China’s bold initiative

Is the world’s largest

coal consumer,
in its bid to respond
to spiraling demand,
poised to become
the global leader in
renewable energy?

By Michael Totten

hina is constructing a new coal

C
plant every week and the electric-
capacity equivalent of a Three
Gorges Dam — 18 gigawatts —
every 16 months. The nation is
projected to surpass the United
States as the world’s largest emitter
of greenhouse gas (GHG) emis-
sions in 2009, a decade earlier than expected.
ISTOCKPHOTO.COM

And one of the most biologically rich rivers in

the world, the Yangtze, with an aquatic species
lineage that goes back 400 million years, is fac-
ing “ecological desertification” in the words of
one prominent Chinese scientist.

38 www.solartoday.org SOLAR TODAY

 Daily some 14,000 cars are added to already congested urban of coal, large-scale hydro and nuclear power plants pose an obvi-
roads, displacing millions of bicyclists. Pollution levels greatly ous barrier to the success of these goals? This question is espe-
exceed World Health Organization health standards, causing res- cially critical when recognizing the immense task of educating,
piratory illnesses to become chronic and smoky skies the norm. training and retooling the vast cadre of professionals essential
Most of China’s rivers are severely contaminated, and thick, for achieving this societal shift.
blackened waters emitting fetid odors now flow through the Encouraging signs, many newly emerging, lead a number of
wealthiest of China’s urban regions. Drought affects 66 million analysts to believe that positive changes are on the cusp of
acres of agricultural land, and desertification afflicts some 750 mil- reshaping the energy paradigm in China. This optimism is
lion acres of mainly grasslands, with winds whipping sandstorms due to several notable factors: increasing numbers of business-
that travel all the way to North America. Melting glaciers driven es, scientists and nongovernmental organizations advocating
by climate change threaten long-term water scarcity for 250 mil- for public policies, incentives and regulation enforcement that
lion people. accelerate implementation of these goals; an increasingly stri-
China’s past three decades of double-digit economic growth are dent civil society demanding cleaner air and water and less
incurring massive costs, calculated by the World Bank to be 8 per- industrial contamination; and the steep adoption curve of
cent of China’s annual gross domestic product (GDP). These costs
are projected to double by 2020, resulting in some $400 billion
in annual health and environmental damages — if business as
usual continues. But this bleak reality and even darker future are
being challenged by Chinese leaders. They recently have enact-
ed laws that, for the first time ever, set as the nation’s top prior-
ities aggressive pursuit of the 4Es (efficiency of energy, water,
resources and land), pollution prevention and waste reduction,
and rapid growth of renewable energy. China has set a goal of
reducing the energy intensity per dollar of GDP by 4 percent per

ANDREW KAELIN, AIS AQUA FOODS

year through 2010 (compared to the Bush administration’s goal
of 1.8 percent per year, roughly business as usual).
Are these ambitious laws and goals — which well exceed any
U.S. efforts — for real? More explicitly, don’t the entrenched
bureaucracy and national industries with vested interests in cap-
turing the $10 trillion of revenues from the planned construction

To fuel double-digit growth, China is constructing a new coal

plant every week. Shown, construction in the city of Wuhan,
Hebei, China, amid the ever-diminishing older neighborhoods.

digital technologies that enable rapid sharing and accessing of

knowledge resources. More than 350 million Chinese have
e-mail access, with this number projected to reach one of every
three citizens by 2010.
Although China’s new goals range from environmental
protection to aggressive efficiency efforts, let us consider just
”LUCKY” LU, AIS AQUA FOODS

two areas: energy efficiency and wind power adoption. These

examples offer a glimpse of the promise and the challenges rep-
resented by China’s goals.

Efficiency Gains Depend on Strong Policies

Given the colossal opportunities of the 4Es to deliver ener-
gy and water services at a cost several factors lower than much
Pollution levels greatly exceed World Health Organization health
standards, causing respiratory illnesses to become chronic and smoky of the current supply-expansion plans, one of the most excit-
skies the norm. ing changes afoot is several provinces’ adoption of integrated
”LUCKY” LU, AIS AQUA FOODS

Integrated resource planning and investment in energy-saving

technologies could help avoid half of the $10 trillion
China will spend on power plants built between now and 2030.

