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The implications of the low carbon transition for the power industry are broad and far-reaching. China should vigorously prepare for the age of large-scale applications for renewable energy, write Wenjuan Dong and Ye Qi. The Chinese version of this piece originally appeared on Caixin.com. This English version was translated by Jack C. Glasgow.
Large scale renewable energy deployment is core to China’s energy transition. Although China’s electric power consumption will continue to increase in the long-term, its consumption increases have started to decelerate since 2012. This has become a key moment for China’s transition to low-carbon energy and power industries. In recent years, electric power sources have become diversified, while thermal power has become cleaner; the increasing share of renewable energy has become a clear trend. In 2017, renewable energy encompassed 36.6% of China’s total installed electric power capacity, and 26.4% of total power generation. According to Energy Production and Consumption Revolution Strategy 2016-2030, by 2030, 50% of total electric power generation will be from non-fossil energy sources, including nuclear and renewable energy. Renewable energy will shift from meeting new electricity needs to replacing existing electricity needs that have been traditionally satisfied by thermal power productions. It is expected that renewable energy will become the main power source by 2030.
In recent years, annual proportion of renewable energy in new installed capacities have gradually increased. In 2017, renewable electric power capacity (including mid-to-large sized hydropower) stood at two-thirds of the power industry’s new installed capacity. This set a new record, after renewable energy encompassed to surpass 50% of the new installed capacity in 2013. New installed solar power capacity stood at 53.1GW, which was over half of the global new solar power capacity. At the same time, new installed wind power capacity stood at 15 GW, taking approximately one-fourth of its global new installed capacity. Additionally, hydropower and biomass power stood at 12.9 GW and 2.7 GW, respectively. China’s power industry’s installed capacity increase remains at a significant pace, while there is a clear trend towards low-carbon power compositions (Figure 1).
The replacement of thermal power by renewable energy can be more clearly observed from an investment perspective, under which the share increase is even faster. Total investment in the power sector in 2017 stood at RMB 765.4 billion (USD 113.4 billion), of which 85% of the investment (USD 96.6 billion) went towards renewable energy (Figure 2). Even without counting investments in mid-to-large sized hydropower systems, renewable energy still stood at 77% of the total electric power investments. Divided by types, wind and solar power investments encompassed 18% and 48% of the investments in power sector in 2017. While renewable energy investments have continued to increase, thermal power investments have shown a trend of decrease. Meanwhile, conventional hydropower development in the late 12th-Five Year Plan period have become saturated, causing hydropower investments after 2013 to quickly contract. It is therefore evident that China’s energy transition strategy and renewable energy support policies have effected very pronounced investment directions. In addition, cost decreases in renewable energy also had a stimulating effect to the associated sector’s investments.
From a power generation perspective, however, the severe impact of renewable energy on newly added electricity has not increased steadily. In terms of total power generation, renewable energy’s increase has also been slow. Figure 3 shows that renewable energy investments, as part of total electric power investments, have entered a stable growth trend; while post 2007, its share in new installed capacity has also been in a generally increasing trend. Yet, its fluctuations in electricity replacement have severely increased. In 2015, in addition to meeting new electricity demands, renewable energy, for the first time, began to replace thermal electricity stores. However, in 2016 this trend experienced a great reversal; until 2017, renewable energy share of new electricity generation has dropped to 34.1%. Under the current economic growth slowdown and power supply surplus, these fluctuations reflect the tension and polarity between the thermal power and renewable power industries. They also reveal the difficulties of the national energy transition strategy at the local levels.
Associate Fellow - Brookings-Tsinghua Center for Public Policy
Director, The Climate Policy Initiative
Former Brookings Expert
The challenges of low carbon energy transition also exist in the curtailment of hydro, wind, and solar power. Renewable energy curtailments have rapidly increased from 2010; by 2016, when the curtailed electricity having reached 104.6 billion kilowatt-hours, it was equivalent to double the annual electricity consumption of Peru. China’s wind power, on the other hand, stood at half of the generation of that of the United States in 2015 (Lu et al., 2015). Electricity curtailment already has created tremendous economic and energy loss. With wind curtailment as an example: In 2016, wind curtailment caused economic damage valued at RMB18.7 billion (USD 2.8 billion) to wind power plants; if the curtailed wind electricity were to replace coal-fired power production, 42 million tons of carbon dioxide plus millions of tons of atmospheric pollutants would have been reduced. Aside from losses incurred from renewable electricity curtailments, nuclear electricity loss also approached 46.2 billion kilowatt-hours, at a curtailment rate of 19%, which was equivalent to seven nuclear units being suspended for an entire year (Lin, 2017).
Figure 1. Installed Electric Power Capacity and Growth (1980-2017)
Figure 2. China’s power sources and investment composition (2005-2017)
Figure 3. Renewable energy’s increase in power generation, installed capacity, and investment (1980-2017)
Figure 4. Curtailed hydro, solar, and wind electricity & annual increase in renewable electricity (2010-2017)
Sources: China Electricity Council (CEC); National Energy Administration.
