading measures: liberalization of the land tenure system in order to protect land owners from land rights extortion; a more pragmatic rural-urban migration and hukou system of household registration in order to better canalize human resources; a large scale infrastructure project which includes railways, water channels, reservoirs, roads and electrification projects. (Heilig, 2003) Within the span of 50 years, China has increased the population with access to electricity from roughly 40% in the 50‟s to 95% in 2004. This however leaves 9 to 22 million people in remote areas without access to electricity. (To, 2009) In areas where connection to the main electricity grid is not viable China focuses its efforts on renewable energy projects. Unlike the National level in which energy generation heavily relies on coal, local generation in china‟s rural areas has been dominated by small hydro projects which amounts to over half the production. The next most common energy production form is thermal power which plays an important role in ensuring stable supply. In order to promote sustainable development that is both economically viable and socially acceptable authorities are pursuing for measures that will be less destructive towards the

environment. Renewable energy is expected to play a key factor in assuring sustained utilization of natural resources for generations to come.

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Figure 1.3 Components of China’s Renewable Energy Development Objectives and Correlations Source: Shi Dan, 2010 China’s Renewable Energy Development Targets and Implementation Effect Analysis, in

The Globalization of Energy: China and the European Union, pg. 204. ed. M. Parvizi Amineh and Yang Guang.

(Leiden: Koninklijke Brill NV)

The substitution of fossil energy and optimization of energy structure is a goal shared by all countries. China perceives that the establishment of a renewable energy industry is a must if it wishes to protect its national interests within the global competition in renewable energy

development. As shown in figure 1.3 below, energy development in rural areas and the creation of a renewable energy industry have a supportive relation to the main goal, which is substitution of fossil energy and the optimization of energy structure.