March/April 2007 39
 China’s Bold Initiative
JODIE ROUSSELL, ACORE
China has enacted laws to spur energy efficiency and rapid growth
of renewable energy, such as this photovoltaic manufacturing plant.
energy resource planning (IRP). For more than a decade, the
Energy Foundation (www.efchina.org) and the Natural Resources
Defense Council China program (www.chinacleanenergy.org)
have been building understanding among Chinese ministry
officials for implementing a more complete IRP process that
enables aggregated demand-side efficiency options to compete
with new power plants. Through this concept, an “Efficiency
Power Plant” (EPP) — a bundle of investments in energy-conserv-
ing technologies — fills the same power needs as a convention-
JODIE ROUSSELL, ACORE
al power plant by saving electricity rather than producing it.
Shanghai and Beijing provinces have joined Jiangsu province, the
first to innovate, in adopting IRP.
The fundamental strength of IRP with EPPs is the transparen-
cy it brings to decisions now often made without comparison of
costs, risks and benefits against the full portfolio of options. For
example, 60 percent of China’s electricity is consumed by indus-
trial drive systems — motors, pumps, compressors and fans. Util-
ity incentive programs in many U.S. states have shown that effi-
ciency upgrades to these systems can achieve 30 percent savings
at five times less cost per kilowatt-hour (kWh) than building new
generation to power the inefficient ones.
Worldwide, an initiative for transforming the motor market
would save 2 trillion kWh per year, equal to one-fourth of all coal
plants to be built through 2030, while reducing global energy bills
by $240 billion per decade. Chinese motor experts are fully
engaged in this process, hosting the 2007 conference of the
recently launched SEEEM initiative (Standards for Energy Efficien-
cy of Electric Motor Systems, www.seeem.org). Potential savings
in China are worth $100 billion per decade by eliminating the
need for 378 terawatt-hours of energy per year — equivalent to
63 EPPs each 1,000 megawatts (MW) in size. This initiative also
would avoid the shipment of 147 million tons of coal each year
in nearly 1.5 million railroad cars, prevent the annual release of
420 million tons of carbon dioxide and 2.3 million tons of sul-
fur oxide and nitrogen oxide pollutants, and eliminate the need
40
for 9.5 trillion gallons of water per year.
Spearheading the IRP/EPP regulatory innovation in China for
the Energy Foundation during the past six years has been David
Moskovitz, former commissioner of the Maine Public Utilities
Commission and cofounder of the Regulatory Assistance Project
(www.raponline.org). For nearly two decades, Moskovitz has
championed a paradigm shift in utility thinking, effectively turn-
ing many utilities’ opposition to efficiency into excitement for pro-
moting EPPs. This shift is achieved by departing from the tradi-
tional method of setting utility earnings based on revenue growth.
EPPs reduce revenues, hence earnings under the conventional
model. By decoupling earnings from revenues and allowing recov-
ery of lost earnings due to revenue declines, regulators give util-
ities an incentive for helping customers to capture EPP opportu-
nities. So although revenues go down, earnings increase, and
while customer utility rates increase to cover utility earnings,
their bills decrease.
Despite encouraging signs, China’s entrenched bureaucracy and
national industries with vested interests in conventional energy
sources threaten its new goals.
On the big picture level, IRP/EPP could help avoid an estimat-
ed half of the $10 trillion China will spend on power plants built
between now and 2030 to be operated over 30-plus years. How?
Given the anticipated fourfold growth in the Chinese economy
during the next two decades, including the projection for China
to build half of all new buildings in the world, there is every oppor-
tunity for regulators and policymakers to provide incentives for
this growth to promote radical gains in energy (and water and
resource) efficiency. Providing the incentives and technical assis-
tance for manufacturers to install high-efficiency motors, pumps
and compressors and produce higher efficiency goods; for builders
to design and construct zero-net-energy “green” buildings; and for
builders, retailers and customers to install the top 10 percent
most efficient appliances, lights, consumer electronics and office
electronic equipment, could reduce by half the electricity servic-
es otherwise provided by power plants powering inefficient
devices, equipment and buildings.
www.solartoday.org SOLAR TODAY
 Some $5 trillion in power plant construction costs could be
used for other purposes, with perhaps $1 trillion required as
incentives and technical assistance to achieve the savings invest-
ments and the other $4 trillion freed up from the utility sector for
additional economic activity. As importantly, this energy sav-
ings could avoid several times this amount in health and environ-
mental damages, including preventing 16 billion tons per decade
of carbon dioxide emissions and some 90 million tons of acid rain
and urban smog pollutants.
Although the figures are impressive, actual results hinge on
implementing not only a highly effective IRP/EPP regulatory
process, but one also reinforced by other key policy tools and reg-
ulatory actions. With China annually producing several hundred