Note: (1) Curtailed hydropower from 2010-2016 are sums of the capacity from Sichuan and Yunnan, with data from Sichuan being only included in the main network of unified hydropower stations; data for 2017 is nationwide total. (2) Curtailed solar power for 2015 and 2016 are a sum of the five provinces of Northwest region; data for 2017 is nationwide total.
Increasing the utility of renewable energy has already become the key to China’s low carbon power transition. If curtailment problems can be readily solved, renewable energy will become more apt to meet the growing electricity needs (Figure 3). With the example from 2017, if renewable energy curtailments were to be resolved, then its share in meeting new electricity needs will raise from 37.8% to 63.4%. Similarly, it will increase its share of total electricity generation by 1.6% (from 26.4% to 28.0%). In reality, however, renewable energy’s share of total electricity generation only increased by 0.7% in 2017. If utility from curtailed nuclear electricity were added to the calculation, non-fossil electricity production’s share as part of total electricity production would have increased by 1.9% (from 30.3% to 32.2%). In considering China’s non-fossil generated electricity having increased by 1.1% in 2017 compared to the previous year, electricity curtailment problems have caused a tremendous utility loss. In addition, if renewable energy and nuclear electricity curtailments were to be effectively mitigated, the coal use for thermal power generation would have been reduced by 37.68 million tons, which is equivalent to 100 million tonnes of carbon dioxide emissions reduction. An increase in renewable energy utility can save from environmental damage and carbon reduction inefficiency.
Globally, renewable energy is progressing towards more competitive pricing against other power sources. Technological innovations have sped up the cost reduction of renewable energy, while bidding prices have continued to drop to new lows. In many solar energy resource-rich countries (e.g., Chile, India, etc.), solar energy has become the cheapest among all newly installed power sources. Germany finished its first round of renewable energy bidding in 2018, setting its price objective at an average of 4.73 Euro-cents per kilowatt hour for wind power, while for solar power at 4.33 Euro-cents – all lower than the average purchase price from grid companies. The government of the Netherlands has also just finished bidding for the world’s first non-subsided offshore wind power project, with an estimated operational year beginning in 2022 (the project plans to introduce a floor carbon price of € 18/tonne). In the most recently concluded Third Photovoltaic venture base bidding in China, the bid price for electricity continuously came in new lows. For example, the last two bids for cities Golmud and Delingha, both in Qinghai, came in at 0.31 RMB per kWh, which is even lower than the 0.3247 RMB per kWh price for on-grid desulfurized coal-fired electricity.
To improve utility for renewable energy, in realizing the 2030 non-fossil fuel electric power production target, we recommend the following public policy changes.
- Make room for development for renewable energy. Considering the duration of electric power projects, except for specially designated coal-fired power programs that can be approved by appropriate central government commissions, new construction projects for coal-fired power should be disapproved by the National Development and Reform Commission. Financial institutions will also cease funding for these projects.
- The Ministry of Finance should quickly resolve the subsidy gap for renewable energy, which has already reached 100 billion RMB (USD 14.8 billion) by the end of 2017. Continued renewable energy developments should be supported.
- Promote the implementation of the quota system proposed by the National Energy Agency to aid renewable energy development, establishing a solid institutional foundation for the low-carbon transition in the power sector.
- Continue to drive power market reforms by building regional spot market and auxiliary service markets. Utilize market forces to resolve electricity curtailment problems, and to more effectively allocate resources.
- Improve the carbon market quota system to stimulate power industry’s preference for renewable energy. The effort will drive the industry to become more proactive in raising its share of renewables.
The implications of the low carbon transition for the power industry are broad and far-reaching. China should vigorously prepare for the age of large-scale applications for renewable energy.
 To be consistent with the statistical calibers in the Chinese government’s policy documents, the definition of renewable energy in this article uses the definition used in China. The only difference between this definition and the definition of renewable energy widely used internationally is that it also includes large and medium-sized hydropower (50 MW and above).
 Thermal power includes coal-fired, gas, and oil powers. Since coal-fired power accounts for about 93% of installed capacity and 95% of power generation in China’s thermal power industry, hereafter thermal power mainly refers to coal-fired power.
 Calculated according to standard coal.
Dong, Changgui, Ye Qi, Wenjuan Dong, Xi Lu, Tianle Liu, and Shuai Qian. 2018. “Decomposing driving factors for wind curtailment under economic new normal in China.” Applied Energy 217: 178-188.
Lu, Xi, Michael B. McElroy, Wei Peng, Shiyang Liu, Chris P. Nielsen, and Haikun Wang. 2016. “Challenges faced by China compared with the US in developing wind power.” Nature Energy 1, no. 6: 16061.
Lin, Chunting. 2017. “Nuclear electricity curtailment caused about 20 billion RMB losses of power plants.” Yicai. Accessed April 5, 2018. http://www.yicai.com/news/5244152.html.