China Announces Renewables Quota, But Is It Enough?

On March 3rd, the National Energy Administration released “Guiding Opinions on Establishing Renewable Energy Portfolio Standards,” which set renewable energy consumption targets for China. The country aims to rely on renewable energy for 15% of total primary energy consumption by 2020, and 20% by 2030. Non-hydro renewables should produce 9% of consumed electricity by 2020. The Opinions break down the non-hydro renewable electricity consumption requirements for each province and region, shown below.

Region Region
Beijing 10% Hubei 7%
Tianjin 10% Hunan 7%
Hebei 10% Guangdong 7%
Shanxi 10% Guangxi 5%
Inner Mongolia 13% Hainan 10%
Liaoning 13% Chongqing 5%
Jinan 13% Sichuan 5%
Heilongjiang 13% Guizhou 5%
Shanghai 5% Yunnan 10%
Jiangsu 7% Tibet 13%
Zhejiang 7% Shaanxi 10%
Anhui 7% Gansu 13%
Fujian 7% Qinghai 10%
Jiangxi 5% Ningxia 13%
Shandong 10% Xinjiang 13%
Henan 7% Total 9%

Based on the government 2020 forecasts for power consumption and renewable energy capacity, we made a few simple calculations.

2020 Installed Capacity 2020 Annual Use-Hours 2020 Generation
Wind 250 GW 1728 hours 432 TWh
Solar PV 160 GW 1133 hours 181.3 TWh

Sources: Renewable Energy Development 13th Five Year Plan (Draft Version); 2015 wind and solar generation statistics, NEA

Graph assumes 2020 generation patterns are similar to 2015. 2020 annual generation=Installed capacity*utilization hours. Annual use-hours (利用小时) is derived by dividing total generated electricity over the course of one year (GWh) by the total capacity of the generation fleet (GW). 

Assuming that the overall capacity factors for wind and solar in China don’t change from 2015 levels (I’ll get to that in a moment), wind and solar together are expected to produce 613 TWh annually in 2020. The National Development and Reform Commission anticipates that the entire country will consume 7390 TWh in 2020, meaning that solar and wind generation would comprise about 8% of the total. Once you factor in biomass and other non-hydro renewables, you can just about expect to meet the Opinions’ target of 9% renewable electricity production nationwide by 2020.

Is it Ambitious Enough?

While the target earns marks for realism, it struggles to make the grade in terms of ambition. We based our above calculation on wind and solar consumption for 2015. Thing is, wind and solar consumption was disastrous last year. Average solar and wind curtailment reached 10%, with some regions experiencing curtailment rates exceeding 30%.

Additionally, experts are mixed in their assessment of the strength of the new policy. Back in 2012, aware that existing mechanisms wouldn’t be enough to drive renewable energy consumption, the NEA drafted policies establishing renewable energy consumption targets, called the “Renewable Energy Quota Management Method.” The policies included robust assessment and enforcement mechanisms, but due to conflicts of interest, the policies never went into effect.

The newly-announced energy consumption policy published this month cover many of the same topics, but is believed to be pretty weak in comparison with the 2012 draft proposal. Industry players have even dubbed the new rules “Renewable Energy Quota Lite.”

The new energy consumption policy does suggest the creation of a “green certificate” trading mechanism, which would allow utilities unable to meet their renewable energy consumption targets to trade with utilities who consume above their own target. It’s an interesting idea, but it lacks an existing management mechanism, and it doesn’t get to the heart of the problem – that China’s dispatch rules, transmission infrastructure, and regulatory support for distributed energy are still inadequate.

Regulatory gridlock notwithstanding, the government has attempted to address this problem through a variety of channels:

1)       Promoting local consumption

Given that renewable energy resources are concentrated in China’s north, the National Energy Administration has been eager to encourage communities in that region to consume locally-generated renewable energy. To do so, the government has expanded direct electricity trading provisions for large consumers.

The results from this effort have been mixed, due to the fact that these areas have very few load centers to begin with. Even local consumers that do directly consume renewable energy often do so in a package deal that includes coal-fired generation to manage wind variability. In reality, these consumers are still buying very little power from renewable sources.

