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Challenges, opportunities for China’s energy transition in new 5 year plan

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By Hui GAO

Earlier this month (March 2016) China finalised its 13th Five-Year Plan. It comes at a time when the world has seen significant changes and, as a result, transition and reform will be the main themes in the following five years, with a view to tacking the complex economic and environmental problems facing the country today.

From the climate and energy aspect, here are some key thoughts on the progress China has made in the past five years, the challenges China is facing and the measures that the new Plan adopts for unfolding the energy transition.

Progress Towards Energy Transition

China has generally exceeded its objectives in climate and energy aspects set by the 12th Five Year Plan, with the following highlights:

Energy structure improves, coal consumption declines, clean energy increases rapidly

In 2015, the total energy consumption equaled 4.3 billion tons of coal an increase of only 0.9 per cent compared to last year. Consumption of electricity increased 0.5 per cent, while that of coal decreased by 3.7 per cent. The consumption of coal amounted to 64 per cent of the total energy consumption, which declined by 1.6 per cent compared to last year. Clean energy, including hydro, wind, nuclear and natural gas, accounted for 17.9 per cent of the total energy consumption in China.

Green Industry has developed rapidly

With the government’s promotion policies, energy-saving and environment-friendly industries achieved rapid growth in 2015. Take the automobile industry as an example. The new-energy automobile industry made astonishing progress with output increasing by 161 per cent, while the production of ordinary vehicles dropped by 6.8 per cent.

In 2015, the wind and solar power industries in China saw increased development as well. Newly increased installed capacity of wind power throughout the past year was 32.97 million kilowatts, a new Chinese record. The total grid-connected wind power capacity rose to 129 million kilowatts, making up 8.6 per cent of the total. In 2015, newly increased installed capacity of solar power was 15.13 million kilowatts – equivalent to more than a quarter of the global total – meaning that the objective of adding 15 million kilowatts in this year has been accomplished.

Still a Long Road Ahead for the Energy Transition

Despite the progress, serious challenges for transitioning the Chinese economy and energy system remain.

Weakness in economic growth and problem of excess production capacity

The massive economic stimulation in the past years caused the overcapacity of `main high energy-consuming industries and overconsumed in advance energy and other resources. As a result, ordinary manufacturing industry generally has the problem of overcapacity and the energy-consuming industry falls into the recession stage as a whole. For instance, both the annual output of crude steel and cement decreased, by 2.2 per cent and 5.3 per cent respectively. The real estate industry, a major consumer of cement and steel, has reached the peak, with tremendous overstocks.

Still a huge dependence on coal

In 2015, the electricity consumption increased by only 0.5 per cent. Although the existing capacity for coal-fired power was excessive and its running hours continue to decline, the installed capacity for coal-fired power still grew by 7.8 per cent. The growth rate of the installed capacity was way higher than that of power consumption; the problem of overcapacity in coal-fired power industry is being intensified as a result. This trend is contrary to the policies of supply-side structural reform and overcapacity dissolution. Key reasons for this are:

  • Profit margin of coal-fired power rose – mainly due to the low price of coal and the relatively stable grid purchasing price – resulting in short-sighted profit-chasing behaviors of the power generation firms; and
  • The decentralisation of the right to approve environmental impact assessments for new power plants from national to provincial level. This resulted in local governments being urged to approve many new thermal power programs because of the underlying belief that investment boosts the economy. Newly increased installed capacity hit a record high.

Wind and solar power curtailment still remains a serious problem

China’s electricity dispatching and absorption mechanism does not match the speedy development of renewable energy. The rapid growth of installed capacity together with the curtailment of wind and solar power has aggravated this. In the wind power industry, the annual curtailment reached 33.9 billion kilowatts-hour and the average wind power curtailment rate was 15 per cent, up by 21.3 billion kilowatts-hour and 7 percentage points respectively compared with the previous year. So the electricity-dispatching mode needs reform, while the investment in developing and constructing of energy-friendly grid should be promoted.

Heavy industries drags the improvement of overall energy system efficiency

The overall efficiency of China’s energy system is still low, compared to economic potential and energy structure. In 2015, the energy consumption per 10,000 RMB of GDP went down by 5.6 per cent. However, the comprehensive energy consumption per ton of steel and per ton of cement only dropped by 0.56 per cent and 0.49 per cent respectively. This suggests that raising the efficiency of heavy industries can hardly further improve the whole energy system efficiency, only industrial restructuring and energy transition can.

Energy revolution is just unfolding

The Paris Agreement, reached by the UNFCCC COP21 at the end of last year, sets the goal of limiting global temperature rise to below 2 degrees, even 1.5 degrees compared with pre-industrial levels, and realising zero-net greenhouse gas emissions during the second half of this century. To achieve these goals, governments have to speed up their economic restructuring towards a low-carbon mode, which is largely based on the transition of energy from fossil fuels to sustainable, clean energy like renewables.

The good news is that China has further made sure of its direction towards an energy transition in the new Plan. For the first time, the objective of total energy consumption control has been written in to Five Year Plan. China’s total energy consumption will be limited to 5 billion tons of coal equivalent by 2020. Moreover, the new plan has an air quality index in urban area as a new KPI – that by 2020, for 80 per cent of the year, air pollution in Chinese cities should be not exceed the recommended air quality.

In response to bottlenecks in the development of renewable power, China issued a guideline for establishing a target system of renewable energy. It sets minimum goals for the provinces to exploit renewable resources. And, according to the new Plan, non-fossil-fuel energy will reach 15 per cent of the energy mix, which means the installed capacity of wind and solar energy will be doubled by 2020.

Summary

China should continue restructuring its energy system and developing in a low-carbon way, guarding against the impulse to stimulate the development of energy-consuming industries for short-term economic interests. The fact that China is suggesting it will offer more support to green and low-carbon industries in order to keep economic growth constant and to decrease fossil-fuel dependency can only be a good sign.

If the proposed emissions reduction targets in the national climate plan are fulfilled in advance of the 2020 deadline, China, as the world’s largest emitter of greenhouse gas emissions – will indeed be showing the world not only how it can be done, but that it can be done.

* Data cited includes the “Statistical Communiqué on the 2015 National Economic and Social Development” released by China’s National Bureau of Statistics, “Energy Statistics” published by China’s National Energy Administration and the “Blueprint of 13th National Economic and Social Development Five Year Plan”.

GAO Hui is the climate and energy officer at WWF-China, based in Beijing. hgao@wwfchina.org

Photo credit: Day Donaldson/Flickr

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