million appliances and constructing 20+ billion square feet (2 bil-
lion square meters) of new buildings, the Chinese market needs
more stringent standards and effective enforcement mechanisms
and the transfer of more efficient technologies for appliances.
Introduction of international best practices in enforcement and
monitoring of standard compliances is also critically needed.
Unfavorable Rules Threaten Wind Adoption
In 2005 the Chinese government established a goal of achiev-
ing 30,000 MW of installed wind capacity by 2020. An increase
of 10,000 MW from the goal of just a year earlier, this goal raised
the targeted annual growth rate from 20 percent to 24 percent.
However, wind industry experts are confident that 170,000 MW
of capacity (generating about 340 TWh per year) is economical-
ly feasible. The 39 percent annual growth rate is achievable, they
argue, if utility pricing policies can be reformed.
The National Renewable Energy Laboratory (NREL) recently
conducted wind-resource mapping of vast areas of eastern China
at 50-meter (164-foot) height for the United Nations Environment
Programme (http://swera.unep.net). Roughly 4 percent of the
mapped land area had good-to-excellent wind resources (Class 4
to 7) that could support 580,000 MW of capacity at a conserva-
tively estimated 5 MW per square kilometer. NREL estimates the
windy marine sections could support more than 660,000 MW of
additional installed capacity. Including moderate wind resources
would quadruple these figures. More studies are required to accu-
rately assess the wind electric potential, considering factors such
as shipping lanes, water depth and the existing transmission grid
and accessibility.
A recent policy glitch has raised questions about the pace of
wind power growth. According to a new report jointly released by
the Chinese Renewable Energy Industries Association, Green-
peace and the Global Wind Energy Council, the current regula-
tory practice of pricing through public tendering is causing too
much uncertainty, price volatility and risk for wind developers,
investors and manufacturers (download “A Study on the Pricing
Policy of Wind Power in China” at www.gwec.net/index.
php?id=70). For a young industry to scale up significantly requires
a well-designed payment mechanism based on a realistic feed-in
tariff. China’s draft Renewable Energy Law gave every indication
that a feed-in tariff would be implemented, but that has not
occurred. Copies available for public comment in late 2005 stat-
ed that the grid price for wind power would reflect the “nominal
tariff of local de-sulfurized coal-fired power plants,” plus an incen-
March/April 2007
China’s targeted
39 percent annual growth
in wind power is achievable,
experts argue, if utility pricing policies
can be reformed.
tive of 2.8 cents (¥0.23) per kilowatt-hour. These incentives were
absent from the enacted law.
Wind farm concessions go to the bidder with the lowest price
and highest domestic content (the minimum was recently
increased to 70 percent). Almost all of the bidders in the recent
fourth round were state-owned companies whose bids were so low
that private and foreign investors did not want to invest. The low
bidding not only has slowed wind farm expansion, but also has
curtailed research and manufacturing of domestic turbines and
production of components.
Chinese manufacturing of wind components has been increas-
ing, but a huge gap remains between domestic and internation-
al technology, and Chinese companies are not yet capable of
large-scale production of wind turbines. Only one Chinese com-
pany, Xinjiang Golden Wind Co., has reached a significant scale
to date.
Another adverse impact of China’s current rules is that the gov-
ernment-set payment for wind power (i.e., the price decided by
a winning bid) applies to any other wind farms proposed in the
same region. As a result, unreasonably low prices resulting from
the bidding will affect even unrelated projects.
Speaking at the Great Wall World Renewable Energy Forum
2006 in October, Mark Raymont of the international law firm
Pinsent Masons identified five key changes in Chinese government
policy required to encourage foreign investment: a long-term
pricing/investment policy; reforms to the tendering (bidding)
program; a more transparent, more certain legal/regulatory regime;
flexibility in the approval regime for large-scale projects; and a
“level playing field” for foreign investors.
Expansion of wind power in China is also challenged by the
preferential treatment accorded large-scale hydro and nuclear
power. Requiring all options to undergo the transparent scrutiny
of an IRP process would demonstrate that wind is highly compet-
itive with many proposed hydro and most nuclear plants. China
plans 40,000 MW of nuclear capacity, which will probably deliv-
er electricity at 50 percent higher costs than would wind.
At the recent East Asia Investment Forum 2006, Xu Ding-
ming, deputy office director of the State Council Energy Lead-
ing Group, said that China will invest $100 billion by 2020 to
achieve renewable energy goals. Currently, this investment
focuses on bringing six times more new capacity from large-scale
hydropower than wind, despite wind being cost-competitive in
many cases. ●
Michael Totten, the senior director of Climate, Water and Ecosys-
tem Services at Conservation International, resides in Denver and
works in China. Contact him at m.totten@conservation.org.
41