2)       Power-to-gas

One option that has been under examination since 2012 has been power-to-gas, in which electricity is used to power hydrogen reformers. This hydrogen can then be transported to load centers via traditional pipelines. A number of influential organizations have begun research or demonstration projects in power-to-gas, including State Grid, Shenhua Group, and China Energy Conservation and Environmental Protection Group.

This method faces challenges as well. A stable hydrogen market is a prerequisite for commercializing power-to-gas, and such a market does not yet exist in China. Additionally, pipelines are firmly under the control of China’s oil companies, who so far have not been proactive in exploring this business model.

3)       Energy storage

Combining energy storage with wind and solar production has already drawn significant attention in China. But regulatory barriers still stand in the way of making it a commercially-viable solution.

Let’s take a hypothetical lithium-ion battery energy storage system priced at 3000 RMB (US$460) per kWh, including all supporting equipment. If the battery operates to spec for 3000 cycles at 80% DOD, can the numbers pencil out?

The short answer is no. Such a system would have a lifetime cost of 1.04-1.25 RMB (US$0.16-0.19) per kWh discharged. China’s current feed-in tariff compensates wind generators at a rate between 0.47 and 0.54 RMB (US$0.07-0.08) per kWh. At these rates, generators using energy storage to store wind-produced electricity during times of grid congestion face the hard math that storing electricity costs more than it earns when fed into the grid.

Now, this math changes when those batteries can be dispatched to provide other services, particularly ancillary services to the grid. China’s ancillary services markets are still focused on generator responsibility, and are not yet open to the value that energy storage technologies can provide.

China’s grid is an institution with enormous inertia, so changes are bound to be slow. Nonetheless, we expect that China’s support for energy storage as an emerging technology and its concurrent power sector reforms are a positive signal that changes are on the way.

University of New South Wales Partners with Chinese Torch Program

Australia and China are embarking on a decade-long collaboration effort to spark international energy and environmental innovation.

In a meeting on March 1, 2016, a leadership delegation from University of New South Wales met with representatives of the Chinese Ministry of Science and Technology’s Torch Program in Beijing. The two organizations aim to establish long-term research and development partnerships between UNSW and Chinese businesses through the development of an Innovation Precinct at the university. The meeting also included representatives from Chinese businesses in the fields of energy and environment, new materials, and biotechnology.

The Torch Program, established in 1988, strives to promote technology transfer and the commercialization of innovative technologies by developing international partnerships and high-tech industrial parks in China and around the world.

The Chinese program dovetails with UNSW’s recently announced 2025 Strategic Plan, which includes among its initiatives the development of a A$50 million Innovation Precinct. According to UNSW’s innovation statement released last year, the precinct “will bring together industry, small to medium sized enterprises (SMEs), entrepreneurs, investors and policy makers from around the world.”

As part of the proposed collaboration, the university is offering special services to international companies in exchange for industry investment in the university, according to Laurie Pearcey, director of international strategy for Greater China and India at UNSW.

The university is offering rent-free office space for international companies on the university's campus, as well as access to a team of business development advisers to help support the companies in their bids to enter the Australian and New Zealand markets.

At the heart of the program is the opportunity for collaborative research between UNSW experts and industry researchers. This collaboration is undergirded by the university’s commitment to provide full-ride scholarships for PhD students selected by industry partners, opportunities for permanent residency visas, and an innovative IP sharing scheme.

The IP sharing mechanism, called Easy Access IP, is designed to hasten commercialization of university-developed technologies via partnerships with industry. UNSW offers free IP licensing to select companies that invest in the university’s research efforts. As long as the companies allow continued university research, acknowledge UNSW as the inventor, and put the technology into use within three years, the university grants these companies permanent licensing to university IP.

Pearcey emphasized that UNSW is internationally recognized as a research leader in renewable energy, having set numerous world records in solar cell efficiency. The university also has top-tier facilities used to simulate solar cell manufacturing, and boasts its status as a national leader in providing research grant funding for collaborative research projects.

The formal partnership between the Torch Program and UNSW is expected to be signed in April, and the first round of industry partners will be announced in the third quarter of 2016.